It’s been a watershed year for sustainable and ESG (environmental, social & governance) investing, with greater awareness and record fund flows.
This has been reflected in financial markets, with investors increasingly looking to hold companies which provide solutions to these issues without sacrificing returns. 
“The Covid-19 pandemic and its human, economic and financial costs is already prompting a growing number of people to re-evaluate their attitude to investing and approach toward the impact of their capital,” said Guillaume Mascotto, head of ESG and investment stewardship at American Century Investments (pictured).
This year impact investors have highlighted healthcare and disease prevention as their top priority, according to the asset manager’s global impact study – which examines investors from the US, UK and Germany investigating generational and gender-based attitudes toward impact investing and ESG investing.
However, while Mascotto said that healthcare is likely to remain a key investment theme next year, the top ESG issue for 2021 “and beyond” will be the implications of transitioning to a circular economy.
The EU defines a circular economy as a system which aims to maintain the value of products, materials and resources for as long as possible, minimising waste at the end of its lifecycle.
And Mascotto believes that awareness of a circular economy is likely to increase next year.
“There’s not a lot of people talking about the circular economy but it’s actually a very important challenge,” Mascotto said.
A transition to a circular economy will force companies to “rethink consumption, they must rethink energy, manufacturing processes with an aim of eliminating waste and generating a truly renewable or circular output,” he explained.
Effectively, it would require some companies to completely overhaul its production and business models, he noted.
In fact, second to the Covid-19 pandemic, Mascotto said implementing a circular economy will be one of the biggest challenges for the president elect.
He explained: “The key challenge for the Biden administration will be to maximise the incentives to scale advanced and knowledge-intensive renewable energy/closed-loop solutions while balancing social and economic considerations.
“Ultimately, adapting our system to address this issue can be achieved only through a sustained effort on the part of business leaders, policymakers, and their constituents to redefine traditional measures of productivity, wealth and well-being.”
Looking further ahead, Mascotto said that companies which enable this transition will be the outperformers in the future.
This will include companies involved in themes such as digitalisation, sustainable agriculture, food security and bioenergy to name a few.
According to Mascotto, investors will be looking for “investment solutions”, companies which capture the upside in the transition to a circular economy.
“We think that the companies which are moving towards a transition will indeed outperform,” Mascotto said.
“So that’s where we really see this going forward.”