Environmental! Social! Governance! Give me an E! Give me a S! Give me a G! What’s that spell? ESG! ESG! ESG! We’re fans of the ESG phenomena as it helps contextualize investments in a way that promotes ethical investing and Generation RENEW. Let’s face it, energy is a contentious topic, especially since the vast majority of energy consumption comes from environmentally unfriendly sources. This is not sustainable (the E) and this is not civic minded (the S). Most people today believe we can and should be cleaner as a society, so that we can harness the natural resources that surround us to generate the energy we require.
But the ESG trend is about so much more. It embodies not only how we’ve changed as a society, but also how we invest. Investors want to feel like they’re investing in the future, while at the same time helping to finance a better way to live. In a way, investors today are increasingly allocating capital based on ethics. This is what ESG investing is all about, it gives people the ability to see how a company is ethically positioned for the long-term. And the proof is in the pudding. A recent Morningstar report indicates sustainability funds have seen assets double over the past three years, and “as of the end of the second quarter 2020, there were 534 index funds focused on sustainability, overseeing a combined $250 billion.” The statistics are much more impressive within the United States, where “assets in sustainable index funds have quadrupled in the last three years and now represent 20% of the total”.
We’re excited about the increasing importance of ESG in investing, because we believe it encourages investors to invest with the long-term in mind. Which brings us back to Generation RENEW. We have written much about the compelling economic assumptions that have pushed renewable energy over the previous decade. We believe this is first and foremost the driver of change, though it certainly helps the cause that the increase in ESG and ethical investing coincides with this paradigm shift in energy.
“I skate to where the puck is going to be, not where it has been” – Wayne Gretzky