How ESG Investing Can Shape the Future of Business in 2024

ESG investing, which stands for environmental, social and governance investing, is a form of sustainable investing that considers the impact of a company’s activities on the planet, people and society. ESG investing has been growing rapidly in recent years, as investors seek to align their values with their financial goals and support businesses that contribute to positive change. According to Bloomberg Intelligence, ESG assets may hit $53 trillion by 2025, representing more than a third of the global total assets under management1.

But what are the key ESG investing trends that will shape the future of business in 2024? Here are some of the most important ones to watch out for:

• Combating climate change: The Paris Agreement made climate change and the factors affecting global temperature a key focus for businesses and investors. As the world faces the consequences of rising greenhouse gas emissions, such as extreme weather events, biodiversity loss and health risks, ESG investors will demand more action from companies to reduce their carbon footprint, adopt renewable energy sources and enhance their climate resilience. Companies that fail to address climate risks may face regulatory penalties, reputational damage and lower profitability. On the other hand, companies that embrace the green transition may benefit from new opportunities, innovation and competitive advantage. For example, green bonds, which are debt instruments that finance environmentally friendly projects, are poised to surpass $2 trillion in cumulative volume by the end of 2020.

• Restoring biodiversity: Biodiversity, which refers to the variety and richness of life on Earth, is essential for the functioning of ecosystems and the provision of natural resources and services. However, biodiversity is under threat from human activities, such as deforestation, overexploitation, pollution and invasive species. According to the World Wildlife Fund, the global population of vertebrate species declined by 68% between 1970 and 2016. ESG investors will increasingly recognize the importance of biodiversity for the long-term sustainability of businesses and the planet, and will support companies that protect and restore natural habitats, promote sustainable agriculture and forestry, and foster circular economy practices. For example, social bonds, which are debt instruments that finance projects with positive social outcomes, such as health, education and social inclusion, have seen a meteoric rise in 2020, driven by the pandemic and the green recovery efforts.

• Giving mental health the attention it deserves: Mental health, which refers to the psychological and emotional well-being of individuals, is a crucial aspect of human capital and social welfare. However, mental health issues, such as stress, anxiety, depression and substance abuse, are often neglected, stigmatized and underfunded. According to the World Health Organization, one in four people in the world will be affected by a mental or neurological disorder at some point in their lives2. ESG investors will increasingly acknowledge the impact of mental health on the productivity, creativity and engagement of employees, as well as the reputation, loyalty and trust of customers and stakeholders. ESG investors will support companies that promote mental health awareness, prevention and treatment, and that provide a healthy, supportive and inclusive work environment. For example, impact funds, which are funds that aim to generate positive social and environmental outcomes alongside financial returns, may target companies that offer mental health services, solutions and technologies.

• Eliminating social inequality: Social inequality, which refers to the unequal distribution of opportunities, resources and outcomes among different groups of people, is a major challenge for the global society. Social inequality can manifest in various forms, such as income and wealth gaps, gender and racial discrimination, human rights violations and social unrest. According to the World Economic Forum, the global gender gap is expected to close in 99.5 years, while the global income gap is expected to widen due to the COVID-19 pandemic2. ESG investors will increasingly demand more transparency, accountability and action from companies to address social inequality and foster social justice. ESG investors will support companies that pay fair wages, ensure equal pay for equal work, diversify their boards and management, respect human rights and labor standards, and engage with their communities and stakeholders. For example, sustainability bonds, which are debt instruments that finance both environmental and social projects, are expected to grow in popularity and volume in the coming years.

These are just some of the ESG investing trends that will shape the future of business in 2024. ESG investing is not only a way to express one’s values and preferences, but also a way to assess a new set of financial risks and harness capital markets to create positive change. ESG investing can help investors achieve both financial and non-financial returns, while also contributing to the global goals of sustainable development and climate action. ESG investing is not a niche, but a necessity for the future of business and society.