ESG Feature
In 2021, the UK joined an exclusive club. It became only the 17th sovereign to issue a green bond when it raised £10bn to invest in making the country greener. The green gilt proved so popular that Rishi Sunak could have raised £100bn. So, within a month, he was back collecting a further £6bn from investors. This came after the government stood firm against a group of MPs who tried to derail plans to ban new petrol cars on Brit- ain’s roads from 2030. And towards the end of the year, eyes were fixed in Glasgow as world leaders appeared at the COP26 summit. You could say that 2021 was the year of climate. But what will 2022 be known for in the ESG space? At the time of writing, we are still living with Covid. Any hopes that vaccines and lockdowns may have brought a return to nor- mality have been dashed by a new variant sweeping the globe. Yet despite the persistent disruption to our lives, the pandemic has a silver lining for those promoting responsible investing. It appears that the health crisis has highlighted the potential ben- efits of investing sustainably. “The Covid-19 crisis has given an additional boost to the trends in ESG adoption already in place before the outbreak of the pandemic,” says Matthieu Guignard, global head of product development and capital markets at Amundi ETF, Indexing & Smart Beta. His view is supported by figures from Bloomberg. “Inflows into ESG ETFs reached $107bn (£80.7bn) during the first nine months of 2021, compared to $92bn (£69.4bn) in 2020 over- all and a meagre $32bn (£24.1bn) in 2019.”
Things to come So, with the capital flowing into passive ESG funds more than trebling within two years, where will it be targeted in the year ahead? Ian Burger, head of responsible investment at Newton Invest- ment Management, does not expect to see a huge difference in approach to ESG at a high level this year. Yet he believes that an increasing sophistication in stakeholder understanding means that decision-makers should be prepared for a greater depth of conversation when managing portfolios.
“Individuals are better armed to understand what the potential implications of their actions could be and there is a greater level of intent in what clients are expecting from their invest- ment managers,” Burger says. “COP26 was a big driver.” The formation of the International Sustainability Standards Board was announced at the conference, while the take up of net-zero initiatives has been huge and there is more understand- ing of the just transition and what climate finance looks like. “The market has significantly matured over the past 12 months, which will, I expect, continue during 2022,” Burger says.
28 | portfolio institutional | December-January 2022 | issue 109
For Gabrielle Kinder, an investment specialist and environ- mental analyst at BNP Paribas Asset Management, ESG will continue to evolve in 2022. “People are becoming more critical of ESG and that’s not a bad thing,” she says. “It is a sign that the market is maturing.
“ESG has become so influential that not only is it a positive screen to identify alpha, but it also helps avoid risk,” she adds. “It is becoming a powerful tool and huge amounts of capital are being moved on the basis of it. “With that amount of power comes a lot of scrutiny. People are asking, how good is it? How can we apply it more effectively? How can we make sure that the data behind it has the integrity needed to be an investment tool? They are starting to de-com- partmentalise it to understand the individual constituents. They are essentially delving into ESG to a greater extent than they were before.
“Our clients are pushing beyond ESG or becoming more criti- cal of it,” Kinder says. “They are looking at impact and how it ties into ESG, or assessing which parts of the E, S or the G are most important to them.” Yet as stakeholder understanding of sustainable issues improves, could we be on the verge of a new era? When considering what the future holds for ESG, 2022 could set the scene for years to come, says John Mulligan, director and climate change lead at the World Gold Council. “Whatever gains momentum in ESG next year is likely to gain momen- tum for the decade,” he adds.
This is largely due to ESG being a collection of long-term issues that “cannot be addressed overnight”. “Investment strat- egies need to move beyond the short term if sustainable objec- tives are going to be addressed. “We are talking about 2022, but we are really talking about a decade or more of trend momentum, which could have benefi- cial impacts,” Mulligan says.
COP this November’s COP26 conference will influence sustainable con- versations and strategies in the year ahead, believes Peter Men- nie, global head of ESG integration and research at Manulife Investment Management. “We are in the post-COP26 era, so in 2022 we expect to see the start of implementing what was agreed in Glasgow on top of what was agreed in Paris,” he says. “We’ve seen alignment with the 1.5oC goal. Now there needs to be agreement on the pathways and targets for sectors and understand how regional differences will play out in order to meet that goal.
“This is supported by the financial sector, judging by its involvement in Glasgow,” Mennie adds. “The private sector sees the importance of being engaged and doing this in the right way.”
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52
