ESG Outlook | Top 10 trends to watch in 2021

One of the major themes of 2020 has been increased focus and investment into ESG and is likely to continue in 2021. A steeper climb of the next leg of the race against climate change is coming as the start of 2021, we analyzed outlook from MSCI, Bloomberg, The Economist, Reuters and many other major institutions and found the top 10 trends below:

1. Steeper climb of the next leg of the race against climate change

The availability of Paris-aligned investment opportunities will become increasingly limited. The rise in buyer demand will boost new bond types which may help fuel ESG debt sales.

2. More findings and tools for a better ESG-Investment payout

The research found superior management of financially relevant ESG risks could have signaled greater competitiveness of companies relative to peers, translating over time into stronger profitability and ability to pay dividends. Evidence could grow next year.

3. Urgent Actions in Biodiversity Crisis is needed

Continuing biodiversity crisis cannot be afforded to be overlooked as its impact on humans and the economy could put life on earth in danger. More rigorous actions are required in developing more stringent biodiversity protection strategies.

4. More ESG disclosures and some are becoming mandatory

Voices for encouraging the relevant international standard-setting bodies to take practical steps in the coming months towards a harmonized cross-sectoral ESG disclosure framework is raising.

5. Innovation in addressing social inequality is needed (to be tested out)

Challenges remains for pioneer to test it out (what might be socially beneficial offering and what might be “social washing.”) and hopefully lay the foundations for others as they innovate scalable investable solutions.

6. Working to Scale a Circular Economy

A transition to a circular economy will force businesses to rethink consumption, energy, manufacturing processes and reduce waste to generate a truly renewable or circular output.

7. Driving ‘Slowbalization’ in value chains

Sustainability will likely to be both a win and a loss from a rise in deglobalization. Human capital could gain from local focus but global coordination on issues such as climate change, pollution, and biodiversity challenges could lose by it.

8. New employment challenges post-crisis

Organizations should get ready for the new employment challenges post-pandemic, to be more resilient to change and make sure to follow best practices to ensure responsible use of the workforce as a part of the corporate sustainable strategy.

9. More targets & bans from regulators around the world for ESG policies

Policymakers are beginning to map out more ambitious ESG regimes with wide-ranging consequences. Imposing more new targets and bans to accelerate the process is key.

10. Calls Increase to Use Carbon Pricing as an Effective Climate Action Tool

Momentum is growing to put a price on carbon pollution as a means of bringing down emissions and driving investment into cleaner options. Many are advocating carbon pricing as a key instrument in transitioning to a low-carbon economy.

- Green Recovery -

The current crisis presents the risk of major depression with its dislocated economics and risks of mass unemployment aftermath than any global financial crisis. The Financial Times predicts the French GDP will not recover to pre-crisis level until mid-2022.

The challenge is to avoid depression (both nature and scale matter) and to set off a new path of growth that responds to the climate threat. Of course, the COVID-19 pandemic is still unfolding. The race of vaccination has been uplifting news. However, the outlook remains uncertain, new challenges might be to contain it and develop resilience for future threats. Beyond its evident profound human costs and great loss of life, the pandemic is enacting enormous economic and social costs, even in countries that have not experienced large numbers of infections, according to the Grantham Research Institute.

Their research also pointed out there are three phases in response to COVID-19, they are rescue, recovery and the transformation to a new form of growth. That is, the need to go beyond the stabilization phase and create a strong recovery that can support job creation and hence consumption (the sustainable kind), and re-design, not just restart investment.

On a macro level, the research also suggests that the recovery has to be much more than green – and design and implementation need to happen soon. The stimulus packages must be shaped by the scale and urgency of the challenge and with a clear sense of direction. They must be anchored in the target of net-zero emissions and greater resilience, with supporting plans for sustainable infrastructure, pricing (including carbon pricing and elimination of fossil fuel subsidies, taking advantage of low fossil fuel prices) and smart regulations. This means businesses and institutions should prepare for ‘shovel-ready’ programmers, policies and finance.

As green recovery is expected by many. Analysis from Blackrock’s outlook next year implies that besides being the popular theme this year, sustainably is being built into the coronavirus recovery, especially in Europe where their team highlighted a focus on “green infrastructure and digitalization spending at the centre of its economic restart efforts”. As such, the team said they prefer to use sustainable assets as portfolio building blocks and see persistent flows into sustainable assets in the long transition to a less carbon-intensive world,”

Lastly, a collaborative effect is fundamentally important for achieving ESG targets. In the time of expecting a green recovery, more collaborative networks should be built and harmonized towards the next decade to come. As companies might struggle with certain ESG goals – some businesses are just better placed to achieve certain targets, and no company can be expected to meet every target acting alone. One of the key trends in 2021 identified by Forbes is that businesses must seek help and work together to achieve their ESG goals. Investors and media also have a responsibility to amplify the voices of these small companies and make them known to the bigger corporations who need their help. Hackenberg from Forbes said, more collaboration across the board is needed in 2021.

(written by Yitong Yuan)

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