ESG describes an array of non-financial factors that investors, regulators, and other stakeholders use to evaluate the performance of companies. The growing popularity of ESG-motivated investing is contributing to more transparent and rigorous corporate reporting practices as well as operational changes aligned with improved social and environmental impact. ESG factors are increasingly understood as interconnected with–rather than distinct from–the financial performance and value of a company.
ESG can retain the attention it has garnered over the past few years if companies and investors better match their public commitments with operational rigor. Skeptics will undoubtedly remain, but ESG can become a powerful force for change if stakeholders make it so. This trend report describes five key trends for ESG in 2022:
- Social issues are at once more fragmented and more important to the general public than climate concerns; as companies concentrate their climate commitments around carbon neutrality and net zero, the public is likely to become even less forgiving of those that perform poorly on social factors.
- Dozens of ESG reporting frameworks and regulatory standards exist in jurisdictions around the globe; efforts are underway to consolidate and simplify those frameworks for the sake of consistent and universal reporting requirements.
- Investors and companies are seeking deeper expertise and greater accountability related to ESG on their management teams, staff, and boards; the marketplace for that talent is not yet well established. Soon, that will change.
- More retail investors, small funds, and large institutional investors are embracing an activist posture related to ESG and expressing growing skepticism that companies will make good on their commitments; the efficacy of ESG-motivated investor activism is on the rise, too.
- Until recently, private markets have taken a back seat to public markets in ESG investing; now, private equity investors are playing a major role in the next chapter of the ESG story.