2020 was a pivotal year for investments that have a green environmental footprint. The pandemic and its effects have brought to the spotlight the need for investment that will rebuild the global economy with respect for the environment and the creation of better conditions for society. 2021 is expected to be a milestone year for ESG-labeled investments. With $ 5 trillion in "green" investments in America and Europe, it is estimated that in 2025 ESG funds will manage $ 53 trillion that is, capital inflows are estimated to have an average annual growth rate (CAGR) of 31%.
It is no coincidence that the decade we are going through has been described as a "golden decade" for ESG funds. These developments have led valuations to extremely high levels with investors fearing a new bubble. However, regulatory authorities in Europe, America and China are already taking initiatives to ensure full transparency, and after strong returns that had been recorded in 2020, for some stocks of the sector has come time to open positions.
Investors must not forget a key parameter. ESG sector is in its infancy and stocks tend to discount the future. And as last quarters’ financial results have revealed, the future is expected to be extremely auspicious. Europe is a leader in “green” investments, with the sector’s stocks recording high returns and with the corresponding bond issues breaking all records. Considering the decision of Vanguard and BlackRock not to reinvest capital in companies that do not have an ESG Score, one realizes that investment capital is expected to be abundant.
In investments it is necessary to follow the flow of capital so as to always be where most of the capital is. However, there are times when you need to analyze potential targets that could attract funds. Nowadays, this happens more and more often as a trend has been created, which has specific characteristics regarding the placement of funds.
We are talking about the so-called activist investors, who at the moment seem to have a significant interest in investing in ESG companies with specific characteristics. We therefore estimate that in the next period there will be a new significant inflow of capital in sectors ranging from oil to finance.