Why ESG Now

The key factors driving demand

As the torrent of money into ESG vehicles continues to flow, the question running through many people’s minds is “why now?” To me, there are three major factors driving the interest. First, COVID and climate change related natural disasters. Second, the recent assessment report from the UN Intergovernmental Panel on Climate Change (IPCC). Third, the upcoming Oct/Nov. COP 26 UN Climate Change Conference. Each of these should be no surprise to anyone closely following ESG investments, but each of these is occurring in a close sequence helping drive investor demand.

When it comes to COVID’s impact, it’s important to remember it’s perception, not the direct connection that matters to investors. JPM did a recent survey that asked, “In your view, what will be the implications of the COVID-19 crisis for ESG investment momentum in the next 3 years?” 55% answered in a positive box indicating they perceived there was a close connection between the two even though there’s no direct cause and effect between them. (Ok, you can make the case that the Chinese reaction to COVID and the shutting down of supply chains is a direct connection.) And since COVID has not been even close to being controlled, the headlines, outbreaks and deaths continue to push the momentum.

Climate change or temperature change and natural disasters are directly connected to the ESG theme. NOAA’s 2020 Global Climate Report from their National Centers for Environmental Information heightened the attention to dramatic rise in recent temperatures in the world. The graph below visually makes a strong, credible case for the belief that this rise in temperatures is not cyclical or naturally occurring. As it states in the report, “…every month of 2020 except December was in the top four warmest on record for that month.”

On the natural disaster front, China, Europe, Japan, Australia and the United States have all recently had unusual flooding considered “once in a 100-years.” Except, these are occurring with frequencies that appear to be every 5 years. Germany was particularly surprising as the amount of rain falling was not only unusual (6 inches in 24 hours) but devastating…