The investor revolution. Global investors are allocating increasing amounts of capital to companies that have higher green revenue or are better suited to fulfil sustainable goals. ESG (Environmental, Social and Governance) incorporated investments has grown at a rapid pace, jumping to USD30.7tn in 2018 from just USD2.6tn in 2002 (+16% CAGR) in the five major markets according to the Global Sustainable Investment Review, and a strong 34% jump from 2016 alone. The drive for ESG is akin to a rise in preference for responsible investing with matured investors now looking beyond the traditional notion of mere strong financial returns, towards responsible investing which involves mitigating risky ESG practices to protect value (i.e. negative screening), sustainable investing by adopting ESG practices that can enhance value, or impact investing which addresses societal changes with some financial return.

Institutional investors have the power to change the future. Institutional investors are arguably a major player in capital markets as they have the ability to influence management performance directly via ownership and indirectly through trading of shares. In this context, institutional investors have the influence to entice corporates to prioritise key issues deemed important to them such as climate change or social issues. Alternatively, they may also negatively screen companies that do not align with their internal values. In countries like the United States for example, institutional investors are lobbying the U.S. Securities and Exchange Commission (SEC) to mandate companies to reveal their environmental, social and governance data. Given institutional investors’ prominence in the local capital market, would be difficult for companies to take their concerns lightly. Essentially, institutional investors are one of the most influential groups that have clout to shape the future.

Source: Kenanga Research - 24 Dec 2019