COP26 drew to a close just weeks ago in Glasgow, but in truth, much of the work to combat climate change is just beginning. Inevitably, investors and the financial services industry will have a part to play in supporting the transition to net-zero. While many corporations are already committing to start divesting from coal, others will be looking to up their investment in sustainable and ESG funds. 

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As such, some individuals will have expected to see the markets absorbing much of the COP26 fanfare over the past couple of weeks – but this has not been the case. Granted, the first day of trading on the London Stock Exchange following the summit saw some global mining titans suffering losses, but still, the FTSE 100 finished the day at 7351.86, out up 3.95 points. 

In truth, this is not exactly a surprising result, seeing as the markets broadly struggle to factor in any long-term views. Likewise, at the moment, officials are still keeping their climate commitments vague, when discussing their goals to “phase down” coal, rather than culling it altogether. Reading between the lines, investors are unlikely to be compelled to act quickly without a firm stance.

The result of this is that market sentiment remains skeptical. A look at the data is telling: at present, only 45% investors consider sustainable investing to be important to them, according to recent research* commissioned on behalf of HYCM. At least for now, traders and investors are not yet placing climate action at the top of their agenda when devising their strategies – the fact that only 19% of investors consider ESG investment as a savvy strategy only stands up to hammer this point home even further.  

So, beyond the buzzwords, what considerations should traders and investors be making, post-COP26? 

Are greenwashing fears grounded in reality?

One phrase that tends to crop up a lot when deliberating over ESG and sustainable investments is that of ‘greenwashing’. Of course, this refers to the practice wherein corporations put a ‘green sheen’ on their attempts to operate sustainably, leading with big claims about the purported environmental benefits of their products. 

Increasingly, traders and investors are aware of this; more than a third (38%) of investors polled by HYCM said that there is “too much hype” surrounding ESG investment. At least to some degree, these concerns are valid – given the urgency of the climate crisis, many organizations may be tempted to convey a false representation about how eco-friendly their products are, in to persuade an increasingly socially conscious cohort of investors to buy into their company. 

That said, it is important that investors do not dismiss all green opportunities on this basis. As the world transitions to net-zero, there will be many opportunities to invest sustainably. For one, investors could look to the capital goods area, where there is vast potential in the supply chain for climate solutions. Similarly, investment in ‘green’ technologies will be the driving force behind climate solutions in the near future. 

Currently, just one third (33%) of the investors said that they plan to invest (or increase their investment) in green energy such as wind power, water stocks and solar energy over the next 12 months, according to that same HYCM survey. Looking to the future, however, these figures are likely to increase – particularly in the event that any new environmental policies are implemented. Activists are pushing for a global carbon tax, for example, so investors should monitor these developments closely.

Another opportunity worth considering in the medium term is green metals, such as copper, aluminum, nickel and lithium. These commodities could also see gains as their demand is expected to increase, in addition to other alternatives to traditional energy like oil. 

Younger investors are more eager to invest sustainably

Perhaps one of the most eye-catching findings from HYCM’s research was the fact that generally, younger investors look set to lead the transition to net-zero. When asked about their personal sentiments towards green investment, just 45% of the investors surveyed by HYCM said that sustainable investing was important to them. Comparatively, the figure for investors aged 18-34 was much higher, as the majority (60%) said that this was a priority for them.  

Again, these findings are in keeping with the general assumption that investors are becoming increasingly socially conscious, despite what the current market sentiment might imply. Interestingly, research from MSCI has suggested that millennials propelled the growth of sustainable investing throughout the 2010s, as investors contributed $51.1 billion in sustainable funds in 2020. This is a stunning figure, given that the total five years ago was just $5 billion. 

From this, expect to see an increase in investors employing a values-driven approach to their strategy – and action from larger companies will follow. The likes of Microsoft (MSFT), Tesla and Nike (NKE) will all be keen to prove that they can keep up with this turn to sustainable investment.

While the markets were not quite braced for any knee-jerk actions from investors in the immediate aftermath of COP26, it is plain to see that the summit will likely have more of an impact further down the line. Trends like these take time to trickle down into the financial markets, but we can bet that any alterations to environmental policy will accelerate these movements in the medium to long-term.

HYCM recognizes this trend and offers traders exposure to the renewable space through commodities and ESG stocks such as Tesla (TSLA), and copper (JJC), which is expected to be more in demand as we build a greener future.