The changing face of ESG

In our most recent Investment Content Trends report, we show how, after months of declining interest in the topic, investors are once again reengaging with Environmental, Social and Governance (ESG)-focused content.

The ESG rollercoaster

The rise and fall (and potential rise again) of interest in ESG investing is a story that encompasses numerous ever-shifting and interlocking economic, regulatory, political, marketing and cultural factors. And the degree to which attitudes change in line with geography (even within single countries, such as the U.S.) makes analysis even more tricky.

Spotlight on the energy transition

Ultimately, across the sector, we are seeing a move away from the “S” and “G” components of the theme and renewed focus on the "E" aspect, which is being rebranded into an energy/climate transition narrative. Our own reading is that allocators see far more investment opportunities in the environmental space, and that results can be more easily defined through material evidence. This is particularly important from a regulatory and reporting perspective.

In terms of content, this is reflected in what is popular on the Savvy platform. Examples of useful papers published recently include PGIM’s “Megatrends: Fueling the Future - The Global Energy Landscape” and Robeco’s “Transition Investing: Exploring Alpha Potential”.

I point these out because they show where the appetite for ESG content lies—in terms of both content and approach. Thought leadership on the energy transition in particular is in high demand, and papers with titles that specifically state what their focus is on and/or the value investors will receive from engaging with them only boost their popularity.?Recent useful papers on cleantech, such as Nuveen’s “Levelized Cost of Electricity from Renewables” and those on other aspects of green infrastructure, including “Infrastructure Debt – Financing A Sustainable Future” from BNP Paribas, provide further insight.

It is easy to see why the energy transition is such a hot topic: China aims to significantly raise its terawatt capacity in the coming decades. The recent development and bringing online of a new, much safer nuclear reactor in Shandong province puts a very clear line in the sand. The U.S. will need vast amounts of capital to compete, especially when considering the projected energy demands of future artificial intelligence developments.

It is also worth noting that FTSE Russell’s *“Investing in the Green Economy 2024: Growing in a Fractured Landscape” and the video “Who Killed the ESG Party?” by the Financial Times offer differentiated viewpoints. These pieces are honest about some of the difficulties in ESG, promising authentic and robust viewpoints.

It will be interesting to see if the “S” and “G” elements of this theme go through a similar transformation in the months and years to come—we will be watching closely. ?

*For compliance reasons, this paper is restricted to certain geographies.