ESG Investing: new challenges and new opportunities

Abstract

Purpose. Environmental, social and governance (ESG) investing has gained substantial force over the past few years. Worldwide, 21 trillion USD have been spent on sustainable strategies according to Deutsche Bank estimates. The latest data from the industry suggest that ESG investing is growing, and this means new challenges and opportunities for financial market participants, for example thematic investing within ESG, which should be considered as an innovative approach.

The goal of this paper is to study the historical development of ESG investing, identifying potential problems in recent years. Furthermore, it is necessary to forecast potential developments on the ESG investing horizon, and to propose and test an ESG investment strategy which could outperform the market.

Design/methodology/approach. A study of the historical development of ESG investing, identifying potential problems such as lower profitability, is performed based on a literature review. Moreover, a thematic ESG portfolio adjusted to the “silver economy” trend was constructed, and its performance and spread was tested over 5 years.

Findings. The research proves that the performance of the thematic ESG portfolio adjusted to the “silver economy” trend over the past 5 years includes the positive trend of the senior population and performs better than its benchmark – the SandP 500.

Originality/value. The paper contributes to development of investment strategy in the currently popular ESG environment, providing a reference point for both institutional asset managers and private financial market investors.