ESG Investing: Weathering Market Storms and Driving Growth in 2024 (2024)

ESG offers a host of business benefits that make it a must-have in the financial landscape. Just take a look at the investment trends—it's all the proof you need to see that ESG is here to stay.

The market volatility of 2023, with the federal interest rate hikes and fear of a potential recession in the United States, brought into focus the importance of ESG investing.

Investors turned to ESG as a risk management tool to safeguard against the projected market downturn. The influx of ESG investors has had a domino effect on corporate adoption of ESG. Corporations are rapidly adopting or strengthening their current ESG strategy to meet investor interest and expand their access to capital.

As such, 2024 is proving to be a year of much growth for ESG. From enhanced governance policies tackling greenwashing claims to increased regulatory oversight, ESG is reaffirming its status as a risk management tool driving profitability.

Let’s take a look at ESG investment trends and find out if adopting ESG is the next step for you. Spoiler alert: You'll be reaching out to your sustainability team before you know it!

Where the ESG Market Stands

ESG market shares are projected to increase despite its politicization in the U.S.

ESG funds in the U.S. have continued to see year-after-year record-setting net flows. In 2018, ESG equity funds brought in $5.5 billion in new assets compared to $20.6 billion in 2019. In that single year of investing, ESG funds grew by a remarkable 275%.

In 2020, ESG funds brought in $51 billion in new assets. That is approximately a ten-fold increase from the 2018 record high and double the previous year’s record of $20.6 billion. For many investors, 2020 with the COVID-19 pandemic and the world’s heightened awareness of climate change impacts, was a year in which investors could no longer ignore the benefits of ESG funds.

Unlike other forms of sustainable investments, ESG offers better downside protection in unstable markets and does not forgo profitability in favor of advancing social or environmental goals. As a result, investors are pushing for greater access to a larger pool of ESG funds.

In 2021, the number of ESG funds available to investors increased by 36% for a total of 534 accounts. Demand for ESG is largely being driven by investor interest in sustainability. Investors are reallocating their money to ESG funds to incentivize the transition to a low carbon economy that promotes sustainable development. The ever increasing pressure from investors once again precipitated a new record high of net flows at $120 billion for ESG funds in 2021.

The explosive growth of ESG funds from 2018 to 2021 came to an abrupt stop in 2022. While 2022 still resulted in positive net flows, the year ended with $3.1 billion in new assets instead of the averaged $47 billion annual collection seen in the previous three calendar years.

The decline in ESG fund growth can be attributed to the overall market conditions in 2022. Federal interest rate hikes, lingering supply chain issues from COVID-19, and the looming fear of a recession prompted investors to withdraw their assets from the U.S. market. As a result, conventional funds in the U.S. saw approximately $370 billion in outflows.

The politicization of ESG in Q4 of 2022 and the resulting en masse withdrawals from ESG funds also played a role in the sudden decline of ESG performance. Anti-ESG lobbying and rhetoric continued into 2023, leaving many investors wary about the future of ESG.

Esteemed investment research firms such as Morningstar, JP Morgan, and Goldman Sachs reminded investors that one year of underperformance does not weaken or diminish a category’s overall trend of high performance, emphasizing that global ESG funds are projected to reach $53 trillion by 2025, accounting for one third of all assets under management (AUM).

ESG: Real Results

Despite the rocky year ESG had in 2022, 72% of Green Builder Media’s COGNITION survey respondents reported that they already have ESG-related investments in their portfolios. In the next 12 months, 60% of all respondents–regardless of their current ESG investment status–are somewhat likely or very likely to increase their investment in ESG.

Other institutions have yielded similar results with an underlying trend of investors planning to increase their allocation to ESG funds. A 2023 PwC report found that 75% of private market investors will halt any future investment in non-ESG products. This bodes well for ESG performance in the second half of 2024 and beyond.

In the early years of ESG investing, there was some speculation that ESG would be a short-lived fad. The increased demand from investors for new ESG funds and products has proven to the investing world that ESG is not a fad but a permanent fixture of the investment landscape.

If you haven’t adopted an ESG strategy, the time is now!

Need a Hand with ESG?

Now more than ever, companies need to have an ESG strategy in place to demonstrate their commitment to sustainability to stakeholders. Here at Green Builder Media, we understand that crafting a robust ESG strategy isn't always a straightforward process—it can be challenging.

Rest assured, we've navigated this journey ourselves, developing the ESG for Building Defining Principles—a tailored ESG roadmap specifically designed for companies in the North American residential new construction sector. We're here to simplify your ESG journey.

Take our ESG readiness survey to assess your current standing. And if you're feeling lost, don't worry, Green Builder Media offers ESG consulting services.