The pandemic years have cranked up three vital engines of wealth generation, with exchange traded products doubling in value, investment soaring in environmental, social and governance-related business solutions and the digital transformation of the financial services sector enabling low-cost and transparent transactions for new generations of investors in a mighty democratic sweep.– and ESG have emerged as unquestioned winners for investors.
The digital forces of online market platforms, and the technological disruption of information asymmetry – a skewed knowledge environment which only serves to strengthen the market power of the better informed investors – are distributing the benefits of ETFs to all. As more investors get more informed about the need for diversification across markets, asset classes and geographies, they add more ETFs to their portfolios.
“ESG is here to stay,” says Victor. “It is no longer a ‘nice-to-have’ for a small minority of investors. We are seeing demand for ESG from all types of investors – from large institutions to SMSFs, as well as mum and dad investors.“With recent innovation in the ETF space, investors in 2022 will begin broadening their ESG investments across their portfolios. They can now do this without compromising on risk/return profiles or on price.
There are core traits which help to differentiate truly sustainable practices from deceptive or unintentionally harmful approaches, says Hamish Chamberlayne, of Janus Henderson. “Businesses have also improved their understanding of supply chains due to a changing regulatory landscape, which now requires them to disclose their modern slavery policy as part of their fiduciary duty,” Steed says.“The importance of understanding supply chains has come to the forefront this year with supply chain resilience issues caused by the rapidly spreading omicron variant.
“These core traits are intentionality, transparency and consistency . It is crucial that sustainability issues are thoroughly considered from the outset when creating an investment process.That is why a clear intentional framework that pre-defines how sustainability issues impact your investment decision-making is important. Transparent reporting proves that the fund has done what it set out to do and keeps investors well-informed.
“We believe that high-quality managements are more aware of the changing environment and that regular engagement by investors is the best way to ensure businesses are tracking sustainability goals,” says Laura Bottega, lead portfolio specialist at Morgan Stanley’s international equity team. This year will see ESG approaches firming up in the core activities of businesses. “Work will likely turn from climate commitments to policy reality,” says Bottega.
“Net zero commitments are increasingly the norm, often running well ahead of the capacity of companies to meet them,” he says.