Welcome once again to Mintos Insight, your go-to guide for all things finance. In our last look at fintech trends, we explored the evolving world of fintech and the influence of Artificial Intelligence (AI). We demonstrated how AI is not just a buzzword, but a substantial force propelling the fintech industry forward, from personalization, risk management, to customer service.
As we move into our October edition, we highlight the emerging trends set to define 2024. The pace of change in the fintech world is breathtaking, and staying proactive is essential for success and sustainability.
Navigating the green wave: the emergence of ESG principles
The shift towards sustainable investing, underpinned by Environmental, Social, and Governance (ESG) principles, is a reflection of broader societal values and is projected to continue its upward trajectory. The data suggests that global ESG assets are on a course to significantly increase in the coming years. According to Bloomberg Intelligence, these assets are expected to grow from about €38 trillion in 2022 to approximately €47-€49 trillion by 2025.1,2
Green bonds and ESG ETFs
The above-mentioned shift is vividly illustrated by the burgeoning market for green bonds and the increasing interest in ESG Exchange-Traded Funds (ETFs).
The sustainable bond market witnessed a strong dominance of green bonds, with a total of 935 green bonds being issued that accumulated €330 billion, marking the first half of 2023 as a record six-month period in terms of capital value garnered from investors. This trajectory also positions 2023 to potentially set a new annual record for green bond issuances.3
On a parallel track, the ESG ETFs are making substantial strides. The data unveils a compelling narrative; during April 2022, ESG ETFs globally saw net inflows of €6.4 billion, bringing the year-to-date (YTD) net inflows to €29.6 billion, which was lower compared to the YTD net inflows of $66.65 billion at the same juncture in the previous year (2021).
Further into 2022, ESG ETFs aligned with environmental, social, and governance outcomes accounted for 65% of all net inflows into European ETFs, amassing €51 billion over the year out of total flows to European-domiciled ETFs of €78.4 billion.4
The trail of these metrics paints a compelling picture of the evolving investment landscape. It’s not just about the allure of potentially higher returns; the movement emphasizes a broader, more profound shift taking place.
Investors and institutions are aligning their financial strategies with environmental, social, and governance principles, mirroring a larger societal pivot towards sustainability and ethical conduct. The robust market for green bonds and the growing allure of ESG ETFs are emblematic of this shift, heralding a new era where finance synergizes with sustainability to foster a greener and more equitable global economy.
Stepping stones to a sustainable financial ecosystem
The European Union (EU), with its ambitious green agenda, continues to lead the charge towards a more sustainable financial ecosystem. A significant milestone in this journey is the unveiling of the Sustainable Finance Package 2023 by the European Commission on 13 June 2023. This initiative aims to fortify the existing sustainable finance framework, steering it towards a more significant impact on real-world environmental challenges.5
Broadening the EU taxonomy
Central to this package are pivotal enhancements to the EU taxonomy, a tool designed to assist investors, companies, issuers, and project promoters in navigating the transition to a low-carbon, resilient, and environmentally sustainable economy.
The 2023 package propels the taxonomy further by introducing technical screening criteria for a broader array of economic activities. Unlike before, the taxonomy now extends beyond climate objectives to embrace other critical environmental goals, including sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.6
These enhancements are methodical responses to the evolving landscape of sustainable investing. By encompassing a wider range of economic activities across diverse industries such as manufacturing, transport, technology, and professional sectors, the taxonomy facilitates a more nuanced approach to sustainable investing. It enables financial market participants to disclose their products’ alignment with these broadened objectives starting from 1 January 2024, with a more structured reporting framework for companies initiating from 1 January 2026.
This expanded scope is expected to enrich the data available to investors, thereby fostering more informed investment decisions.
ESG ratings: enhancing transparency
Alongside the taxonomy evolution, the package also casts a spotlight on ESG ratings providers, acknowledging their growing significance in the sustainable finance value chain.
A new regulation is proposed to enhance the reliability, comparability, and transparency of ESG ratings activities within the EU. This move aims to foster transparency and good governance across the market without harmonizing the methodologies used by ESG ratings providers. The regulation underscores the necessity of employing rigorous, systematic methodologies and mandates public disclosure of data sources, methodologies, and assumptions used in ratings activities.7
As the regulatory landscape morphs, adapting to these changes could prove pivotal. It’s about navigating the green wave with a clear understanding of the evolving frameworks and leveraging them to not only mitigate risks but also to unlock new opportunities in the sustainable finance domain. The blend of a more comprehensive EU taxonomy and a robust regulatory framework for ESG ratings providers could serve as a solid foundation for investors aiming to align their portfolios with the broader move towards sustainability and ethical conduct.
Fueling the surge
The growing interest in sustainable investing reflects a broader understanding: economic progress and positive global impact can go hand in hand. It’s no longer just about chasing higher returns; it’s about aligning financial growth with sustainable and ethical practices.
The data from the green bond market and ESG ETFs reveal a significant shift in investment approaches, showcasing a collective move towards sustainable and ethical financial practices. This change is setting the stage for a financial landscape where sustainability is at the forefront, leading to a greener, more equitable global economy.
