Low-carbon technologies and social impact both investment trends to watch

Institutional investors increasingly moving towards low-carbon technologies and social investment are both amongst the environmental, social and governance (ESG) investment trends to watch in 2015, according to MSCI.

Written by MSCI’s global head of ESG research, Linda-Eling Lee, the paper notes that 2014 suggested there is a shortening lag between when ESG issues emerge and when markets and regulators react, pointing to shifting regulation targeting the ‘tax gap’, a new benchmark to define green bonds and the adoption of low carbon investment solutions as examples of this.

The first trend the paper looks at is aligning to fuels of the future and assessing how well institutional investors are positioned for the transition to renewable energy. As climate change goals gain media attention the rush among intuitional investors to reduce carbon exposure is “gaining momentum”, it explains.

Growth in low-carbon energy technologies over the coming decades mean that investors could risk being under-exposed to significant growth in future fuel technology if they fail to assess their holdings and consider how policy will have an impact.

Lee writes, “Measuring the exposure to these underlying fundamental shifts in our energy future is the sort of exercise that institutional investors may increasingly undertake. Beyond electricity generation and taking account of clean technology more broadly across all sectors will be armed with improved data and analytics that can inform more deliberate alignment of their overall portfolio with our energy future.”

Another trend the report looks at is impact investment – investment that not only offers a financial return but a social or environmental one. Whilst the paper states that investors large and small are “casting about for way to steep capital toward positive social impact” it notes that very little of this willing capital is finding a way to address the needs of society.

However, more products that address social issues, such as green bonds, are now entering the market and could deliver a boost. Awareness of impact investing is also growing.

MSCI states, “In 2015, we anticipate that the ability to overlay exposure to social impact opportunities across, broad, diversified public equities portfolio will attract new investor segments with the potential to shift significant capital towards social needs.”

The other trends of 2015 highlighted by MSCI are scrutinizing director characteristics, weighing the automation revolution and investing in the infrastructure gap

Photo: Ken Tegardin via Flickr

Further reading:

Study links high ESG ratings to positive investment portfolio performance

MSCI launches fossil fuel free investment indexes

Private equity firms focusing on ESG risks instead of opportunities, says PwC study

Church of England and MSCI team up for ethical investment screening

Poor ESG records scupper private equity deals