ESG investment: from transient trend to mainstream reality

Socially responsible investment, or ESG, has reached a record in the current crisis and the awareness of the impact of the economy on climate change has definitely taken hold, despite the fact that before 2020 it was thought to be a temporary trend. Studies such as those by US-based Morningstar indicate that investment in ESG funds will reach $1.7 trillion by 2020. To put this into perspective, this is more than the GDP of a superpower like Russia. 

This trend makes it clear that money is being redirected towards sustainable activities, committed to the environment, society and good governance. Investors may be attracted, for example, by a company’s efforts to reduce emissions, the transparency of its decisions or the working conditions of its employees. In any case, ESG investing is on the rise. In fact, according to French fund manager Natixis, three out of four professional investors already have ESG assets in their portfolios. 

The growth in sustainable investment numbers has also been accompanied by an increase in its influence. ESG investing, according to Goldman Sachs’ portfolio management division, is “now part of conventional finance“. 

But, are these types of investments profitable? It seems that they are. For example, Bank of America points out that companies that incorporate ESG criteria are less likely to fail. Ninety per cent of bankruptcies between 2005 and 2015 in the S&P 500 US stock index were of firms with poor environmental and social commitments. 

The energy sector renews itself 

The influence and power that oil companies enjoyed decades ago is now spilling over to energy companies with a focus on renewable and clean energy. As in the case of socially responsible investment, the crisis caused by the pandemic has failed to undermine the expansion of investment in renewable energy

Closely related to ESG investment, finance focused on clean energy reached historic figures in 2020. The Institute for Energy Economic and Financial Analysis (IEEFA) reports that USD 501 billion was invested in this sector. This is 9% more than in the previous financial year, confirming the uninterrupted rise since 2013. 

A few months ago, Pedro Mielgo discussed the state of renewable energies in Spain and made special emphasis on the fact that the sector is at its best moment. Renewable energies can simultaneously provide a good risk-return ratio for investors and help preserve the planet. It seems undeniable that the future is renewable. 

The contribution of Fellow Funders 

Fellow Funders’ commitment to the environment and the sustainable world is reflected, among other things, in the Sustainability White Paper for SMEs. In their work as funders, they give special consideration to the implementation of ESG plans within companies of all sizes. For this reason, its Fair Value division has developed a specific ESG reporting and valuation model, which is detailed in the document. 

The book also explains how implementing ESG measures in its three facets brings financial benefits to a company. Ultimately, ESG models bring added value to shareholders while helping to preserve the planet and society. 

Therefore, this handbook brings together all the experience and knowledge of Fellow Funders and makes it available free of charge so that any SME can join the sustainable way that is taking shape today and will permeate the future. Fellow Funders wants to count on all of you in this ambitious mission. Will you join the change? 

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