Written by: George Prior
The U.S. Senate’s passing of a sweeping $430 billion bill to help fight climate change underscores why “every investor needs exposure” to environmental, social and governance (ESG) investments to build wealth over the long-term.
This is the conclusion from Nigel Green, CEO and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organisations.
It comes following a 27-hour weekend session of debate that ended in the Senate approving the legislation known as the Inflation Reduction Act by a 51-50 party-line vote. It now goes to the House of Representatives for a vote, probably on Friday, and is expected to pass.
The deVere chief executive, a long-term advocate of impactful investing, says: “This bill is a game-changer. It supports our prediction made at the very start of 2020 that ESG is the investment megatrend of the decade.
“The legislation, which is designed to reduce carbon emissions and move consumers to cleaner energy, amongst other factors such as cutting prescription drug costs for the elderly, will shift the world’s largest economy forever towards a greener future.
“Global ESG assets are on track to exceed $53 trillion by 2025, according to Bloomberg Intelligence, representing more than a third of all assets under management.
“Now, due to the momentum that will be created from this landmark bill, we expect ESG assets to take an even greater proportion of the $140.5 trillion in projected total assets under management.”
Before the start of the new decade, according to Nigel Green, most investors considered ESG investors as ‘woke’ but this has now changed.
“These investments cannot any longer be dismissed as woke or whimsical.
“In fact, I believe that every investment portfolio should have exposure to ESG if the investor is serious about building long-term wealth.”
Funds investing in entities with robust ESG credentials have outperformed their benchmarks over recent years. “From a risk management point of view, including these companies in your portfolio is, clearly, a sensible decision to take,” says the deVere CEO.
In addition, they typically deliver a legitimate diversification tool, says the deVere CEO, which is how investors “can seize opportunities and mitigate risk, especially during periods of higher volatility.”
He adds that ESG represents a revolution of investment strategy itself. “A seismic shift has occurred in corporate behaviour. How companies approach ESG factors and the value they place on them compared to other considerations has already changed forever.”
Another key reason why investors should now include ESG elements in their portfolios is the growing global regulatory scrutiny of ESG investing.
“This will give even greater confidence to traditionally cautious institutional investors,” he notes who can be expected to “further pile in, bringing with them huge levels of capital and expertise.”
Nigel Green has been a high-profile advocate of stricter ESG investing and disclosure regulations.
“Investors and the wider public need unambiguous information about how firms are contributing to greenhouse gas emissions, and how they are managing - or not - environmental challenges internally. This can only happen through compulsory disclosure in the public domain.”
Ahead of COP26 last year, deVere became one of 18 founding signatories of the UN-backed Net Zero initiative, the international alliance of finance powerhouses that will help accelerate the transition to a net-zero financial system. Its membership means it 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.
The deVere CEO goes on to add: “The case for having ESG exposure in an investment portfolio is unquestionable.
“The three pillars of ESG are already embedded in the global economy as this is only set to grow in the years to come.
“Investors should be embracing the concept of having early advantage of this undeniable megatrend to create and grow their future wealth.”