MSCI published a report on ‘2019 ESG Trends to Watch’, highlighting five major trends associated with ESG factors. With these trends in mind, companies should start making concrete efforts on incorporating ESG factors into their practices to gain its competitive edge.
- ‘Trade War’ of Plastic Waste
Plastic is one of the most-produced products in the world and its ubiquity leads to billion tons of plastic waste. China recently quitted from global trade of waste management, making the situation worse. Being the major export destination, China’s departure puts a heavy burden of plastic waste disposal on other countries. While countries are actively seeking alternative export destinations, such as Southeast Asia countries, businesses should also work harder on waste reduction, for example, adopting innovative packaging solution.
- Change in ESG Investing Environment
Both retail and institutional investors demand more transparency on ESG data disclosure. At the same time, ESG regulatory focus shifts from issuers to institutional investors because of their huge amount of asset under management. From 2000, there are more and more ESG regulations focusing on investors, with 80% of them targeting institutional investors in 2018. Under tightened regulation, investors should seriously address ESG as one of the investment risks and carry out proper risk management.
- Escalating Climate risk
Climate change tops investors’ concern as it poses threats to the entire planet. For example, seaside properties are affected by rising sea-level, leading to a 7% discount. This is only one example from numerous cases of investment exposed to climate risk. If no significant action is taken to reduce emissions, atmosphere temperature will rise by 1.5 degree Celsius by 2040. This is a signal to urge investors to adjust their investment portfolio to account for the climate risk.
- ‘Big Signal’
In the big data era, data becomes highly available, meaning that it is easier to assess companies’ performance. ESG ratings become an important index for measuring resilience of companies and their ability to manage ESG risks. To get a good rating, companies should incorporate ESG factors into business practices. For investors, it is important to make good use of data to recognize risks and opportunities in investment to achieve long-term return.
- Improvement of Corporate Leadership
With increasing interest in ESG investing, investors are more aware of their shareholder rights. Companies should properly handle any issue related to executive scandals and workplace misconduct as these events greatly shake investors’ confidence. To ensure sufficient level of investors’ influence on businesses, companies should establish a transparent ownership structure and maintain board effectiveness.
Source: https://www.msci.com/www/events/2019-esg-trends-to-watch/01193469545
