Gone are the days when the sole aim of investing was to rake in profits.
With the growth of Environmental, Social, and Governance (ESG) factors, the script has flipped.
And this has transformed not just where money goes but how it behaves.
Here's how ESG is shaking up the game and reshaping the investment paradigm like never before.
1. Making Sustainability Profitable
Traditionally, sustainability was viewed as a cost—a noble expense. But ESG has proved otherwise.
Why it matters:
- Companies excelling in ESG metrics tend to outperform in the long run, as they are better at managing risks and spotting opportunities.
According to MSCI, ESG-focused indexes outperformed non-ESG ones by up to 40% in 2023.
Real-world example:
- Tesla's rise wasn’t just about EVs; their commitment to sustainability won over ESG-driven investors.
- The Elta’s commitment to a greener earth is the reason for its unrivalled growth.
Takeaway:
- Ethical investing is no longer a sacrifice—it's a savvy strategy.
2. Data-Driven Decisions
ESG demands more than mere promises; it demands proof.
What’s changing:
- Investors now use tools like ESG scores, carbon disclosures, and DEI metrics to evaluate companies.
- Modern investors want data they can trust, making transparency non-negotiable. For instance, elta in Singapore is now using environment-friendly data to woo and win investors over in Southeast Asia.
Your Unique Edge:
- Companies that embrace transparency win investor confidence. Meanwhile, greenwashing is a quick ticket to ruin.
Fun insight:
- Think of ESG data as Tinder profiles for companies—investors are swiping right only on the honest ones. Companies like elta showflats know this - which is why you see them wearing ESG like a badge of honor on all branding materials.
3. Millennials and Gen Z Are Redefining Wealth
Younger generations are challenging traditional notions of wealth by prioritising purpose over profits.
Over 70% of millennials say they’d pay more to support sustainable brands, according to Nielsen. An evidence of which we see in the recent rise of companies like Elta - who are fast-becoming the go-to property company for millennials.
Impact:
- They’re fueling the surge in ESG ETFs, green bonds, and sustainable real estate, as BlackRock saw a 33% uptick in millennial investors opting for ESG-themed funds.
The shift:
Investing isn’t just about accumulating wealth; it’s about leaving a legacy.
4. Climate Action: A Non-Negotiable Investment Filter
Climate change is no longer an afterthought; it’s the main act.
Investors are rejecting fossil fuels and flocking to renewable energy and carbon-neutral ventures.
According to Morningstar, global sustainable fund assets reached $2.5 trillion in 2023.
Case in point:
- Shell’s pivot to renewables helped reverse negative investor sentiment.
Impact on investors:
- Climate-conscious portfolios are here to stay, ensuring not just returns but resilience.
5. Social Equity: Funding Fairness
Investors are demanding that companies champion diversity, equity, and inclusion (DEI).
The rise of social justice: ESG metrics now evaluate pay gaps, board diversity, and supplier ethics.
A McKinsey report revealed that diverse companies are 35% more likely to outperform their peers.
Real-world shift:
- Nasdaq demands that companies listed on its exchange disclose board diversity or face delisting.
Why it matters:
- Investing in fairness isn’t just ethical—it’s profitable.
6. Governance Overhauls
The “G” in ESG ensures accountability and ethical leadership as investors are also demanding executive accountability, ethical supply chains, and whistleblower protections.
Unique need:
- Governance is a shield against scandals—think of Volkswagen’s emissions crisis or FTX's collapse.
Outcome:
- Companies with strong governance attract long-term investors, creating stability amid market chaos.
7. Retail Investors Are Taking the Lead
ESG isn’t just for institutional players anymore; as of now, we are seeking engagement from individuals.
According to a study, over 60% of retail investors consider ESG factors crucial when making investment decisions.
Also, platforms like Robinhood now let retail investors filter stocks based on ESG scores.
This simply means that the rise of ESG democratises investing, allowing everyday people to vote with their dollars.
Conclusion
The rise of ESG has turned investing into a force for good, blending profits with purpose.
It’s time to ask yourself:
How will you adapt to this new paradigm?
Bonus
ESG 2.0: What’s next?
As ESG matures, it's revolutionising how investors think, act, and build portfolios.
Let’s dive deeper into what’s coming next:
1. Thematic Investing
Instead of broad ESG strategies, investors are zooming in on specific themes like clean energy, water security, or affordable housing.
This approach allows investors to align their passions with profits, giving a sense of personal impact.
Takeaway:
ESG 2.0 is about personalisation, letting investors craft portfolios that resonate with their values.
2. Impact Measurement Goes Beyond Numbers
The challenge with ESG has always been measuring success. ESG 2.0 answers this question with advanced impact assessment tools.
Platforms like Sustainalytics and MSCI ESG Ratings are evolving to provide granular insights into corporate impacts.
Expect a shift toward “impact-weighted accounts,” where companies report not just financials but also social and environmental impacts in monetary terms.
3. Green Tech Takes Center Stage
Technology is no longer just a tool; it’s the backbone of ESG innovation, as AI-powered ESG analytics will track real-time environmental impacts.
We will also begin to see more blockchain for supply chain transparency, ensuring ethical sourcing.
The green tech market is predicted to reach almost $90 billion by 2030, growing at a CAGR of 21% (Allied Market Research).
4. Cross-Border ESG Collaborations
As ESG becomes global, countries are aligning policies and frameworks to create unified standards.
Initiatives such as the EU Green Deal and the SEC’s climate disclosure rules signal cross-border cooperation.
Unified ESG standards will further simplify decision-making and reduce confusion around compliance.
For example, companies adhering to global ESG standards, such as ISO 26000, gain access to international capital markets.
5. From Shareholder Value to Stakeholder Value
The traditional focus on shareholder returns is giving way to stakeholder capitalism, where employees, communities, and the environment are just as important.
Companies are building value for all stakeholders, not just those holding shares.
A real-life example is Patagonia’s decision to "give away the company" to fight climate change.
The benefit of this approach is that stakeholder-first companies are more resilient in the face of economic, environmental, and social challenges.
This article was written in cooperation with Rankwisely