FREE Key ESG Trends To Expect In the Next 5 Years Responsible-Investor.comFREE Key ESG Trends To Expect In the Next 5 Years Responsible-Investor.comFREE Key ESG Trends To Expect In the Next 5 Years Responsible-Investor.com
Impact Investing Forum 2023
London. Dec 05-06, 2023.
Five years ago, ESG data collection and impact investment research were a small industry with less than 1,000 professionals worldwide. Fast forward to 2021 and there has been a seismic shift of the number of people who have an ‘ESG job title. Five years ago, ESG data collection and impact investment research were a small industry with less than 1,000 professionals worldwide. The number of people who have an ESG job title has increased dramatically since 2021. We predict that the following five years will see: Ever increasing ESG information needs will thwart normalization plans. Market forces and regulations will create demand for investment-grade ESG datasets. This expectation is unlikely to come true in the next five-years. Verdantix predicts more diversification as multiple putative standards vie for airtime with issuers. The EU’s SFDR regulation, the UK’s roadmap to TCFD economy alignment and the USA’s impending mandatory ESG framework are all different.Expectations that the IFRS Foundation will impose a single harmonizing framework that provides data definitions and a taxonomy to respond to the CDP, the UK Financial Conduct Authority, European Securities and Markets Authorities (ESMA), Fitch Ratings, FTSE Russell, the GRI, the Loan Syndications & Trading Association (LSTA), Moody’s, SASB and the SEC – to name just a few – are extremely hopeful.The current clamber of Governments and policy makers to improve ESG disclosure is in order to provide ‘investment grade’ data to investors, data categorized as accurate, auditable, complete and timely. This is not the case at present. This is not the current situation. Credit and equity analysts struggle to understand the value of self-serving voluntary sustainability reporting that are based on flawed materiality assessments and data sets without weak assurance guarantees. As a result, issuers and fund mangers will need to invest more in digital systems to provide investment grade data that reflects the financial misstatements. ETF fund marketers as well as green bond underwriters have already begun to prepare for a crackdown in the UK and EU on mislabeling “sustainable finance” products. Financial institutions will have to stop greenwashing. Issuers will be able to benefit from higher ESG ratings if they invest in technology stacks provided by providers like Envizi and Project Canary. These providers collect data from operating assets on a regular basis which allows for traceability and auditability. Boards are asking more questions about the ESG landscape and what stakeholders can expect from corporations on climate change and ESG. Board members are seeking answers and are turning to legal and accounting professionals to help them understand their responsibilities and those of the future in relation to climate change and ESG. The creation of a fully-resourced financial ESG team is only one reason for board scrutiny of executives. A core team that can keep up with market developments is essential due to the rapid pace of change in ESG issues among investors, lenders, rating agencies, regulators, and regulators. This team must also have the authority to impose new ESG procedures internally, such moving funds away form an EU SFDR Article 6 classification. Ex-Big Four partners are being hired by many issuers as Chief Sustainability Officers. There is a lot of competition for talent in financial institutions when it comes to finding people who have real experience in ESG concepts, strategies, and issues. Asset managers are adapting to the increasing importance of ESG by adopting a transitioning approach in engagement activities. Asset managers have traditionally been passive participants in driving positive change at investee companies. Proxy advisor policies have dominated voting, and any further interaction has been largely due the reaction to shareholder suggestions. Prominent asset managers have taken a proactive stance and are now leading ESG policy initiatives. It is becoming clear that ESG represents a more permanent shift in the importance of ESG in stakeholders’ values. Companies that don’t grasp the full impact of ESG will be left behind over the next five years. However, companies that place ESG at their forefront of their strategy can prosper. Sam RenshawVerdantix Industry Analyst