Evolution of ESG investing — the new normal

  • Strategy and framework: Firms have ESG-related aspects in their current risk frameworks, but gaps and opportunities would need to be identified if management is to be improved. ESG factors would need to be integrated into risk management frameworks across risk types, and risk appetite would need to be defined. Additionally, management would need to understand how ESG considerations could impact existing products and services or necessitate the launch of new offerings
  • ESG data accessibility: ESG data is easily available and cost-effective to obtain. Not all companies disclose data and measurement methodologies differ, making comparison even of the same metrics difficult. While setting standards would help, firms should actively develop and implement ESG data and reporting strategies while keeping abreast of changes
  • Disclosures: Regulators, supervisors and exchanges are moving towards making ESG disclosures, such as those required by the Task Force for Climate-related Financial Disclosures (TCFD), Sustainability Accounting Standards Board (SASB) and World Economic Forum, mandatory. For international firms, this poses a particular challenge, as different countries may have different requirements. Firms should consider adopting tools or processes to monitor and scan through emerging regulations on a real-time basis and assess against current frameworks
  • Greenwashing: Greenwashing is the process of making unsupported claims meant to deceive consumers into believing a company’s products are environmentally friendly. For example, companies involved in greenwashing behaviour may claim their products are made from recycled materials or have energy-saving benefits.
  • UN Agenda 2030: Includes 17 Sustainable Development Goals (SDGs) to spur responsible, sustainable growth within the private and public sectors
  • Principles for Responsible Investment: A roadmap of how corporations should approach an ESG-centric investment strategy to leverage capital to achieve the SDGs
  • Paris Climate Agreement: A legally binding multinational treaty designed to promote sustainability on a national and international scale, catalysing domestic regulations on the financial services sector to meet the assigned goals
  • EU Taxonomy implementation: On 3 August 2021, the EU provided recommendations on sustainable finance, defining which activities could be assessed as being sustainable under the remaining four environmental objectives of the EU Taxonomy Regulation. The recommendations will inform a delegated act, expected to be published in 2022, defining whether a given economic activity is aligned and does not conflict with the Taxonomy’s objectives related to water/marine resources, the circular economy, pollution prevention/control and biodiversity
  • UK publishes green claims code for avoiding “greenwashing” marketing claims:In September 2021, the UK’s Competition and Markets Authority (CMA) published guidance on how businesses making environmental claims can comply with their obligations under UK consumer protection law and avoid greenwashing
  • New voluntary standard released for corporate net-zero targets:In October 2021, the UN-backed Science Based Targets initiative (SBTi) released a n et-zero standard for companies, aimed at establishing a credible and independent assessment of corporate net-zero target setting and allowing companies to align their near- and long-term climate action with limiting global warming to 1.5°C.

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We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/

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Acuity Knowledge Partners

Acuity Knowledge Partners

We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/

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