Tired of 2021 analyzes? I’m just going to offer a concise glimpse of the year scribbled on a sidewalk near my apartment in San Francisco: â2021 sux! ” It’s certain. But as GreenBiz chairman Joel Makower noted in his annual year-end article, it was reasonably kind to the world of sustainable business.
The world of ESG and sustainable finance saw some really impressive numbers last year, for example $ 130 trillion through the Global Financial Alliance for Net Zero (GFANZ) which has pledged to use scientific guidelines to achieve net zero emissions by 2050, or the $ 35 trillion invested in some form of ESG strategy by mid-year.
Large numbers should promote proportionately large changes, right? Well, Mauna Loa Observatory read 420 ppm carbon dioxide from our atmosphere; the International Energy Agency (IEA), a group historically little known to align itself with activists, has said coal development must stop quickly if we are to meet the goal of net zero emissions by mid-century. Meanwhile, the world’s largest asset manager continues to have an exposure of around $ 1.2 billion in India’s largest coal company.
As the highly controversial Carmichael mine readies its first shipment of coal for export, BlackRock has not changed its stance to date. This configuration sums up a theme on which I will be hyper-focused in 2022: substantive actions of the ESG ecosystem of institutional investors, rating agencies, corporate journalists and financial institutions that generate measurable progress in accordance with their commitments. noble and laudable. .
I hope, even a little confident, that 2022 will see a clearer division than ever between laggards and leaders.
Sustainable finance is one of the fastest growing areas of sustainable businesses today, and arguably the most impactful. A code red for humanity makes band-aid approaches to climate solutions unnecessary. Hopefully, even a little confident, 2022 will see a clearer divide between laggards and leaders than ever before, with tougher penalties for laggards and bigger rewards for leaders.
Looking ahead, here are some themes and trends that I plan to follow closely in this second year of the decisive decade. Ideas, questions, suggestions or advice? Please share them with me on [emailÂ protected]. I would love to hear from you.
The growth of greenwash
You’ve probably heard the term, but it’s good to start with definitions. From my two favorite pediatrics: Wikipedia identifies greenwashing as “a form of marketing … used deceptively to persuade the public that an organization’s products, goals and policies are environmentally friendly”. Investopedia describes it as “the process of conveying a false impression or providing misleading information about how a company’s products are more environmentally friendly.” Do these resonate?
The accusations and the actual existence of greenwashing are not new. What is new is who calls greenwash and who listens. Greenpeace calls it greenwash, of course, and Kellogg’s makes grain, no surprise either way. But what about when Marvel – yes, the folks in the superhero comics – calls greenwash on Vanguard, the world’s second-largest asset manager? It’s not just about the social media posture: All 401,000 Marvel employee accounts were under Vanguard’s management, a relationship that appears to be ending.
The consequences of being and being identified as an environmentalist could start to affect the bottom line and business continuity of companies in ways they never did before.
Consider this: Intangible assets (including intellectual property rights associated with inventions and brands, customer data and software) of companies listed on the S&P 500 now represent 85-90% of the total index value. . The goodwill of organizations and the reputation of the brand are other key elements. They also play an extremely important role in talent acquisition and retention, and it’s no mystery that the next generation of young professionals are checking the ESG credentials of their potential employers. And, they know better what to look for.
As the ravages of extreme weather intensify across the planet’s north, such as the floods, fires and freezes of 2021, the media has stepped up its game to cover the complex links between climate change, the company and social and economic phenomena. Through collaborations like Covering Climate Now, climate change coverage is done with the rigor and credibility needed to capture this complexity: more facts and context, fewer polar bears floating on chunks of ice.
The knowledgeable and climate-conscious generation of young (and younger) professionals applying a closer scrutiny on greenwashing will become even more important for businesses to manage. I’ll be keeping a close eye on how new greenwash filters ââ like this one that has developed software to identify âblah, blah, blahâ ââ will be refined and rolled out in 2022.
