ESG Investing Trends in 2020: The Rise of Stakeholder Activism

ESG Investing Trends in 2020 The Rise of Stakeholder Activism

The sentiment is clear. High Net Worth (HNW) individuals believe ESG issues are important and a significant factor in their investment making decision process. There is strong evidence that suggests wealth and responsibility go hand in hand. Generally, companies that rank well in their ESG efforts have better business practices that benefits all stakeholders, not just shareholders. They look after their social and environmental responsibilities and are therefore, not susceptible to have one-time events that can harm their reputation or the company’s bottom line. Issues such as fines, labour strikes, human rights abuse, environmental disaster, etc are nipped in the bud due to responsible practices and the management’s conscious decision to always do the right thing. In the long run, companies with good ESG practices tend to be less volatile and bring great value to their stock price.

Looking into the horizon, here are the top ESG trends to watch for:

There is strong evidence that suggests wealth and responsibility go hand in hand. Generally, companies that rank well in their ESG efforts have better business practices that benefits all stakeholders, not just shareholders.

The Rise of Stakeholder Activism – Companies will be held companies

By definition, a shareholder activist is a shareholder that uses an equity stake to influence a corporation’s behaviour by exercising their legal rights as partial owners. However, things are changing. As more companies become more ESG-focused, the stakeholders are gaining more influence to steer the conversation.

In 2020, stakeholders will ramp up their involvement and will become more actively engaged in ensuring that corporations are following through with their sustainability commitments. Some of the most vocal stakeholders, in fact, are employees who are holding corporate executives to account. For example, in early 2019, employees at Microsoft staged a protest over the company’s involvement in the development of weapons technology for the United Stated military. Similarly, in Sept 2019, employees from Amazon, Google, Facebook and Twitter, along with many others have participated in a global climate strike where they walked out of work to pressure companies to be more aggressive in its climate goals.

Moving forward we expect more stakeholders will be more sophisticated and even more vocal in their bid to push companies to “walk the talk” when it comes to their ESG commitments.

In 2020, stakeholders will ramp up their involvement and will become more actively engaged in ensuring that corporations are following through with their sustainability commitments. Some of the most vocal stakeholders, in fact, are employees who are holding corporate executives to account.

Environment will take extraordinary precedence

The World Economic Forum confirms it – all five top global risks are now climate-change related. ‘Climate’ is by far the most-discussed topic at the recent World Economic Forum in Davos, Switzerland with personalities such as Greta Thunberg, a 17-year-old climate activist, making all the headlines.

But beyond the noise, the numbers are pretty dire. By 2025, 1.8 billion people will be living in countries or regions with absolute water scarcity, and two-thirds of the world’s population could be living under water stressed conditions. Over 800 million people are at risk from the impacts of rising seas and storm surges. And climate Migration could reach 1 billion by 2050. As such, some of the world’s biggest companies are taking action. Reports from the Davos conference reveal that “Salesforce.com announced it would plant a trillion trees over the next 10 years, Bank of America said it achieved carbon neutrality earlier than expected and Starbucks committed to a 50% reduction in emissions.”

Climate change will present good opportunities

There are a lot of indications that a climate threat could be turned into climate opportunity. According to Bank of America, the climate solutions market could almost double from US$1 trillion a year now to more than US$2 trillion a year by 2025. Renewables such as batteries, biofuels, efficiency and the circular economy would benefit longer-term while “moonshots” such as geoengineering, the scale-up of climate- controlled farming, carbon capture and mass afforestation could also emerge as part of the solution.

The inclusion of environmental, sustainability and governance risks in corporate reporting

Moving forward, there will be an increasing number of companies that will incorporate environmental, sustainability and governance factors in their reports. More companies will disclose information following the Sustainability Accounting Standards Board (SASB) framework, which advises that any ESG information or data being disclosed should be financially material.

SASB provides a series of standards to reporting companies from all sectors, referencing the CDSB (Climate Disclosure Standards Board) Framework for environmental information and natural capital reporting as further guidance for certain environmental metrics, which advises that any ESG data disclosed should be financially material.

The SASB identifies financially material issues, which are the issues that are reasonably likely to impact the financial condition or operating performance of a company and therefore are most important to investors.

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