The new report from S&P Global titled Key trends that will drive the ESG agenda in 2022, has suggested that the work undertaken by corporates towards upping environmental, social and governance (ESG) drive in 2021 may be insufficient to keep investors, regulators and the broader public at bay.
While many large global companies set sustainability goals and published ESG-related data in 2021, increased scrutiny amid concerns around greenwashing is expected in 2022.
According to the lead author of the report, Richard Mattison, rising demands for action will likely increase pressure for more accountability, greater regulatory scrutiny and credible disclosure backed by better data.
"Alongside climate, biodiversity and other environmental concerns, social issues like diversity, equity and inclusion, and worker wellbeing appear poised to remain in the spotlight, particularly as they are increasingly woven into broader ESG discussions," Mr Mattison, president, S&P Global Sustainable, said in an accompanying statement.
S&P’s report suggests several key developments in 2022, including growing pressure on corporate boards and government leaders to enhance their ESG skills.
The broad perception in 2021, according to the rating agency, was that some companies were using disclosures and sustainability-related labels on products and services as a marketing tool to appear more proactive on ESG issues.
“With stakes this high, investors will likely demand more than simply setting long-term climate commitments,” Mr Mattison said.
“We think governments and companies will have to provide credible, achievable near-term signposts on their path to decarbonisation,” he noted.
Also in 2022, new regulations and reporting standards are expected to demand more credible corporate disclosures, with governments and companies tipped to face the challenge of turning net zero emissions pledges into near-term action.
Moreover, climate transition strategies are expected to increasingly embrace social issues, while climate stress testing gains in prominence in the financial services industry.
In addition, S&P believes assessing natural capital and biodiversity risks will continue to rise in importance, with several new initiatives in 2022 seen to further this cause, including the next UN Biodiversity Conference scheduled for later April to early May.
Additionally, social issues in supply chains are tipped to command more attention, particularly as efforts grow to curb human rights abuses and improve labour conditions.
The debate over divestment versus engagement is also tipped to heat up, as negative screening starts to play a bigger role as efforts increase towards decarbonising investment portfolios and loan books.
Lastly, S&P noted that integrity of the growing sustainable debt market will be tested.
“A key challenge for market participants in the coming year will be to manage this growth in a way that preserves the legitimacy of these financing instruments and combats rising concerns about greenwashing,” Mr Mattison said, noting the need for market participants to ensure that issuers are setting appropriately ambitious performance targets and maintaining transparency.
To hear more about how ESG trends are shaping investor demand and how advisers could design strategies to meet their clients’ needs around sustainable investing, come along to the InvestorDaily ESG Summit 2022 in Sydney and Melbourne.
Click here for more information and to register for the event, and make sure you don’t miss out.
