ESG investing has increasingly come into vogue in recent years. According to Bloomberg Intelligence’s (BI) latest ESG 2021 Midyear Outlook report, environmental, social and corporate governance (ESG) assets are on track to exceed $50trn by 2025, representing more than a third of the projected $140.5trn in total global assets under management.
Furthermore, the Global Sustainable Investment Association has said that ESG assets surpassed $35trn in 2020 up from $30.6trn in 2018 and $22.8trn in 2016.
It’s clearly then an area of large growth. It’s attracting a lot of institutional money as well as attracting investment from private investors.
However, is ESG investing worthwhile when it comes to deciding what to invest in?
Can ESG investing find the next big winners?
One of the reasons I’ll be generally avoiding picking shares based on ESG considerations is that a) it’s hard to define what constitutes a good ESG share and b) as a private investor I want to invest in the very best companies I can. I’m not at all convinced that ESG investing with its exclusions of certain companies based on environmental, social or corporate governance grounds can possibly help me do that.
It potentially excludes future big winners in place of companies deemed to be ESG friendly today.
How I’m looking to find the next big winners
One way, as I’ve explained recently, is to invest thematically. I’m keen to invest in the continued growth of clean energy, artificial intelligence, and e-commerce. These are all areas I expect can attract a lot of money from institutional and private investors. As such, share prices in these sectors could well keep going up. By backing high quality companies in these sectors, with good future prospects and robust balance sheets, I expect I could outperform the market.
Beyond that, as thematic investing is only a small part of my investing strategy, I also want to replicate the investing strategies of some of the most successful investors.
As a long-term investor, what I want to do is try and copy as far as my abilities and time allow is to try and replicate the behaviours of successful investors like Nick Train, Terry Smith, and Warren Buffett. They all invest in different companies and have slightly different styles and methods. What links them though is their conviction and their ability to stick through the tough times. As a result, all have outstanding past success.
That stems from being long-term investors in my opinion. So when thinking about investing in shares this year, I’m going to be mindful that any new investment I buy must have a very high chance of being a bigger and better company in three to five years time.
A word on small-cap shares
I’m keen also to invest some of my money into smaller cap shares, which struggled in the second half of 2021. That potentially makes some of these shares much better value. Shares such as National World, 4D Pharma, Totally, and Saietta Group could all be high risk, high return speculative stocks, which could boost my portfolio’s returns. Mainly though, rather than investing with ESG in mind, I’ll mostly invest long term in high quality companies that I think can provide income and growth.