How Sustainable Investing is Shaping Market Dynamics

Growth and Trends in ESG Funds

MSCI's ESG and Climate segment saw significant growth, with organic run rate growth at 13% and operating revenues increasing by 16.1%. JPMorgan and Goldman Sachs are also heavily investing in ESG, with JPMorgan integrating sustainability principles and Goldman Sachs committing $750 billion to climate transition and inclusive growth.

"In our ESG and Climate reportable segment, organic run rate growth was 13%, which excludes about $4.8 million of run rate from Trove and the impact of FX and run rate growth for the reportable ESG and Climate segment was nearly 18% within Europe and close to 22% in Asia, while the Americas growth was 9%." --- (MSCI, earning call, 2024/Q1)

"Given the increasing focus on environmental, social and governance, ESG factors in investment decisions, could the Board provide more insight into JPMorgan's long term strategy for integrating sustainability principles into its operations and investment decisions?" --- (JPM, event transcript, 2024/05/21)

"We commend the company's commitment to achieve net 0 finance emissions by 2,050, aligning its finance activities within netzerotwo,050 pathway and deployed $750,000,000,000 across its financing investment and advisory activities by 2,030 to accelerate the climate transition and advance inclusive growth." --- (GS, event transcript, 2024/04/24)

"ESG and Climate Segment The following table presents the results for the ESG and Climate segment for the periods indicated: Three Months Ended March 31, % Change (in thousands) 2024 2023 Operating revenues: Recurring subscriptions $ 76,418 $ 65,732 16.3 % Non-recurring 1,466 1,326 10.6 % Operating revenues total 77,884 67,058 16.1 % Adjusted EBITDA expenses 56,793 49,182 15.5 % Adjusted EBITDA $ 21,091 $ 17,876 18.0 % Adjusted EBITDA margin % 27.1 % 26.7 % ESG and Climate operating revenues increased 16.1%, primarily driven by growth from recurring subscriptions related to Ratings, Climate and Screening products." --- (MSCI, sec filing, 2024/Q1)

"Organic operating revenue growth for ESG and Climate was 11.0%. ESG and Climate Run Rate as of March 31, 2024, was $320.6 million, up 14.9%." --- (MSCI, press release, 2024/04/23)

Impact on Corporate Strategies

Sustainable investing is driving corporate strategies by emphasizing cost reduction, production innovation, and efficiency (TSLA), reducing plastic usage (AMZN), enhancing transparency in political and charitable contributions (GOOG), and considering the impact on every business process (MSFT). These strategies align with sustainability principles, shaping long-term growth and operational focus.

"We will continue to adjust accordingly to such developments, and we believe our ongoing cost reduction, including improved production innovation and efficiency at our newest factories and lower logistics costs, and focus on operating leverage will continue to benefit us in relation to our competitors, while our new products will help enable future growth." --- (TSLA, sec filing, 2024/Q1)

"Our company is overdue on taking action on this important issue. Shareholders will benefit from this proposal by being able to clearly assess company policies and practices versus peers if Amazon agrees to report on its plastic footprint across company sectors and commits to goals to reduce the amount of plastic used for packaging globally. Please vote yes on this shareholder proposal number 11. Thank you." --- (AMZN, event transcript, 2024/05/22)

"It directly impacts Alphabet's reputation, operational focus, and ultimately, its long term financial performance. NOPC's proposal seeks to remedy this issue by asking members of the board of directors to disclose their political and charitable contributions, which will give shareholders greater insight into any personal biases that drive decisions that appear publicly to be politically left wing culture, exemplified most by the negative reaction among its senior leaders to the election of President Trump in 2016." --- (GOOG, event transcript, 2024/06/07)

"And I think in some ways, it's important to think about every business process that can be impacted and the opportunity that's represented by every business process." --- (MSFT, earning call, 2024/Q3)

"We are focused on profitable growth, including by leveraging existing factories and production lines to introduce new and more affordable products, increasing vehicle production, utilized capacity and delivery capabilities, reducing costs, improving and developing our vehicles and battery technologies, vertically integrating and localizing our supply chain, further improving and deploying our FSD capabilities, including through our planned robotaxi product, and expanding our global infrastructure, including our service and charging infrastructure." --- (TSLA, sec filing, 2024/Q1)

Regulatory Influences on Sustainable Investing

Regulatory influences are pivotal in shaping sustainable investing. Companies like Bank of America and BlackRock emphasize compliance and regulatory assessments in their investment strategies. Goldman Sachs and JPMorgan Chase highlight the potential impacts of regulatory changes on market dynamics and investment activities, while MSCI notes the evolution of markets due to regulatory shifts.

