Today’s investors recognize the benefits of ESG investing (which means investing with environmental, social, and corporate governance considerations) and await reporting on these parameters accordingly. But what are the new sustainable investment trends to look out for in 2022?
Let’s find the answer, thanks to Antonello Argenziano from Intertrust Group.
In 2020, the demand for sustainable investments had overtaken traditional ones. According to a study by the Association of the Luxembourg Stock Industry (ALFI), more than half of new subscriptions came from ESG funds. Consider five ESG investing trends that we predict will emerge in the global economy following the coronavirus pandemic.
- Improving ESG data collection in response to new reporting requirements
The quality and volume of ESG data will continue to grow due to tightening corporate reporting requirements.
The current heterogeneity in reporting standards makes it difficult for investors to collect and compare ESG progress data and makes it difficult to respond to emerging risks and opportunities in this area. Uniform requirements will help simplify this process.
Regulatory structures worldwide are faced with a lack of clear definitions and standardized data. Europe has adopted the Sustainable Finance Disclosure Regulation (SFDR), which imposes obligations to disclose ESG data, and the EU Green Taxonomy provides a list of environmentally sustainable activities. The SFDR is designed to improve the transparency of sustainable activities, prevent greenwashing and ensure informed investment decisions. All financial market participants, regardless of the asset class, including illiquid assets, are subject to regulation – their fund managers will have to prepare to implement periodic reporting (level 2) in July 2022 (postponed until January 2023 – GD).
Similar standards in other jurisdictions include, for example, the Monetary Authority of Singapore Environmental Risk Management Guidelines. At the same time, Indian regulators have recently announced their intention to develop disclosure standards for ESG co-investment funds that should come into effect in October 2022.
- Special attention to social factors
The COVID-19 pandemic has exposed a whole layer of systemic social problems and brought them to the fore in public discourse. In the past, these issues have been less prioritized on the environmental agenda because they are more challenging to define and scale.
When it comes to improving financial sustainability, social risks should not be underestimated – their impact can be very significant. For example, compliance with health and safety requirements requires a specific initial investment from entrepreneurs, but this ultimately reduces the risk of lawsuits, which can be costly. Therefore, it is especially important for ESG investors to consider diversity and inclusion and current social issues.
- CO2 capture and carbon offsets will go mainstream
Offsetting CO2 or other greenhouse gas emissions (thanks to carbon offsets) will become mainstream as these measures offer a short-term solution to reduce emissions.
Of course, there are traditional capture methods (planting trees or restoring depleted land), but more advanced solutions, such as carbon capture and storage technologies, are now preferred to remove CO2 from the atmosphere.
- Assessment of the impact on biodiversity
All over the world, biological diversity (i.e., the diversity of living things on the planet) is rapidly decreasing. This can affect living conditions and economies as seriously as climate change. As the COVID-19 pandemic has shown, trade in wild animals and plants, along with deforestation for agricultural purposes or development, can lead to the emergence of new zoonotic diseases. This, in turn, has disastrous consequences for the economy.
Disclosure of impacts on biodiversity is still a rare practice. Still, in some countries, investment funds have already begun to require reports on the impact of their corporate activities on biodiversity. In France, for example, financial institutions are required to disclose their strategies to reduce impacts on biodiversity, including specific targets and tools to align local strategies with international biodiversity targets. According to the SFDR, from January 1, 2022, EU investment funds undertake to report activities that negatively affect fragile biodiversity zones.
- Asia strengthens commitment to ESG principles
Accelerated urbanization and industrialization in Asia in the last few years.
Twenty years have spurred demand for infrastructure in the energy, transportation, water and waste management sectors.
However, against the backdrop of the pandemic, problems appeared here as well. For example, Asian countries are faced with a sharp increase in urban waste: in order to comply with sanitary standards, consumers massively returned to disposable bags, dishes and packaging.
This underscores the need for a circular economy, sustainable and renewable energy sources, and greening building technologies, while building sustainable transport networks across the continent.
Although Chinese President Xi Jinping did not ban the use of coal in the energy sector, he promised to introduce “tight control” as part of a plan to achieve climate neutrality by 2060. The increasing demand for resilience as such in a post-like world will open up many opportunities for ESG investment in Asia.
The environmental impact of the Covid-19 lockdowns, along with signs of climate change around the world, have increased interest in sustainable investment. A recent study by the consulting firm Casey Quirk shows that by 2025, investors intend to invest $ 3.2 trillion in sustainable strategies.
According to the findings of an annual survey by HSBC, environmental, social, and governance (ESG) issues have become almost universal concerns of significant capital issuers markets securities in the Middle East, North Africa, and Turkey region. Read the full story here.