At the start of the month, the UK government declared it will impose a mandatory obligation for pension funds and listed companies to publish climate-related risks by 2022. Central banks are following the movement as well, with Bloomberg reporting that ‘almost $31 billion has flowed into investment funds strategies that emphasise good governance and socially responsible business practices’.
Yet despite the growth of this burgeoning new economy, hedge funds may be lagging behind. If legislation and financial institutions continue to go by this way, hedge funds won’t have any more choice other than to move forward or suffer inevitable penalties.
What’s more, a 2017 Morgan Stanley report found that millennials are twice as likely as other investors to put their money into social or environmental investments. As this cohort matures and continues to gain more wealth, tapping into their eagerness to invest in ESG funds is opportune.
Millennials prefer to invest in funds that have a positive effect on the environment, instead of feeding the craziness consumption society where make, take and waste are kings. This is a generation that acknowledges the waste problem that society faces. They are consciously consuming and engaging with the circular economy in a bid to counteract the environmental challenge of tomorrow.
The adoption of the Paris climate agreement in 2016 moved the entire international community to commit to combating climate change. By consequence, the circular economy has been growing and holds huge potential for investors. It answers to the waste problem that is at the forefront of millennials’’ concerns, through the distribution of decarbonised assets and funds, as well as seeing the rise in popularity of ESG funds. It is a movement that is operating on a global level and hedge fund managers must acknowledge this societal shift.