As we approach 2024, sustainable investing isn’t just a promising path; it’s a crucial avenue for investors looking to align their portfolios with the broader move towards sustainability. The rise of ESG-aligned financial instruments is not just a statement on their financial viability, but a signal towards a more equitable and sustainable global economy. It encourages investors to look beyond traditional financial gains, embracing a dual objective—seeking solid financial returns while contributing to a positive global impact and minimizing risks. The growing appeal of ESG-aligned financial strategies indicates a clear shift in the investment landscape, aligning with global sustainability goals.
Investors are no longer just making financial decisions; they are actively participating in a larger movement, steering the global economy towards a resilient and shared prosperity.
Key takeaways for investors on Mintos
- Dual objectives in investing
The investment landscape is evolving from solely chasing financial returns to achieving a balance between financial growth and positive global impact. This dual objective encourages investors to look beyond traditional financial gains, aligning their investment strategies with sustainable and ethical practices.
For investors on Mintos, this means an opportunity to diversify portfolios, minimize risks associated with environmental and social factors, and contribute to broader positive impacts, all while seeking financial returns.
- Young investors are driving change
The surge in sustainable investing is significantly fueled by young investors, who are aligning their financial growth with sustainable and ethical practices. This demographic is setting a precedent in the investment sphere, highlighting a collective move towards sustainability. Understanding this shift and potentially adapting to it could be pivotal for investors on Mintos, as it indicates a long-term trend that’s reshaping the investment landscape.
- Leveraging ESG for risk mitigation
The core tenets of ESG not only align with societal and environmental responsibility but also play a crucial role in risk mitigation and the creation of long-term value.
By adhering to ESG principles, investors can potentially shield their portfolios from regulatory, reputational, and operational risks associated with environmental and social factors.
Moreover, companies that prioritize ESG are often seen as forward-thinking and sustainable, which can translate to long-term value. Therefore, understanding and integrating ESG principles into investment strategies could serve as a prudent approach to not only align with global sustainability trends but also safeguard and enhance portfolio value over time.
Mintos Activity: September 2023
The month of September has shown promising growth on Mintos. Total investments saw a significant increase with €94.9 million worth of Notes funded, and interest earned by investors climbed to €4.1 million. This upward trend was primarily driven by the same trend we observed in August,” explained Peteris Mikelsons, Head of Partnerships.
The average interest rate for September stood at 12.5%, translating to an annualized average net return of 10.4% (YTD 7.7%). The cumulative interest earned by investors on Mintos has now reached €250.6 million, and the total assets under administration are now €599.8 million.
Mikelsons added, “Investments in Notes totaled €94.9 million in September – the same as in August given the number of days in each month,” further emphasizing the consistent investment levels.
The availability of Notes for investment in EUR has risen to €86 million, marking an increase from the previous month’s €80 million,” Peteris Mikelsons reported, highlighting the positive growth in available investment opportunities.
This is a marketing communication and in no way should be viewed as investment research, advice, or recommendation to invest. There is no guarantee to get back the invested amount. Past performance of financial instruments does not guarantee future returns. Investing in financial instruments involve risk; before investing, consider your knowledge, experience, financial situation, and investment objectives.
1 The bright spots in a complicated ESG framework. (2023, January 7). World Economic Forum. https://www.weforum.org/agenda/2022/07/still-reason-for-optimism-about-esg-investing/#:~:text=Environmental%20social%20and%20corporate%20governance,and%20%2450%20trillion%20by%202025
2 Rethinking the governance of ESG | United Nations Development Programme. (n.d.). UNDP. https://www.undp.org/future-development/signals-spotlight/rethinking-governance-esg#:~:text=Signals,in%202021
3 Global green bond issuance reaches record high of $351bn in first six months of 2023 amid evolving regulatory landscape | News | About Us | Linklaters. (n.d.). Linklaters LLP. https://www.linklaters.com/en/about-us/news-and-deals/news/2023/july/global-green-bond-issuance-reaches-record-high-of-351bn-in-first-six-months-of-2023#:~:text=Green%20bonds%20continued%20to%20dominate,year%20for%20green%20bond%20issuances.
4 ETFGI reports ESG ETFs listed globally gathered net inflows of US$6.83 billion US dollars during April 2022 | ETFGI LLP. (2022, May 23). ETFGI LLP. https://etfgi.com/news/press-releases/2022/05/etfgi-reports-esg-etfs-listed-globally-gathered-net-inflows-us683
5 Fagan, J. V. S. F. R. B. K. R. A. B. R. N. B. M. D. B. S. B. D. F. W. B. D. M. R. C. W. V. H. P. (2023, June 14). EU Commission publishes sustainable finance package including Taxonomy Delegated Acts and FAQ. Passle. https://sustainablefutures.linklaters.com/post/102iguv/eu-commission-publishes-sustainable-finance-package-including-taxonomy-delegated#:~:text=On%2013%20June%202023%2C%20the,climate%20neutral%20and%20sustainable%20economy
6 Implications of the European Commission’s June 2023 Sustainable Finance Package. (2023, June 20). Insights | Sidley Austin LLP. https://www.sidley.com/en/insights/newsupdates/2023/06/european-commission-publishes-sustainable-finance-package