A Very ESG 2021

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Hey there,

This week we’ve taken a break from our usual format to highlight some of 2021’s biggest milestones and breakthroughs in values-aligned investing. We also want to thank you for making us a part of your investing journey.

We started this newsletter to demystify how to invest in ways that are good for the planet and society and to give each of you the confidence you need to move from conscious consumers to conscious investors. Concepts like ESG and impact investing have never been more popular, but we noticed few jargon-free resources online. So, in June of this year, we wrote the first edition of FWIW and have been humbled to see so many of you join us every week to learn and explore (and, we hope, chuckle a few times) with us. However you found FWIW, — through a referral from a friend, Twitter, Instagram or some other way — we are growing quickly, and it’s all thanks to your reading and sharing.

A lookback at 2021

Meme stocks and SPACs may have grabbed the most eyeballs this year, but as we get closer to the New Year’s Eve countdown, we want to celebrate with you the big wins for socially responsible and sustainable investing. Here’s our list of 2021’s biggest milestones and breakthroughs:

1.  Sustainability and ESG funds reach record levels

In this season of good cheer, here at FWIW, we couldn't be happier to see the explosive growth in sustainability and ESG funds, as individual and institutional investors propel cash into assets that prioritize what is beneficial for the long-term.

Globally the money in funds with a sustainability objective and/or binding ESG criteria took off like a SpaceX rocket, reaching $3.9 trillion at the end of September, double what it was six months prior, according to Morningstar. In the US, these assets totaled $330 billion, 1.8 times their value at the same time in 2020. A record 38 new sustainable funds were launched in Q3, bringing the total to 484. (Keep in mind this is against the backdrop of over $1 trillion flowing into ETFs around the world this year and an explosion in new funds.)

Launched in 2016, the biggest such fund is the iShares ESG Aware MSCI USA ETF (ESGU). It ended 2019 with assets below $2 billion. By the end of 2020, it was at $13.4 billion, and as of mid-December 2021, it was at $24.5 billion. How’s that for “to the moon”?

2.  Make Way for Impact IPOs

This year US retail investors had more opportunities to put their money in mission-focused startups with social and environmental impact than ever before. Rivian, Warby Parker, Sweetgreen, Allbirds, Rent the Runway, AppHarvest, Sono Motors, and Chobani are just a few of the impact-focused companies that filed to go public or made their stock market debut this year. This expands the pool of potential investments that values-aligned investors can focus on, both now and in the future.

3.  Green technology in the fast lane

As we discussed in a recent edition, 2021 has been incredibly exciting for electric vehicles with new battery technology bringing costs down and expanding driving range. Several electric versions of America’s beloved pickup trucks were announced, something analysts hope will drive (hehe) EV adoption here. Ford’s foray into the market has generated such demand and excitement that the stock is among the top performers of 2021, up almost 125% as of mid-December. Not as sexy, but FedEx, Amazon, and UPS are also making their delivery van fleets more electric.

Challenges remain, like raw material supply, but companies are developing workarounds. However, significant expansion of funding for charging infrastructure will be crucial if half of all new car sales are to be EVs by 2030 as many people hope.

4.  Bonds on pace to raise all-time-high amountWorldwide green, social and sustainability bonds had a record first nine months in 2021, raising $777.6 billion, according to Refinitiv. This was an increase of 57% from the same period last year. Want to learn more about green bonds? Check out this FWIW article from September.

5. Disclosures becoming the norm

In 2021, nearly 82% of the 100 largest US companies (by reported revenue) either mentioned or disclosed their ESG policies, an increase from just 10.3% of companies in 2017. There’s still a long way to go before we have high-quality, audited data across the board, but this year brought new hope after US federal regulators began readying new rules for mandatory disclosure of carbon footprints.

6.  Labor lens investing in the spotlight

Pushed to the brink during the pandemic, American workers have been reevaluating their jobs and quitting in record numbers. Unsurprisingly, this has been accompanied by unprecedented union efforts at Starbucks and Amazon and strikes and protests have been held across the country at health care facilities, airports, universities, news organizations, cake suppliers, and corporate giants like Kellogg.

This focus on labor has also been an important lens for investors. One example of this shift can be seen at FedEx, where the use of flexible contract workers had previously been perceived to give the company an advantage. Yet currently, FedEx is now struggling to find the help they need. At the same time, rival UPS’ fortunes have improved as their higher-paid ($36 an hour on average) and unionized workers have stuck with them for longer during this period of turmoil. “As the cost of turnover continues to rise, and as today’s labor shortage becomes tomorrow’s norm, many companies may have no choice but to focus on the needs of their workers as key stakeholders to ensure their long term success.

7. Board Diversity No Longer a Nice To Have

This year more and more institutions announced new rules that impact the demographics of boards on companies that seek to be listed publicly. Goldman, the New York Stock Exchange, and the Nasdaq stock exchange were just a few of the market influencers who now are calling on companies going public or listed on major exchanges to have diverse board members. Those listing on NASDAQ will also need to publicly disclose board diversity statistics so that investors have a clearer picture of who is at the board table so they can make more informed decisions.

8. Shareholder activism

Shareholder activism, particularly around issues that are related to ESG, made real breakthroughs in 2021. And the effectiveness of ESG-related proposals at driving headlines and gaining votes has had a real impact on company boards and CEOs. One study showed that Engine No.1, a small activist hedge fund buying stakes in companies to push them to reduce their carbon footprint, sent shockwaves through Big Oil earlier this year when it won the right to fill three board seats at Exxon Mobil. Engine No. 1 accomplished this by convincing Exxon’s three largest shareholders, asset managers BlackRock, Vanguard, and State Street, to support its campaign to shake up leadership and strategy, perhaps a sign of shifting tides. Index fund managers vote on behalf of their investors, but in October, BlackRock decided to give some big clients like pension funds a say. The world’s largest asset manager is also reportedly amping up the pressure on companies with regards to climate-related risks and board diversity.

9. Power is shifting to younger, more diverse investors

Millennials, Gen Z, and women have more economic power than ever before, and they are making an impact on the financial world. Millennials and Gen Z are earning more, saving more, and investing earlier and at a higher rate than previous generations, and women are bringing a new eye and different expectations than generations from previous eras. Not only are millennials the largest workforce in US history, but they, together with Gen Z and women, are poised to be on the receiving end of a wealth transfer of tens of trillions of dollars, which is already underway.

When millennials and Gen Z deploy their capital, they are investing with a different set of expectations than their parents: 95% say they want to use their financial capital for socially responsible investing. 57% of those who have invested report that they have sold stock when they think the company is not serving the best interest of society or our planet. Their passion for environmental, social, and governance (ESG) investing has helped drive the 10x growth in ESG inflows in just two years, and we, having seen the excitement for FWIW, are expecting this to continue and to expand. Frankly, we can’t wait!

While reading the headlines can feel like a blast from an Arctic cold front, we hope that this look back at the changing financial landscape and the growth of socially responsible and sustainable investing in 2021 helps give you some hope and brings a little sunshine to your outlook as we look toward 2022.