Consumers around the globe now face surging energy prices as demand rises, due to economies picking up steam post-pandemic. This deepening global energy crisis underscores the undeniable value, necessity and rewards of sustainable investing.
From ongoing and increasing blackouts in China and India, to mass panic-buying in the UK and Europe, and urgent calls from the U.S. for OPEC nations to up oil production as fears continue to grow -- the crisis is going to get a lot worse. This is inevitable, as the northern hemisphere moves into winter when energy demand is even greater.
One might surmise that the astronomical price surges could push back the critical transition to clean energy. Savvy investors, on the other hand, will be taking a wider, longer-term look at the situation.
They will see that the current energy crisis is a combination of factors – including ongoing geopolitical tensions to which there are no quick fixes, and infrastructure and supply issues. None of the above is going away anytime soon.
It will bring into sharp focus that rather than staying with fossil fuels, the longer-term answer to this and future energy crunches is ESG (environmental, social and governance) investing.
They will be moving quickly to have an early advantage, foreseeing the undeniable value, necessity and rewards of sustainable investing.
The ESG umbrella term covers three main factors. E is for the environment and includes issues such as climate change policies, carbon footprint and use of renewable energies. S is for social and includes workers’ rights and protections. (Some asset management firms define S as sustainability, which can mean such things as reducing a company's carbon footprint.) Finally, G is for governance, which includes diversity of the board and corporate transparency.
In June 2020, around 26% of deVere clients around the world were eyeing exposure, or already had exposure, to ESG investments. This has now increased to 44% over the past 12 months.
This trend is set to gain further momentum with three key factors pushing the movement.
First, governments and regulators are becoming increasingly supportive of ESG criteria that boost investor confidence. For instance, despite recent alarm over energy prices, the United States is putting climate concerns temporarily on the back burner, yet the Biden Administration is, overall, taking a tougher approach on the use of fossil fuels and is promising swift action to tackle climate change.
Additionally, Securities and Exchange Commission Chairman Gary Gensler, is a proponent and is likely to strengthen investment and disclosure rules to help the U.S. catch up with Europe.
$30 Trillion Transfer to Millennials
Second, as millennials who are more likely to seek responsible investment options, become the major beneficiaries of the largest intergenerational transfer of wealth—an estimated $30 trillion in the next few years—we can expect both retail and institutional investors to continue to pile into ESG.
And third, the pandemic has focused minds on the fact that the health of our planet directly affects human health which, in turn, affects the way we all live and work.
What is, perhaps, more impressive is that those investments with robust ESG credentials are continuing to outperform the market and experience lower levels of volatility.”
deVere has recently highlighted its own commitment to back ESG values by being one of 18 founding signatories of the UN-backed Net Zero initiative, the international alliance of powerhouse global finance companies that will help accelerate the transition to a net zero financial system.
The membership means the organization is committed to aligning all relevant products and services to achieve net zero greenhouse gases by 2050 and to set meaningful interim targets for 2025. These commitments are in addition to the members setting Science Based Targets to reduce operational emissions in line with limiting global temperature rises to 1.5 degrees Centigrade.
The Cleaner Power Curve
It’s becoming increasingly clear that the best and most sustainable way to solve this and future energy crises is to accelerate the transition towards cleaner power.
Investors, keen to get ahead of the curve as well as earn profits with purpose, will be more keenly seeking out the opportunities as the world scrabbles to mitigate the environmental, economic and social fallout of the current situation – a situation which is likely to be a constant risk.
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