When ESG (environmental, social, and governance) is mentioned in an investing context, the general public—and a large portion of the finance industry—view it as something novel and somewhat uncharted. This is the case even though sustainable or socially responsible investing has existed since the 1960s. Still, ESG investing is often seen as difficult to navigate, especially because of increased regulation in recent years. The reality is that ESG considerations have been on the minds of investors since well before the financial crisis of 2008, when the power balance shifted and investors were inspired to be more vocal about their specific aspirations.
What is certainly true about ESG investing in recent years is that it has become a major factor in achieving a successful and well-rounded return on investment. According to Bloomberg, ESG assets may surpass $50 trillion by 2025. Furthermore, it is expected that $1.3 trillion will enter ESG exchange-traded funds by that same year. Through certain company investments, investors are not only supporting environmental issues and a more socially balanced world, but they are also creating additional, similarly minded investors who are empowered by newfound access.
Market participants boost issue awareness when they invest in businesses that recognize the increased demand for products or services benefiting the environment and human development. They also identify opportunities for both financial and societal returns.
Investors are creating additional, similarly minded investors who are empowered by newfound access.
One of the most direct routes to giving back to the community while inspiring more investing is through the support of financial literacy and empowerment programs. About 2 billion adults—more than half of the world’s working population—are excluded from formal financial services. In low-income countries, 80 percent of the most economically disadvantaged individuals do not have bank accounts. For these reasons, services that provide inclusive finance help to bring in new waves of investors who otherwise would not have the opportunity to participate.
Inclusive finance comes in a variety of forms. Microfinance solutions provide financial services access to those who have historically been ignored by the banking industry. FinTech is providing several means to an end that did not exist in recent years. For instance, blockchain, mobile money accounts, e-commerce, and online marketplaces with easy electronic access are alternatives where financial service providers, such as banks, are insufficient or unreliable.
Through these options, buyers and sellers can meet with less friction and engage in direct transactions without apprehension or outside deterrents. Even access to insurance can be a significant risk mitigation and convenience tool that enables the previously uninsured to build on their existing assets by offering a formal protection mechanism for underserved communities.
Perhaps more surprisingly, another area in which investing yields new investors is health services. Beyond the obvious benefit of reduced mortality rates and increased life expectancy, health investments also help to boost productivity in the field. Every $1 invested in health from now through 2035 will yield $9–$20 in benefits. According to the World Health Organization, “companies should provide equity in access to health services, quality of health services should be measurable, and, most importantly, companies should actively provide affordable services, products and technologies that will not create hardship or impoverishment from health cost.” Investing in health makes the end product more accessible to a greater number of stakeholders.
In a similar vein, investing in services that provide access to food, education, and housing also generates added interest in financial activity overall. These services provide a discernible result that can be witnessed quickly and inspire new backers. When engaging in responsible investing that provides much needed direct services, the everyday investor feels connected and motivated; it serves to open his or her eyes to possibility and advancement on a personal level.
The factor that these recent financial innovations and revolutionary investment actions have in common is providing access. Simplifying the investment process through education, electronic modernization, and visible results reinforces financial empowerment. Often, however, access means showing new investors that, when it comes to the initiatives they care about, any amount of support goes a long way.