"Then it gives you the opportunity to continue to make those investments. And then at the same time, absolutely, you're constantly looking to make sure that you're running things as efficiently as possible, but not so efficiently that you start to lose out on compliance and on all the regulatory issues." --- (BAC, conference, 2024/05/08)

"If uncertainty and concerns about geopolitical tensions and the economic outlook remain elevated or grow, including those about central bank policy, inflation, the commercial real estate sector, and potential increases in regulatory capital requirements, it may lead to a decline in asset prices, a decline in market-making activity levels, or a decline in investment banking activity levels, and net revenues and provision for credit losses would likely be negatively impacted." --- (GS, sec filing, 2024/Q1)

"And looking forward, we expect loss rates to be relatively stable. Lastly, let's look at the changing regulatory environment. As you can see from the page, the industry is facing an onslaught of regulatory and potential legislative change." --- (JPM, event transcript, 2024/05/20)

"Investors are continuing to turn to BlackRock to unlock the full potential of their portfolios, as reflected by $1.9 trillion of net inflows in the past five years globally. In the U.S., BlackRock offers over 600 mutual funds and ETFs for investors to access different market exposures. As we evolve our platform and launch new strategies, we also constantly assess the regulatory and operating environment as well as how our funds are meeting investors' investment objectives." --- (BLK, press release, 2024/06/07)

"From regulatory changes to sector diversification, Saudi Arabia's #equity market has evolved since its inclusion in the MSCI Emerging Markets Index in 2019." --- (MSCI, twitter, 2024/06/27)

Changes in Investor Behavior

Investor behavior in sustainable investing has evolved significantly over the past few years, with a growing focus on understanding these changes. In 2024, there is a notable shift in investor appetite towards thematic investments, particularly in climate tech, reflecting a strong commitment to achieving Net Zero goals.

"That’s why understanding how it’s changed over the last four years, and may change in future, could be imperative for global investors." --- (MSCI, Twitter post, 2024/07/09)

"And to what extent do you think investor appetite may have changed in 2024?" --- (BLK, earning call, 2024/Q1)

"Blume Equity invests thematically in disruptive European climate tech scale-ups with the mission to help entrepreneurs accelerate growth and impact in the pursuit of Net Zero." --- (BLK, press release, 2024/06/25)

Performance Metrics of Sustainable Investments

Sustainable investments are assessed using various performance metrics such as Run Rate, subscription sales, and Retention Rate (MSCI). A fundamentally driven investment process can lead to compounding growth (BlackRock). Solid performance across asset classes and continued investment in growth are also key (Goldman Sachs). Business metrics are crucial for performance assessment (JPMorgan Chase).

"In addition, we utilize operating metrics including Run Rate, subscription sales and Retention Rate to manage and assess performance and to provide deeper insights into the recurring portion of our business." --- (MSCI, sec filing, 2024/Q1)

"This fundamentally driven investment process results in a concentrated portfolio of 20 to 25 positions that the investment team believes can compound growth in a way that is underappreciated by the market." --- (BLK, press release, 2024/06/18)

"We have a diversified platform across public and private markets and are delivering solid performance across asset classes, and we continue to invest resources in growing this business, particularly across Wealth Management, Alternatives, and Solutions." --- (GS, earning call, 2024/Q1)

"The Firm’s LOBs also provide various business metrics which are utilized by the Firm and its investors and analysts in assessing performance." --- (JPM, sec filing, 2024/Q1)

"They've built the entire ETF market.And we see all of those same opportunities in the private markets, standardized risk models, standardized benchmarks, the language of asset allocation, the measurement of performance." --- (BLK, M&A Announcement, 2024/07/01)

Sector-Specific Trends in ESG Investing

Sector-specific trends in ESG investing show a strong focus on human rights and community investment in e-commerce (Amazon), sustainable resource extraction in electric vehicles (Tesla), and renewable energy initiatives in tech (Apple and Alphabet). These efforts enhance productivity, profitability, and stakeholder value across industries.

