Investment Dollars Are Flowing Into This Sector
According to the Global Sustainable Investment Alliance, $22.9 Trillion (yes, that’s trillion) is currently invested in sustainability in one form or another. While there is still skepticism that this type of investment can return the same or better returns, the flow of cash of institutional investors show that responsible investing has gone mainstream. Companies that produce indexes to track performance such as Standard and Poors and MSCI are rolling out new indexes for this sector, further solidifying a basis for investors to track performance relative to their peers. The flow into these assets is analogous to the flows into ETF’s a decade ago, and by the way, ETFs are also getting into the ESG game.
With Investor Interest On The Rise, Small Businesses Will Emerge
Whenever there is investment interest in a specific sector, a group of start ups will look for funding. The first thing one might think of are products such as fuel-efficient cars, but the impact of the sustainability focus goes beyond the products. While American firms are slightly behind European firms in this initiative, corporations are developing policies for their own investment practices, as well as corporate business practices. This opens up room for specialty consultants to emerge, helping to draft and implement policies at every level of a company. This is just one example of how sustainability will give rise to new businesses.
Divestment And A Shift In The Economy
A test of some investment managers now is to make sure that they omit certain types of investments such as thermal coal and other industries that are considered against an ESG frame of mind. Why does that matter to a bank? If you are a community bank in West Virginia with customers in the coal industry perhaps a strict ESG policy could result in a backlash from the local community. On the other hand, if your bank is located in Berkely, California you could have the opposite public relations effect if your bank funds a company with ties to thermal coal (or even large banking customers). Additionally, banks should be on the look out for trends that effect local businesses and position itself as the brand that understands the growing opportunities and downside risk. As sustainable investment grows, this could have a profound effect on the economy in specific regions of the country.
Human Resources And The Next Generation Of Banking Leadership
One of the keys to the banking industry is innovation, and often innovation comes from young ambitious employees that want to impact a business right away. The banking industry is in a transition stage where technology has become the center of every bank’s strategy. Attracting a young, qualified work force is key. Statistics indicate that new graduates of colleges and business schools want to know that their company cares about the environment and the community. A bank that both endorses ESG for the operation of the bank itself, as well as a focus to help fund ESG initiatives and start ups can help attract some of the best young talent. As ESG is going mainstream, this is a social phenomenon that will only grow over the next decade. A bank’s brand will be effected both positively and negatively based on how they approach ESG in the coming years.