A global regulatory framework for environmental, social and governance (ESG) investing is now urgently required as major financial institutions are handling a massive uptick of inflows into the sector but at the same time facing accusations of inconsistency in their approach to sustainable impactful investments.
ESG investing is this decade’s ultimate investment megatrend – and it has been accelerated since the pandemic began.
There’s been a dramatic increase of inflows into the sector from both retail and institutional investors as it has become clearer than ever that human health is reliant upon healthy ecosystems; that we need to ensure the sustainability of supply chains; and that those companies with robust corporate governance and good business practice fare better in difficult times and are ultimately best-positioned for the future.
The trend is unlikely to slow down in a post-pandemic world. Millennials, who are statistically more likely to seek responsible investment options, are set to become the major beneficiaries of the largest inter-generational transfer of wealth – an estimated $30 trillion over the next few years.
In addition, recent research reveals that the majority of environmental, social and governance investments have outperformed their non-sustainable counterparts over the last year and have had lower volatility.
This will only serve to attract more investors.
Given the continuing and increasing demand, the regulatory landscape must reflect the situation.
Regulators need to catch-up. Initiatives that began in the EU are now spreading worldwide, but much more needs to be done, at a faster pace and with a joined-up approach. There remains a startling lack of consistency in definitions and data.
Considering the momentum of the sector, the time is now for the establishment of a global regulatory framework for ESG investing.
This will provide greater protections for those investors who are looking for profits with purpose. It will also help to reduce ‘greenwashing’, which is where an investment or company gives an inaccurate impression over its green, socially responsible or corporate credentials.
A robust standardized regulatory framework would make the sector even more attractive, which will then help investors reach their financial goals whilst proactively protecting people and the planet.
Nigel Green is founder and CEO of deVere Group. One of the world's largest independent financial advisory organizations, de Vere does business in 100 countries and has more than $12 billion under advisement.
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