Sustainable Investing for 2021

sustainable investing in 2021
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Written by VentureXchange

December 10, 2020

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What will 2021 bring for sustainable investing? More companies will feel pressure for ESG disclosures from investors, regulators and employees. Moreover, Millennials will continue looking for sustainable companies and supporting their agenda.  Millennials consistently show a tendency to crave social responsibility, whether it’s in the products they purchase, the organizations they work for, or their investment portfolios. In 2021 be sure to prepare for any ESG requests, as the new regulations have become mandatory in some countries.

Did you know that Task Force on Climate-related Financial Disclosures (TCFD) reporting became mandatory for UN PRI signatories in 2020 and is set to become required over the next few years in the U.K., New Zealand and perhaps even the U.S.? European Union’s Sustainable Finance Disclosure Regulation (SFDR), if finalized in its current form, will require investment institutions holding your shares to report on whether your company operates in or around areas of high biodiversity value.

If you haven’t already, you will be hearing from investors about the many disclosures you are missing. Those could include carbon emissions or revenues from EU Taxonomy green activities.

Furthermore, we at VentureXchange as financial advisors are here to help your company with ESG reporting and sustainability strategy. Nevertheless, your company action is important but there are limits to what individual firms can do to address the underlying root causes of non-sustainability.

Social, Sustainability and Green Bond Issuances 2015-2020 (USD)

Social, Sustainability and Green Bond Issuances 2015-2020 (USD)
Source: Climate Bonds Initiative, MSCI ESG Research.

Two social bonds issued this year by Bank of America provide a good illustration of the range of purposes these issuances aim to serve. One intended to provide financing to the healthcare industry, while the other aimed at reducing racial inequality through a comprehensive program of lending to underserved groups.

Pfizer, too, issued a social bond for healthcare purposes, but its use of proceeds explicitly includes vaccine production in low and middle-income countries. Addressing global health emergencies and helping fund the development of its COVID-19 vaccine. A key challenge for investors lies in the tension between a desire for certainty that an investment will have the desired social outcome and the need to try new things in the time before definitions and assessment criteria developed.

In 2021 sustainable investing, will stay in the focus for many investors and companies. However, the lack of standards in a fast-growing area means that a few bumps in the road are inevitable. But the lessons learned by companies and investors willing to forge ahead could lay the foundations for others as they innovate scalable investable solutions.

According to Investopedia, a growing number of investors are placing billions of dollars into socially responsible impact investing funds, which are also known as Environmental, Social, and Governance (ESG) funds. These portfolios select stocks based on a company’s ESG practices, along with more traditional financial measures. Sustainable investing in 2021 is focused to maintain sensitivity to environmental, social, and governance (ESG) factors. Take a look at the top of the best bond ETFs that emphasize social responsibility.

Sustainable investing – long term thinking

The sustainability mindset is something most investors already have on an individual basis. With sustainable investing you are thinking long term – about your education, your children’s education and things that are 10, 20 years off. With sustainable investing, you’re thinking about your hopes for the next generation. Sustainable funds are seeing a surge in assets, and some of the world’s largest asset managers see growing opportunities in sustainable investing. 

Morningstar reported that 23 new sustainable funds were launched in the first half of 2020 with more to come. In a year like 2020, risk management is essential and sustainable investing has long been used as a risk-management tool.

Talk with your advisor about how he or she manages sustainable portfolios and how you might add sustainable investing to your portfolio. If you’re looking for an advisor to help you with sustainable investing and ESG regulations, contact our advisory team at VentureXchange.

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