As we navigate through 2024, socially responsible investing (SRI) continues to gain momentum, driven by heightened awareness of environmental, social, and governance (ESG) issues. Investors are increasingly aligning their portfolios with their values, recognizing the long-term benefits of sustainable and ethical investment practices. This article explores the top five trends in SRI for 2024, supported by data and insights from reliable sources.
Climate change remains at the forefront of ESG concerns, with investors focusing on companies that actively reduce their carbon footprints and adopt sustainable practices. The urgency of addressing climate change is underscored by the increasing frequency and severity of climate-related disasters, such as floods, hurricanes, and wildfires.
The carbon credit market is emerging as a significant trend, with carbon credits functioning as a new form of currency in the fight against climate change. Companies that reduce their carbon emissions can sell carbon credits, providing a financial incentive for sustainability initiatives. This market mechanism not only helps companies achieve net-zero emissions but also promotes investment in climate-positive projects.
The Climate Investor One and Climate Investor Two funds, managed by Climate Fund Managers, exemplify successful investments in climate-positive outcomes. These funds are expected to generate substantial amounts of renewable energy and significantly reduce carbon emissions, demonstrating the potential of targeted climate investments.
Source: Sanlam Investments
As SRI becomes more mainstream, the demand for transparent and standardized ESG reporting is growing. Investors require reliable data to assess the sustainability of their investments accurately. Standardized measurement frameworks are essential for ensuring consistency and comparability across different companies and sectors.
In 2024, new frameworks for ESG reporting are being developed and adopted. These frameworks include guidelines from the International Sustainability Standards Board (ISSB), which provide a comprehensive set of standards for sustainability disclosures. These standards help investors make informed decisions by providing clear and consistent information on companies' ESG performance.
Standard
Description
Benefits
ISSB Standards
Comprehensive guidelines for sustainability disclosures
Consistency, transparency, comparability
Global Reporting Initiative
Framework for reporting on economic, environmental, and social impacts
Broad applicability, stakeholder engagement
Task Force on Climate-Related Financial Disclosures (TCFD)
Recommendations for climate-related financial disclosures
Focus on climate risks and opportunities
The market for green and social bonds is rapidly expanding as investors seek to fund projects that address critical environmental and social issues. Green bonds finance projects that promote environmental sustainability, while social bonds support initiatives that generate positive social outcomes.
South Africa exemplifies the potential of green bonds, particularly in addressing the country's energy crisis. Investments in alternative energy projects through green bonds are helping to diversify the energy mix and reduce reliance on fossil fuels. Additionally, innovative structures like debt-for-nature swaps are emerging, allowing countries to refinance their debt in exchange for commitments to environmental conservation.
Source: Sanlam Investments
Investors are increasingly integrating ESG considerations across all asset classes, from equities and fixed income to real estate and private equity. This holistic approach ensures that all investment decisions account for material ESG risks and opportunities.
Portfolio managers are adopting a fiduciary role to engage with investee companies on ESG issues. This engagement promotes better corporate practices and aligns investments with long-term sustainability goals. By incorporating ESG factors into their investment processes, managers can enhance financial performance while contributing to positive social and environmental outcomes.
Asset Class
ESG Integration Strategies
Expected Outcomes
Equities
Incorporating ESG scores into stock selection
Improved risk management, enhanced returns
Fixed Income
Evaluating issuer's ESG performance before investing
Reduced credit risk, stable income streams
Real Estate
Investing in energy-efficient buildings
Lower operating costs, higher property values
Private Equity
Supporting companies with strong ESG practices
Long-term value creation, positive impact
Impact investing is gaining traction as investors seek to generate measurable social and environmental benefits alongside financial returns. This approach goes beyond traditional ESG integration by actively targeting investments that address specific societal challenges.
Leveraging private debt to support small and medium-sized enterprises (SMEs) is a notable trend in 2024. SMEs often face challenges in accessing traditional financing, and private debt can provide the necessary capital to drive growth and job creation. By investing in SMEs, investors can make a tangible impact on local economies and contribute to social inclusion.
Sanlam Investments' private equity investment in SkipWaste, a leading provider of integrated waste management services in Gauteng, South Africa, highlights the potential of impact investing. SkipWaste not only addresses the region's waste management challenges but also provides critical employment opportunities for youth from disadvantaged backgrounds.
Source: Sanlam Investments
The trends in socially responsible investing for 2024 reflect a growing recognition of the importance of aligning investment decisions with broader societal and environmental goals. From tackling climate change and enhancing ESG transparency to expanding the market for green and social bonds, integrating ESG across asset classes, and supporting impact investing, these trends demonstrate the potential for SRI to drive positive change while delivering competitive financial returns. As investors continue to prioritize sustainability, the financial industry is poised to play a pivotal role in shaping a more equitable and sustainable future.
By staying informed about these trends and incorporating them into their investment strategies, investors can contribute to meaningful progress on critical global challenges while achieving their financial objectives. The continued evolution of SRI underscores the potential for finance to be a force for good, driving sustainable development and creating lasting value for all stakeholders.
Reference
1. Amundi Research Center, "2024 Responsible Investment Views," Amundi. Available at: Amundi Research Center.
2. Fund Fellow, "Socially Responsible Investing: Making an Impact with Your Money in 2024," Fund Fellow. Available at: Fund Fellow.
3. Sanlam Investments, "Top Trends in Sustainable Investing for 2024," Sanlam Investments. Available at: Sanlam Investments.
4. EBnet, "Sanlam Investments’ Top Trends in Responsible Investing for 2024," EBnet. Available at: EBnet.