ESG Investing Surpasses $1 Trillion

What Is ESG Investing?

For the first time in history, assets in investment funds that follow ESG guidelines have exceeded $1 trillion. Between April and June of this year, these funds saw net inflows of $71.1 billion.

ESG stands for environmental, social, and governance. This set of criteria helps socially conscious investors evaluate the principles behind the investments they make. For example, investors can track the carbon footprint of a company, or how it treats employees, or what rights it gives to shareholders. A growing number of mutual funds, brokerage firms, and other investment opportunities are offering ESG investment options.

Government Support for Green Initiatives and the Rise of Shareholder Capitalism

One reason for the recent growth in ESG investment stems from governments around the world ramping up their support for green initiatives. Governments have done this through a combination of fiscal spending and regulation. This trend was evident before the pandemic, but it has accelerated as governments work to stimulate battered economies through spending on green initiatives.

The pandemic has also highlighted the importance of stakeholder capitalism, not just shareholder capitalism. Larry Fink, CEO of BlackRock (BLK), which manages over $7 trillion in assets and is the world’s largest money manager explained , “The one thing that is very clear in this COVID world is that stakeholder capitalism is only going to become more and more important, and the companies that focus on all their stakeholders—their clients, their employees, the society where they work and operate—are going to be the companies that are going to be the winners for the future.”

Zooming Out

The fact that socially responsible investing has seen growth even during a time of economic downturn shows that it is likely here to stay. ESG investing was growing during the bull run before the pandemic, but some skeptics expected it might drop off when the economy became less prosperous.

Interestingly, the uncertainty caused by the pandemic has led many investors to seek out companies positioning themselves for long-term success through ESG practices.

You can invest in a way that aligns with your principles by choosing companies that are ethically sound. Explore the Doing Good collection on SoFi Invest®.

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