The year of 2020 changed the realities for hundreds of millions of Americans, from the pandemic to the death of George Floyd to the increased attention to climate change.

Environmental, Social and Governance (ESG) investing now appears to be entering a new, revolutionary stage where companies are finding environmentally friendly materials, and influential business groups, including stock exchanges, are holding ESG up as a barrier to entry, i.e. a listing requirement.

Retail investors are also starting to put their wallets where their values are, and the ESG trend seems to be, finally, taking ordinary Americans by storm. (See chart, below.)
 

Top 10 ESG ETFs -- With Total Assets of $45.4 Billion

According to mutual fund giant Vanguard, ESG investing is primarily available to average Americans through mutual or exchange traded funds (ETFs) that “consider environmental, social and governance issues” at their core.

These funds that screen their underlying stock or bond investments against such factors as climate change and social justice. Initially driven by ESG pioneers like Amy Domini, institutional investment on Wall Street has enthusiastically supported ESG for years. In the 1990s, the previous iteration of ESG was known as socially responsible investing, or SRI.

The newfound interest in ESG can be seen among the offerings of retail brokerages like Fidelity, to banks like CitiGroup.

Jean Case, chairwoman of the National Geographic Society , told attendees at CNBC’s ESG Impact Conference Thursday, Oct. 28 that these days, the subject of ESGs is always brought up among Wall Street power brokers.

The numbers back it up, too. Sustainability-focused funds having almost $2 trillion in annual assets, as of Q1 2021. A November 2020 study found that 1 in every 3 dollar invested in the U.S. is now in the category of “sustainable investing”. Both MarketWatch and Bloomberg report that ESG is now a $30 trillion dollar sector, with ESGs projected to have a total of $53 trillion in total assets by 2025.

However, former BP CEO Lord John Brown says as impressive as the nearly $2 trillion  in assets is, it isn’t enough, as he is calling for up to $3.5 trillion investments yearly to adequately combat climate change.

Much of this new growth will come from retail investors on Main Street—maybe one of your neighbors, or maybe even you.

According to a February 2021 Morningstar report, “Nearly 400 sustainable funds were available to American investors at the end of 2020, a total of 71 sustainable funds were launched in 2020 alone, at least 30 funds have been launched per year between 2016 and 2020—and on average, sustainable funds outperformed conventional funds in 2020”.

Much of the new interest in ESG is from Millennials, who have acted as a driving force behind ESG’s rising popularity. In 2020, Millennials contributed $51.1 billion to sustainable funds, and even more impressively—more than 10 times the less than $5 billion they poured into ESG in 2015.

Greg Cobb, director of fixed income at Boyd Watterson Asset Management, says, “These Millennials will demand more active involvement in their own investments, as they wish to be more actively involved in controlling their own destiny.”

It’s not just Millennials, either, as Nuveen Investments says that Gen X and Baby Boomers are actually the most likely to invest in ESGs, only then followed by Millennials. All told, 72% of all Americans “expressed at least a moderate interest in investing in sustainable funds”, as of a 2019 Morningstar report.

Morningstar Global Head of Sustainability Research Dr. Jon Hale sums up how we got to this moment in sustainable investing, paraphrasing Ernest Hemingway: We got here “gradually, then suddenly”.

Top 10 ESG Mutual Funds -- With Total Assets of $71.435 Billion

Charts: Morningstar data