Will 2021 be the year in which ESG really becomes the norm and mainstream?
The global pandemic of 2020 has certainly increased corporate awareness of climate change which has been the main driver for inflows into sustainability, thematic and impact funds. Alongside this, increased awareness of climate change risks has also provided the main catalyst for corporations to look more closely at their ESG principles; focusing on the E and the S (environmental and social).
The use of acronyms like ESG are no longer solely used by people in offices with green walls calling themselves ‘woke’ but is now extending to a plethora of corporations and individuals who see climate change and ESG, not as abstract principles, but as drivers of real change.
In 2021 we are going to see companies talking much more on these issues focusing on the environmental impact they have in their operations, in addition to greater disclosure of information and data on how reactive businesses are being in order to adapt to reduce their carbon footprint. This will be boosted by the Biden presidency, assuming the president completes his mandate of the climate-centric policies he set out in his election campaign.
The S (social) will also be focused on more by companies after continued negative press on human rights issues push companies to re-evaluate their human capital management practices and their organisation of labour. The ‘social’ aspect is no longer simply about companies meeting diversity and gender quotas, it is much more geared towards developing a skilled employee base in their company. A helping hand from a new breed of inquisitive investors asking challenging questions to companies is likely to see the 'social' aspect being focused on much more over the coming year; pushing inclusion, diversity of boards and human rights to centre stage in company board room decision making.
This year we will see a real emergence of ESG leading to strong impact investing with key players such as Sir Ronald Cohen leading this area. On the buy side, we are seeing portfolio managers rapidly integrating ESG screening factors into their investment processes and decision making, thus leading to increasing capital flows into ESG focused funds. Aided by European regulation stipulating the increased disclosure of information on how those ESG factors inform investment strategy and decision making.
Binding this regulatory shift with the new presidency, we are likely to see an increased focus on the G (in ESG) driving the other two areas of E and S. The governance factors are often left behind in the focus on environment and social factors, however for there to be sector wide change, the real start and then shift will come as a result of more stringent governance factors from government and other regulatory bodies.
By in large ESG and impact investing is the not the thing of tomorrow, it is already taking place now, however it is yet to be industry spread.
We, at Astra, feel that investing in ESG funds and having exposure to investments where there is the opportunity to generate impact as well as profits, is how to stay with the times as well as ahead of them (when it comes to the slower moving industries). Those left behind in this shift to mass environmental focus will be the ones left standing when the music eventually stops.
Reach out to us now to make sure you're keeping up to date with ESG and your portfolio.