I am astounded by the amount of money that is projected to flow into ESG (environmental, social and governance) investments over the next few years. This trend is also known as sustainable investing, or investing with a conscience. The most recent data on future ESG money flows comes from the asset management juggernaut BlackRock (NYSE: BLK). BlackRock conducted a survey with 425 of the world's largest institutional asset managers. Combined, this group of pension plan managers, mutual funds, foundations, endowments and wealth advisors controls a whopping $25 trillion of assets. BlackRock's survey found that this group plans to have 37% of that $25 trillion invested in ESG assets within five years. Meanwhile, BlackRock has announced that all of its $7 trillion of assets under management will be invested using ESG considerations going forward. That means the amount of cash invested in this sector is about to increase exponentially. As an investor, I want to be in this area before all of that money pours in. A Growing Trend If you haven't previously dug into this trend, let me quickly catch you up. The intent of the movement is to direct capital toward only businesses that are doing good things for the world. To determine whether a company meets ESG qualifications, companies are measured against a certain level of environmental, social and governance standards. Environmental standards consider how a company performs as a steward of nature. You might consider a company's carbon footprint, use of water, recycling and safe disposal practices. Social standards measure how a company manages relationships with people. That would include employees, customers, suppliers and the communities where it operates. Social considerations would be the treatment of employees, ethical supply sourcing and public stances on social issues. Governance deals with how well a company respects shareholder rights and whether it operates in an ethical manner. This means looking at executive compensation, board of director independence and transparency in communicating with shareholders. |
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