Product Director, Intertrust Group
Today’s investors understand ESG investing benefits and expect ESG reporting. But what are the emerging trends in sustainable investment they should watch in 2022?
Demand for sustainable investments overtook traditional products in 2020. The European Sustainable Investment Funds Study 2021, commissioned by the Association of the Luxembourg Fund Industry (ALFI), found that more than half of new subscriptions were directed to Environmental, Social and Governance (ESG) funds. Here we examine five ESG investing trends we expect to emerge as the global economy turns the corner after the Covid-19 pandemic.
1. Better ESG data to meet reporting demands
The quality and quantity of ESG data will continue to improve as reporting requirements grow.
The current mixture of reporting frameworks makes it difficult for investors to collect and compare data on ESG progress and to act on ESG risks and opportunities. Uniform requirements will help to simplify this for investors and make reporting progress towards ESG targets easier for businesses.
Regulators around the world are now addressing the lack of clear definitions and standardised data. In Europe the Sustainable Finance Disclosure Regulation (SFDR) brings mandatory ESG disclosure obligations, while the EU Taxonomy sets out a list of environmentally sustainable economic activities.
Similar frameworks in other jurisdictions include the Guidelines on Environmental Risk Management drawn up by the Monetary Authority of Singapore. Just recently, the regulators in India announced that they are also considering a disclosure and investment framework for mutual funds’ ESG investments, which would come into force in October 2022.
2. Focusing on the ‘S’ in ESG
Social issues have come to the forefront of public discussion as Covid-19 exposed systemic social problems. In the past these tended to lag behind environmental action, as they are harder to define and measure.
Considering social risks can make a big difference when it comes to improving financial resilience. For example, health and safety procedures are an upfront cost for businesses but reduce the risk of costly lawsuits. It will become critical for ESG investors to be aware of diversity and inclusion, as well as current social issues.
3. Carbon offsetting will go mainstream
Carbon offsetting – compensating for CO₂ or other greenhouse gas emissions – will become mainstream and more sophisticated because it offers a short-term solution to reducing emissions.
It can be as simple as planting forests or restoring degraded land, but is now shifting towards more advanced solutions, such as carbon capture and storage technology, which can remove CO₂ from the air.
4. Measuring biodiversity impact
Loss of biodiversity – the variety of living things on the planet – is accelerating worldwide. The implications for livelihoods and economies are just as serious as climate change. As the Covid pandemic has shown, the trade in wildlife and clearing large-scale habitats for agriculture or development can lead to the emergence of new zoonotic diseases, with devastating consequences for the economy.
Compulsory disclosure of biodiversity impacts is still rare, but some countries now require investment firms to report their corporate biodiversity footprints. In France, for example, financial institutions must disclose their strategy for reducing biodiversity impacts, including specific targets and a measure of alignment with international biodiversity goals. And from 1 January 2022 the EU SFDR will require investment firms to disclose activities negatively affecting biodiversity-sensitive areas.
5. Asia will increase ESG commitments
Asia’s rapid urbanisation and industrialisation in the past two decades has spurred huge demand for infrastructure such as energy, transportation, water supply and waste treatment systems.
But the pandemic has exposed problems. For example, Asian countries faced a spike in urban waste as consumers returned to single-use bags, disposable cutlery and food packaging for hygiene reasons.
This highlights the need for circular economy solutions, resilient and renewable energy sources, as well as greener buildings and more sustainable transport networks across the continent.
Now President Xi Jinping, while not banning coal use, has pledged to “strictly control” it as part of plans to reach carbon neutrality by 2060. Growing demand for sustainability in a post-pandemic world will open up ESG investment opportunities in Asia.
How Intertrust Group can help spot ESG investing trends
Intertrust Group aims to cater for investors wanting to take advantage of the benefits of ESG investing. We have put together client-focused products to address these challenges.
We are implementing solutions to help easily collect, analyse and report on ESG data in the private market space. When providing back-office activities for the management of ESG data, Intertrust Group can identify a bespoke solution to accommodate clients’ specific needs and circumstances.
Why Intertrust Group?
- Expert guidance in how to take control of ESG data in your portfolio with 24/7 access to performance data and key performance indicators (KPIs) for individual companies, dashboards and reports.
- Online dashboards and reports allow clients to compare the performance of portfolio companies and funds, benchmarking their individual performance against their peers based on multiple filters, for example by country or sector.
- Our solutions allow your portfolio companies to calculate greenhouse gas emissions based on up-to-date national and local coefficients. · Not only do we help clients reach their own ESG goals, but we have also committed ourselves to focus on five of the United Nations’ seventeen Sustainable Development Goals.
Read the full article here.
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