The board of directors embarks
While ESG issues are high on the agenda of corporate boards around the world, the ESG skills of board members are sorely lacking.
As the sustainability manager of a major US bank told me last year, âMy business has moved from the last three minutes of the meeting to agenda item # 1. It was not a gradual change. The GreenBiz team has heard a myriad of experiences like this from our community of sustainability leaders at large companies over the past year.
I will continue to follow the growth of ESG leadership roles within finance, but 2022 may well be the year boards of directors see the same rapid progression from skilled ESG members, if not excellent ESG ones.
Diversity, in ecosystems, portfolios and organizations, breeds strength and resilience. By this measure, corporate boards in the United States are fragile and vulnerable. A small hedge fund has made it clear how sensitive a sclerotic picture can be, and I’ll dig into similar wins in 2022.
Competent Boards CEO Helle Bank Jorgensen (and GreenBiz columnist) is optimistic about 2022. Why? Because not only are boards of directors looking for formal training in ESG skills (which their organization offers), but asset managers and proxy advisors are starting to do the same. I share his optimism and, given some recent challenges, I’m especially curious about how the major rating and ranking companies are developing similar skills.
Increased monitoring of ESG funds
Even though the pandemic has turned the reality of everyday life and financial markets upside down, sustainable investing has won some really solid victories. Opponents of ESG did not have much ground to lean on given the alpha of sustainable investing and the massive influx of capital into ESG funds – around one in three dollars managed globally was in some form of ESG strategy by the second half of 2021.
But in the last week of 2021, a BlackRock ESG fund lost 91% of its investments, for reasons that are not publicly disclosed, depleting its assets to just $ 69 million, from $ 803 million two days earlier. . And, at the expense of a dignified life on earth and the business case for sustainability, oil and gas stocks have overtaken those of ESG beloved companies. Exxon and Chevron, for example, added 48% and 40% respectively to their stock price last year.
I feel these are speed bumps, not roadblocks, but they present challenges nonetheless in keeping the wheels on the ESG train.
I am particularly excited to see new levels of oversight applied to ESG funds by regulators, NGOs and clients – both retail and institutional – and how this fosters an effective and sustainably positive pathway for ESG products and strategies. Whether this review comes from InfluenceMap and its extensive research into the purported climate merits of funds, new requests for funds to assess their credibility with respect to long-term value, or clients with a clearer window to funds in the future. which they are invested in, you can expect more and more in-depth evaluations of ESG investment vehicles.
With upcoming regulations for ESG investment products in European and US markets, I’m also curious to see how asset managers are changing the way they present ESG strategies. As Glen Yelton, head of ESG client strategies for North America at Invesco, wrote for ESG Today: â[T]’there is more hyperbole that we allow to accumulate around the impact of ESG, rather than having honest and transparent discussions about what these labels really represent, the less likely we are to achieve the results that today’s investors are so keen to support.
The war for talent is raging
Last year was, as Joel Makower wrote, âa great time to be an ESG professional. A very, very good time. The very, very good times seem to continue to roll in 2022.
The rise of ESG in business and finance has been faster and steeper than the existing talent pool of trained ESG professionals could possibly fill. Many companies spent 2021 catching up, which often started with hiring someone to ‘run ESG’.
I have had many conversations over the past year with new ESG managers from financial institutions and corporate reporting companies. Some were veterans and leaders in space – say Dave Stangis landing at Apollo or Jean Rogers at Blackstone – but many others have their graduate degrees closer in their rearview mirror than even me.
For this last group, a simplified summary of the answers to my question “What are you doing?” Could be “Come back with me next year.” I can’t wait to learn more from these people as they start to build new teams and skills and get to work.
Another thing I will be keeping an eye on in this vein is the professionalization of ESG, both through new ESG education offerings from organizations like CFA Institute and PRI as well as higher education. If 2021 has been a major growth impetus for the ESG profession, I will look to see how the profession fills up a bit in 2022.