Our final blog of the year highlights the top five trends we witnessed within the impact and ESG investing space in 2021.
- Greenwashing: There was a lot of media attention on “greenwashing” throughout the year including the former CIO at BlackRock claiming that sustainable investing practices is a public relations spin. As a pioneer in impact and ESG investing, CCM agrees that more scrutiny, transparency, and standardization in the field is necessary. What his letter failed to mention; however, is the success of well-intentioned investors in facilitating the flow of capital toward environmental causes. Similar to the evaluation process for any investment, due diligence is key in identifying greenwashing investments. This includes verifying the managers’/funds’ history, identifying how ESG policy changes have impacted portfolio composition and/or performance, asking for written and clear impact and ESG policies, and performing in-depth analysis on holdings, to name just a few. Throughout the year, we wrote a perspective, hosted a 5in5 episode, and held a webinar covering the topic of greenwashing.
- Affordable Housing: For millions, owning a home remains at the heart of the American dream yet many still are unable to purchase one. The economic fallout of the pandemic stands to exacerbate the nation’s sizable affordable housing shortage and crisis. Affordable housing is important to the economic vitality of communities. Sadly, the supply of affordable housing is getting worse in the U.S. Given our longevity in investing in securities financing affordable housing, we launched a series on the topic in 2021 that included a new report, “Addressing the Black Homeownership Gap in America”, multiple research perspectives, a webinar, and a 5in5 video discussing this important topic. Impact investors can help support affordable housing by investing in a variety of products and strategies. These can include state-issued bonds supporting affordable housing, social-purpose Real Estate Investment Trusts (REIT), private equity funds, Community Development Financial Institutions (CDFI), and mutual funds investing in pools of affordable mortgage loans.
- Impact and ESG Investing is Thriving: Throughout 2021, impact and ESG investing continued to thrive. In the second quarter of 2021, the U.S. sustainable fund landscape saw roughly $17.5 billion in net inflows. That is less than the all-time record, nearly $21.5 billion, set in the first quarter of 2021, but it is higher than the $10.4 billion seen one year ago in the second quarter of 2020. Equity funds made up the lion’s share of flows, as they typically do. In the second quarter of 2021, equity funds attracted $14.6 billion, or 83% of all sustainable fund flows. Flows into sustainable fixed-income funds crossed the $2 billion threshold for the first time in the third quarter of 2020, and they have stayed above that mark since. In the second quarter of 2021, they reached a new record at $2.7 billion. Assets in U.S. sustainable funds have stayed on a steady growth trajectory. As of June 2021, assets totaled more than $304 billion. That is a 14% increase over the previous quarter and nearly double the $159 billion record set one year ago.
- Net Zero: “Net Zero” was another hot topic in 2021. Over the summer, a United Nations scientific report issued by the Intergovernmental Panel on Climate Change noted that even if nations started sharply cutting emissions today, total global warming is likely to rise around 1.5 degrees Celsius within the next two decades, a hotter future that is now essentially locked in. Reaching net zero requires a complete transformation of the global economy. To get there, we need to replace fossil fuels as the economy’s primary energy source, which provide 84% of the world’s energy, with low carbon sources such as wind and solar. The Net Zero Asset Managers Initiative is an international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5 degrees Celsius; and to supporting investing aligned with net zero emissions by 2050 or sooner. The Initiative now has 220 signatories with over $57 trillion in assets under management, of which CCM is a signatory. With the goal of galvanizing the asset management industry to commit to a goal of net zero emissions, we are hopeful more investors will look for fossil fuel free investments in their portfolios and anticipate this topic being a huge area of focus across the world – and in the investment industry – for years to come.
- Great Wealth Transfer: In the coming 25 years, as much as $68 trillion in wealth will pass from baby boomers to their heirs and charity, according to Cerulli Associates. This shift in capital is being dubbed the “great wealth transfer,” and the financial industry is taking note. Never before in America’s history has such a vast amount of wealth moved through the hands of generations. Financial advisers should consider this trend as 66% of children fire their parents’ financial adviser after they inherit their parents’ wealth, according to a survey by InvestmentNews. For a large majority of millennials, the best part of investing is the impact their money can have on helping make the world a better place. To best navigate the great wealth transfer and create a multigenerational practice, financial advisers should establish relationships with millennial and younger clientele to find out what is important to them. The great wealth transfer presents a compelling business case for financial advisers to become sustainability thought leaders and engage new and existing clients in their impact investing objectives.
 Source: Oxford University, Our World in Data, 2019