As a conscientious fund management entity, SafeRE remains steadfast in our commitment to ESG principles, epitomized by our ethical, innovative, and rewarding investment philosophy. These descriptors embody our core values, defining our daily commitment in every project, financing endeavour, and aspect of our operations.
For investors, the ESG landscape unveils opportunities and challenges. What lies in the future for ESG policies, and how can AI enhance ESG investing? How is sustainable investment opportunity expanding into private equity markets? This article explores these questions by examining ten anticipated trends and predictions in ESG for 2024, offering valuable insights for the upcoming year.
1. AUM growth for ESG funds remains resilient
Despite challenges posed by market shifts favouring value or shorter-term assets, ESG funds showcased resilience in 2023, sustaining growth. According to Morgan Stanley’s report, a historic milestone was reached as sustainable funds constituted 7.9% of total Assets Under Management (AUM) by the end of June. This substantial shift not only indicates a persistent upward trend in AUM but also underscores their adept navigation of market volatility.
In this market context, SafeRE, committed to ESG implementation, recognizes this achievement as a significant transformation in the investment landscape, emphasizing the growing preference among investors for sustainable investments.
2. The spectrum of ESG investing strategies is expected to expand
Millennial investors’ growing interest and evolving government regulations are diversifying sustainable investing into new areas. If Millennials follow through on their investment intentions, the market is likely to see a broader range of solutions. Beyond climate action, themes such as nature, biodiversity, transition finance (supporting companies’ journey to net zero), and inclusive finance (providing financing to underrepresented groups) are gaining traction. Social issues, such as the ethical implications of artificial intelligence, diversity, and accessibility to housing, healthcare, and education, are expected to gain prominence. Additionally, the societal impact of physical climate events will be a significant consideration.
3. Calling for a globally unified standard to define ESG investments
Determining which funds align with ESG standards and distinguishing ESG from non-ESG funds raises key questions. This is primarily because minor adjustments in sustainable fund criteria can lead to significantly different outcomes in financial performance and capital flows, prompting a more thorough examination of their true efficacy. In this context, institutional investors are closely monitoring regulatory and market developments. They strive to avoid greenwashing, ensuring transparency and a genuine commitment to making a positive impact.
4. The Expected Surge in Regulatory Policies
In 2023, global responsible investment regulations emerged, highlighted by Singapore’s MAS introducing the pioneering Singapore-Asia Taxonomy for Sustainable Finance. This innovative taxonomy, including a distinctive “transition” category, defines green and transition activities in eight sectors for climate change mitigation. Simultaneously, MAS proposed updated guidelines for insurers, banks, and asset managers to establish robust transition planning processes, aligning with the global shift to a net-zero economy. Looking to 2024, McBride anticipates a worldwide surge in ESG regulatory policies, driving increased investments in ESG compliance and reporting as governments mandate heightened transparency in corporate practices.
5. APAC showcasing substantial ESG investing potential
In the realm of ESG development across various regions, Morgan Stanley observes that Europe continues to hold the forefront in sustainable AUM and fund counts compared to other areas. Simultaneously, the APAC region is witnessing a surge in private capital, coupled with a parallel rise in sustainable investing, underscoring the substantial potential of this dynamic market.
Expanding on this positive trend, BNP PARIBAS notes that APAC leads globally in harmonizing private capital and sustainability, emphasizing shared values between asset owners and managers. APAC’s early leadership reflects a strong commitment to ensuring alignment between asset owners and managers on the ESG front.
In concert with this commitment, SafeRE emerges as a leader in revolutionizing real estate investing for discerning investors. Recognizing the increasing urgency for climate action, we note that private capital is poised to play a pivotal role in the collective effort to achieve net-zero goals. The coordinated efforts between APAC and SafeRE underscore a shared dedication to driving positive change in the investment landscape.
6. AI possesses dual attributes in ESG investing
AI technologies are integral to sustainable investing, serving diverse purposes. Morgan Stanley emphasizes the substantial potential of AI modelling to significantly enhance ESG data, aligning with the increasing importance of ESG considerations in investment decisions. Examples of AI applications in sustainable investing involve using machine learning to refine ESG metrics and AI-powered satellite imaging to identify adverse environmental patterns. Yet, AI tools also bring associated risks in ESG investments, encompassing concerns about data privacy, reliability issues, and potential model bias.
7. Sustainable agendas are valuable assets within the private equity
PwC‘s survey unveils a shift in the private equity industry, where sustainable agendas are now seen not as risks but as sources of value. Leading companies distinguish themselves by seamlessly integrating ESG factors into every transaction phase, from target identification to exit. Strategies encompass exploring investments in underfunded sectors, incorporating sustainability into exit plans from the outset, seeking green incentives and tax savings early in deal structuring, and considering innovative financing structures with low-cost green capital.
This transformation positions SafeRE with broader ESG recognition integral to the deal life cycle, aligning seamlessly with evolving perspectives in private equity. Here are considerations outlining how SafeRE integrates its ESG investment philosophy throughout the product life cycle.
For environmental aspects, we focus on energy efficiency, water conservation, waste management, and sustainable materials. Climate change impacts are considered from strategy setting to acquisition, due diligence, and ongoing management. Our compliance with laws is the baseline, with an inclination to exceed legal standards.
The same applies for social considerations. Social considerations, including tenant selection, health and safety, community engagement, and diversity and inclusion, are focal points for us. For society factors, we actively assess the impact of our activities on local communities, taking steps to ensure positive contributions.
Governance considerations encompass transparency, accountability, and risk management. We carefully evaluate the broader economic and societal impact of our actions, consistently acting in the best interests of all stakeholders.
8. Advocating ESG transparency and accountability
ESG factors are pivotal for robust risk management and value creation. The enhanced disclosure of corporate ESG practices makes specific and standardized information public, addressing sustainability aspects such as revenue, corporate practices, and the supply chain. Consequently, investors advocate for increased transparency and accountability in environmental and social performance.
9. Greenwashing takes the spotlight
Greenwashing, where products are falsely marketed as more eco-friendly than they are, becomes a significant concern in ESG investments for 2024. For the fund management industry, compliance becomes the key theme as companies making sustainability claims must adhere to rules ensuring clarity, fairness, and accuracy. Funds seeking to use green labels must demonstrate that a specified percentage of their assets align with the stated sustainability objectives.
10. Sustainable investment opportunity expands into private equity markets
The expansion of sustainable investment opportunities extends beyond public markets, reaching into areas like private equity. Private equity investors seek robust long-term premium returns tied to private investments. For fund managers, it is crucial to build climate resilience into business models due to the growing risks from extreme weather events. Infrastructure needs to last 8 to 10 years, matching private fund investment periods. Managing operational risk through secure locations and backup plans is key for better cash flow predictability in this changing landscape.
Despite ongoing debates about the potential for ESG investments to achieve excess returns, there is a prevailing industry consensus that ESG investments exhibit remarkable resilience during periods of economic recession. In response to the increasing investor interest in ESG and the heightened resilience observed in ESG investments in 2024, SafeRE will remain steadfast in its commitment to identifying opportunities that align with investors’ interests while enhancing their returns.
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At SafeRE, we view ESG principles as integral to our ethical conduct towards clients, directing our energy and activities towards investments that align with ethical standards. Our pursuit of high profitability is supported by ESG compliance, as non-compliance entails increased costs and penalties.
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