Climate change, the future of work, and fiduciary standard clarity are key ESG themes set to drive investment opportunities and societal impact in 2022, according to a new report from Glenmede: 2022 Sustainable & Impact Investing Outlook: Reimagining the Future.
Events of 2021 served to remind sustainable and impact investors of their potential to influence and reimagine the future, says the report. The availability of more sophisticated ESG data, it points out, should help investors better evaluate companies through the lens of the most pressing issues.
The Glenmede report notes how climate change remains a core sustainable theme as we navigate 2022, taking on greater urgency for company boards and investors alike. The climate emergency became even more apparent in 2021, with a third of Americans experiencing a severe weather disaster in summer alone. Against this backdrop, the Biden administration pledged to reach carbon neutrality by 2050, while various corporations released net-zero targets.
As companies, investor coalitions, and local governments increasingly push the climate change agenda, the report anticipates growing investment opportunities in climate technology innovation and adaptation, including green hydrogen to electrify heavy trucking and airline industries as well as low-carbon techniques in heavy cement production.
Alongside this, companies will face increasing pressure to provide investors with financially relevant data on their emissions. In an effort to support more sustainable businesses, more investors may also look to sell out of high-carbon emitters and companies linked to destructive practices such as deforestation.
Future of Work
Some four million Americans quit their jobs in October 2021 alone. Glenmede notes that the continuation of the “Great Resignation” is inciting a reevaluation of the future of work, with a particular awareness of worker welfare.
Pointing to research led by NYU in partnership with Glenmede, the report highlights how companies offering secure, equitable, and flexible workplaces are also more likely to enjoy higher profitability, superior product quality, and lower volatility. Diversity, equity, and inclusion (DEI) disclosures saw a notable boost following both the Biden administration’s 2021 executive order on advancing racial equality and Nasdaq’s board diversity rule, which requires listed companies to disclose certain data on diversity.
Influenced by shareholder demand to understand DEI programs and policies, a surge of new data has opened to investors, according to the Glenmeade report. Better DEI data and frameworks should bolster investors’ ability to identify companies offering living wages, access to healthcare, and effective DEI programs and policies. Companies that score well on DEI measures can expect more support from issue-focused investors.
2022 could be a year of clearer guidance and regulations governing ESG. The investment industry still contends with worries over the prevalence of greenwashing, what constitutes a “sustainable” fund, and how ESG investments fit with fiduciary duty. In 2021, the Securities and Exchange Commission (SEC) launched its Climate and ESG Task Force, taking the first steps toward disclosures and language for what constitutes a sustainable strategy.
Glenmede sees scope for the SEC to adopt an approach similar to the European Union, which has taken a lead in ESG regulation and disclosures. This points to a potential surge in climate change and human capital datasets as the SEC looks to expand ESG disclosure, possibly raising the benchmark for ESG investing and enabling funds to successfully defend their approach to ESG.
Taken together, all of these movements—among others noted in the report—herald another blockbuster year of growth for ESG. The same may be said for investors.