How COVID-19 Has Augmented its Relevance in Financial Markets

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  • What is ESG Investing?
  • Impact of COVID-19 on ESG investments
  • Current ESG investment options that are gaining popularity across different asset classes

As the world becomes more environmentally conscious, ESG investing has gained favor across various financial asset classes. The ESG sector has benefitted from the coronavirus pandemic with a comparatively healthier return relative to non-ESG assets.

What is ESG Investing?

ESG (Environmental, Social and Governance) investing is an alternative method to traditional investing whereby market participants support the positive sustainability and societal impact of an investment which are measured via the aforementioned environmental, social and governance factors.

Note that ESG trading and investing involves risk of loss and may not be suitable for all. We advise you to carefully consider whether trading is appropriate for you based on your circumstances. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading or investing.

Why is the COVID-19 Pandemic Promoting ESG Investing?

The coronavirus pandemic has devasted the world including financial markets; it has also prompted people to take notice of ESG investing. Prioritizing sustainable investing is growing globally and including these metrics within more traditional and clearly limited forecasting models is now essential.

The chart below highlights the importance of ESG investing with ESG assets (equities and bonds) outperforming non-ESG assets throughout 2020. This trend is set to continue with the change in investment mindset.

Source: Morgan Stanley Institute for Sustainable Investing

Exercise Caution When Searching for Your ESG Investment

There are countless instances of fraudulent behavior around ESG conformity within financial markets – notably Volkswagen AG providing misleading CO2 emissions data. This is often referred to as “greenwashing”.

Greenwashing is simply a façade implemented by companies to appear more sustainable or “green” often through manipulative marketing as opposed to focusing on the fundamental sustainability of the business.

More in depth research and analysis may be required to truly gauge the ESG score of an ESG investment. A little extra time may go a long way in securing a true ESG investment that ticks all the boxes!

Trending ESG Investment Opportunities

With more interest in ESG investing, various financial asset classes are embracing the change and adopting particular instruments that may be attractive to ESG investors. Below are some of the most popular ESG investments in 2021:

ESG Stocks

The equity market was the first asset class to incorporate ESG into operations and analysis. There are several online sources that outline company ESG stock scores and compliance. Investors may access these stocks individually or via an ESG stock index which tracks the highest scoring ESG stocks. As more institutions see the value of sustainable investing and bolster their portfolios, this may be a good place to begin your ESG investing journey.

ESG Bonds

ESG bonds show results similar to ESG equities. These “green bond” initiatives have seen an uptick in popularity with both the private sector and governments making efforts to demonstrate ESG awareness. Many of these issuances have to be linked with an ESG related projects with investors updated on company progress and how the capital is being utilized. This gives ESG investors greater incentive to part with their funds and gives them some form of ESG validation. Many of these bonds are available across the globe via ETFs as well as individual ESG bond issuances through banks and investment institutions.

ESG in Crypto: Ethereum 2.0

Ethereum has been around for a few years now and has established its name within the cryptocurrency space. The newly released Ethereum 2.0 basically reduces the opportunity for Ethereum ‘miners. This falls in line with ESG principals as crypto miners negatively impact the environment in terms of CO2 emissions. This could be a huge positive for the coin moving forward as it is more efficient, environmentally conscious and cheaper.

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