ESG investing Top three ESG investment themes
Renewable energy and energy efficiency, climate change adaptation and mitigation, and cybersecurity and data privacy are some of the key investment themes
We sponsored The Economist Intelligence Unit to survey 450 investors. Here’s what they told us about their preferred ESG investment strategies.
Q: Which of the following sustainability-related themes is your organisation looking to invest in?
Q: Which of the following sustainability-related themes is your organisation looking to invest in?
#1
Renewable energy / energy efficiency
This theme is also popular with APAC investors.
42% of those surveyed in the region are looking to invest in the theme compared to only about a third in Europe and North America
Top 3 ESG investment themes
Top 3 ESG investment themes
ESG investing
#1: Renewable energy and energy efficiency
Not only is this investment needed, it has also proved profitable.
Imperial College London and the IEA analysed stock-market data to determine the rate of return on energy investments over five and ten years (starting in January 2010 and ending in December 2019) and found that renewable energy consistently outperformed fossil fuel investments.
Returns on renewable investments greatly outstrips their fossil fuel peers (5-year period)1
Countries | Countries | Renewables | Renewables | Fossil fuels | Fossil fuels |
|---|---|---|---|---|---|
Countries | Germany and France | Renewables | 178.2% | Fossil fuels | -20.7% |
Countries | UK | Renewables | 75.4% | Fossil fuels | 8.8% |
Countries | US | Renewables | 200.3% | Fossil fuels | 97.2 |
Renewable energy stocks were also found to be less volatile, particularly during the turmoil caused by the pandemic, when oil and gas prices collapsed.
Take a long/short approach to investing in renewable energy
Take a long/short approach to investing in renewable energy
Investors need to look beyond a simplistic exclusionary investment approach to playing the renewable energy or net zero theme.
This is because companies affected by this energy transition to net zero may win or lose.
A long/short strategy can take advantage of both structural winners and losers that will emerge as the world shifts to a more sustainable, lower carbon economy.
ESG investing
#2: Cybersecurity and data privacy
Cybersecurity and data privacy rank is also a top priority, given the potential that cyber-attack threats could lead to heavy financial losses and social instability.
This is an issue that has been growing in prominence over the years, but has perhaps come to the forefront now as a consequence of the pandemic, which has led to a significant rise in the use of digital technologies and a mass move to home-working.
Although cybersecurity is not an obvious ESG issue, ensuring that data and systems are secure is not just necessary for the smooth running of a business – it also protects the privacy of customers and employees, making it a social issue as well.
ESG investing
#3: Climate change adaptation and mitigation
Adaptation and mitigation is the second greatest area in which investors see an opportunity for ESG investment.
It drew the greatest level of attention from investors in Asia-Pacific, at 35%.
This is unsurprising, given that this is a region expected to bear the brunt of climate change, and therefore at greatest risk from failing to address this issue.
Other topics covered in EIU report
Other topics covered in EIU report
Key highlights
Integrating ESG and the challenge of transparency
Main barriers: cost; lack of clarity and ESG standards, taxonomy or metrics; and a lack of awareness and understanding of ESG.
How will ESG shape the investment landscape
SDGs will be the main guiding framework in defining and measuring the positive impact of organisations’ investments.
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