Sustainability-Themed Investing: Affecting Change Through Disruption
In 2020, the pandemic drove massive growth in two investment areas: Thematic investment and sustainable investment. For example, the aggregate U.S.-listed Thematic ETF AUM quadrupled in value between the end of 2019 and the end of 2020, while ESG-oriented ETFs grew 223% in that same time period.
These two areas of investment are powerful on their own, but could potentially prove even more successful when used to complement each other. Sustainably-themed investments, therefore, could be a savvy choice for investors looking to maximize their investments in today's markets.
Choose impact investing.
ESG investments can be broken down into three categories:
- Integration
- Impact Investing
- Exclusions
While integration and exclusion-based ESG investing are common among ETFs, index providers, and public market investors, they make it difficult to view the direct impact of investments on sustainability.
Impact investing, on the other hand, makes it easier for investors to see how their financial investments bring about change in the area of sustainability. The problem with impact investing is that its definition can make it hard for investors to find investment choices that not only bring about change but also create profit.
Thematic investing may be able to alleviate this problem. For example, if investors target disruptive or innovative themes that also have the potential to drive environmental change, they position themselves to benefit from the growth of these industries while also achieving the sustainable investments they desire.
Here is a look at three thematic investment choices that can also support sustainability.
CleanTech and Renewable Energy
CleanTech and renewable energy are terms used to describe disruptive technologies that prevent negative environmental impacts. This field gained notoriety with the signing of the Paris Agreement in 2016, but in order to continue growing, will need $110 trillion in global investments by 2050.
Clean Water
Water's critical role in human life and civilization does not leave it immune to serious problems. Right now, more than 2.3 billion people face water shortages, unsafe drinking water, and related illnesses.
The path to alleviating these difficulties lies in finding sustainable water sources, creating new ways of treating water, and improving wastewater treatment and reuse processes. Innovations in technology can help to achieve all of these goals, including helping with the following:
- Water source monitoring
- Water filtration
- Irrigation
- Crop modification
- Water disinfection
- Operations software and automation
Investors looking to enjoy strong returns while making an environmental difference should consider sustainably themed investing that allow for both maximum growth and impact. Check out our investment ideas in ESG investing and alternative energy.