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ESG Growing Ever Greener

2:20 min read

According to NASA, carbon dioxide from human activity is increasing more than 250 times faster than from natural sources. Most of the world’s global warming took place in the last 40 years, with the last seven years being the warmest ever. Industries are taking notice and, according to a recent report by Goldman Sachs, there’s never been more interest in ESG products that aim to address the situation.

Sustainable Growth

Environmental, Social, and Governance, or ESG, make up the criteria used to evaluate companies by their efforts to stem global warming and social injustices. As such, 2020 was a particularly strong year for ESG products. The reasons why are speculative: the availability of ESG data increased, social issues dominated headlines, the cost of decarbonization fell, and awareness of the ESG sector rose.

“Despite the profound disruptions of 2020, or possibly in part because of them, 2020 was a banner year [for] ESG.”

2020 ESG outcomes
  • More ESG data became available.
  • Social issues moved to the foreground.
  • De-carbonization got cheaper.
  • Awareness of ESG began to grow among fixed income investors.

As stated in the report by Goldman Sachs’ Equity Research team, industries with exposure to stimulus packages, policies, and regulation will have an opportunity to leverage these developments through the growth and transition phase associated with emerging ESG standards. The study found that even Goldman Sachs' commodities teams are bullish on sectors with ESG end-market opportunities.

Sectors poised for ESG growth and transition opportunities

  • Auto
  • Steel     
  • Utilities 
  • Real Estate         
  • Mining 
  • Airlines 
  • Oil           
  • Tech Hardware

Benchmarks Taking Root

Principles for Responsible Investment (PRI) is a United Nations initiative that works to advance environmental and social factors with those of investing and corporate governance. UN PRI signatories abide by six guiding principles that make up the initiative's mission.

“[These] principles were developed by investors, for investors... signatories contribute to developing a more sustainable global financial system.” —The United Nations

  • Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
  • Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
  • Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
  • Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
  • Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
  • Principle 6: We will each report on our activities and progress towards implementing the Principles.

UN PRI compose the standard by which economic stakeholder participation in products and industries that adhere to ESG criteria are indicated. The number of signatories to UN PRI rose in 2020, along with the corresponding assets under management by signatory companies.

Not only did PRI signatories and reciprocal AUM increase in 2020, flows of ESG equity funds diverged from those of non-ESG funds. 

As ESG growth and transition continues to dominate across sectors, the lowering cost of de-carbonization, and rising demand for ESG themes ensure global companies will continue to prioritize the UN’s Principles for Responsible Investment.

To learn more about ESG’s impact around the world, download the report by the Goldman Sachs equity research team here: 
Download ESG Essentials, 2021

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