"Our respect for human rights can create a motivated workforce that provides management with critical and timely information to reduce workplace accidents, improve relevant trainings and boost employee morale, thus enhancing productivity, profitability and ultimately shareholder value." --- (AMZN, event transcript, 2024/05/22)

"With expanding economies, strategic investments in mining infrastructure, and a burgeoning urbanization trend, Asia-Pacific remains a key player, driving substantial growth and influencing the dynamics of the global nickel mining market." --- (TSLA, press release, 2024/06/27)

"to human rights to developing ways to accelerate climate action. Across all matters related to the company, the Board works closely with our Investor Relations and legal teams to understand the perspectives of our investors.We value the input and support of all of Alphabet's stakeholders, from our employees and users to our partners and stockholders." --- (GOOG, event transcript, 2024/06/07)

"We're also investing in new solar and wind power in the U.S. and Europe, both to power our growing operations and our users' devices." --- (AAPL, earning call, 2024/Q2)

"Investing in the communities where we operate is a top priority, and we are thrilled to partner with state and local leaders in Indiana for many years to come. https://t.co/CjkjLdoPdy https://t.co/XmtY5mKpXj" --- (AMZN, Twitter, 2024/04/25)

Technological Innovations in Sustainable Investing

Technological innovations in sustainable investing are driving significant advancements. Companies like Avant and Tesla are leveraging high-performance immersible computer servers to enhance sustainability. Amazon's substantial investments in renewable energy projects and Apple's commitment to environmental innovation further illustrate how technology is reshaping market dynamics towards sustainability.

""The technological innovations that we expect this collaboration to yield will help to usher in a new era of performance, cost efficiency and environmental sustainability for AI and Big Data," said Timothy Lantz, CEO of Avant." --- (AAPL, press release, 2024/04/23)

"To get there, we’ve been the largest corp buyer of renewable energy in the world for four years running, according to BloombergNEF, and we’ve invested billions of dollars in more than 500 solar and wind projects worldwide." --- (AMZN, Twitter, 2024/07/10)

"With a commitment to innovation and sustainability, this acquisition of up to 50 high-performance immersible computer servers allows Avant to address the complex challenges of the digital era with cutting-edge solutions." --- (MSFT, press release, 2024/06/05)

""With a commitment to innovation and sustainability, the use of high-performance immersible computer servers allows Avant to address the complex challenges of the digital era with cutting-edge solutions while keeping the communities we operate in satisfied that we are committed to green energy facilities." As more data centers are being planned and built, communities throughout the country, where these facilities are being developed, are frustrated by the sheer size of some projects and the amount of power that large-scale centers and campuses require." --- (TSLA, press release, 2024/07/10)

"Our environmental work is another great example of how innovation and our values come together. As we work toward our goal of being" --- (AAPL, earning call, 2024/Q2)

Challenges and Risks in Sustainable Investing

Stakeholders' expectations on environmental justice, global challenges like climate change, and equitable access to sustainable investments highlight the complexities in sustainable investing. Financial institutions face significant challenges in aligning financing activities with sustainability goals and managing associated risks, necessitating robust risk analytics and tailored financial solutions.

"current and future expectations of investors, regulators and other stakeholders on environmental justice concerns and it will reduce the company's contribution to the systemic risk of inequality and financial and economic crises.In closing, we ask shareholders to vote for our proposal to ensure the company is adequately managing environmental justice risks and opportunities." --- (GS, event transcript, 2024/04/24)

"At the same time, global challenges like climate change, geopolitical tensions, macroeconomic uncertainty, and technological advancements have created new investment challenges and opportunities for risk leaders to monitor." --- (MSCI, press release, 2024/06/10)

"For low-income groups especially, the programme will help accelerate the development of sustainable financial management solutions, including providing access to growth funding or fintech founders that might otherwise have difficulty securing additional capital." --- (JPM, press release, 2024/05/14)

"In line with this approach, we have set interim 2030 targets across our financing activities related to certain high-emitting sectors (2030 Financing Activity Emissions Targets), operations and supply chain, all of which are further supported and complemented by our $1.5 trillion sustainable finance goal (which is aligned with the 17 UN Sustainable Development Goals) of which $1 trillion is dedicated to supporting the transition toward a low-carbon economy, including capital mobilized across clean energy sectors and tailored financial solutions for emerging areas of the low-carbon economy." --- (BAC, sec filing, 2024/Q1)

"With our position, with our role, we are going to do this with the same, I would say, industrial fortitude as we did in the early years when we were just an asset manager needing risk analytics, so we did it ourselves and then we are so proud of what we did ourselves, we offered it in the '90s to our clients. We are going to do this in the private markets." --- (BLK, earning call, 2024/Q2)