ESG Trends That Will Shape up Investing in 2021

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ESG Trends That Will Shape up Investing in 2021

Treeni Sustainability Solutions Pvt Ltd

@Treeni

March 16, 2021

Tech for Good

313

It has officially been a year since the declaration of the global pandemic, and it truly has divided the world into two distinct time periods - before Covid and after Covid. The impacts from its initial hit are still continuing across many sectors, and sustainability is no different. However, last year’s has proven how vital the environmental, social and governance (ESG) agenda is, for both company stakeholders and investors. If we consider the outlook towards social factors in the current moment and environmental factors in the long term, there’s a lot to take away.

In a survey conducted by the World Economic Forum for corporates all across the globe, 23% of respondents said that the perceived importance of social considerations has risen by 20% since the onset of the pandemic. That’s a big number, all things considered! Two industries that have seen the most unprecedented challenges in the last year are IT and Finance, or FinTech effectively. There has never been a more prudent time for the financial sector to focus on building a resilient economy, in line with overarching ESG objectives. This is true especially for developing economies and nations as a proper functioning society and proper environment is essential to ensure continuous growth and improvement.

Environmental catastrophes have been a constant primary risk for businesses in the last decade, closely followed by socio-political and technological factors. The world as we know it is rapidly evolving, and traditional systems and processes are no longer enough to tackle today’s challenges. The biggest, and most important of all being climate change, the implications of which are already on the rise for both investors and businesses. Governments and business leaders are looking to take effective climate action one step at a time. Renewed rules on ESG will provide institutional investors with an opportunity to actively engage with all stakeholders, including internal employee teams, external auditors and industry experts.

Policymakers have taken this pandemic as a warning to approach investing cautiously, and this is where ESG comes in. Sustainable finance has picked up pace, and in the last year alone, ESG funds have become the new hot topic in the market! Some ESG funds even outperformed the S&P indices, reeling focus back to sustainability priorities and strong governance mechanisms. We are also now in the final decade of achieving the UN SDGS, and both public and private companies are major contributors to their financing. Over the last six to eight months, we have seen enterprises create robust people first strategies, give prominence to mental health and drive multiple climate positive initiatives, in order to build higher resilience.

According to research firm Morningstar, investors have globally poured in US$45.6b into ESG funds in the first quarter of the year, compared to outflows of US$384.7b for the overall fund universe. A little over fifteen years ago, investors did not consider the impact of climate change as a serious financial risk. This is true for social and workforce related issues as well. But today, we are witnessing a stark parallel to this outlook, as business perception is closely tied to responsible practices and resilience. It has thus become extremely critical to integrate ESG processes into a business, to not only attract investors, but also avoid disruptive green swan events. Also, the millennials in the decision makers’s shoes are getting increasingly environment conscious. With an ESG regulatory landscape that is majorly shaped by recent activities in the UK, USA and EU, living up to these standards is not a choice anymore, but a necessity. Keeping all this in mind, here are a few trends that will shape ESG investing in the near future:

Deep tech and data as the new oil: Deep tech and consumer data has the potential to change the investment landscape by leaps and bounds. While there are some concerns about the usage of this deep tech, digital first solutions are definitely the key to unlock future ready, sustainable and sustainable enterprises, complete with smart systems and reporting mechanisms.
Increased number of ‘green collar’ workers: With remote working here to stay, people have already become more conscious about the emissions generated through work commutes. Countries including South Korea,UK and Singapore are also trying to create green collar jobs in sustainability, with low carbon industrial complexes, renewable energy powered offices and recycled foundations. This will go a long way in shaping up work perceptions for the incoming freshers as well
.
More climate conscious supply chains: China has already pledged to become carbon neutral by 2060, and this is a key theme for investments in projects related to manufacturing and logistics in 2021. Countries like India, UK and Egypt are trying to build environment friendly supply chains to reduce the total GHG emissions released every year. Lenders are walking away from fossil fuels and focusing on clean energy initiatives, that are the driving force behind entire supply chains.
Increased focus on sustainable healthcare: Healthcare facilities are some of the world’s largest energy consumers, and there has been a marked shift from the cost-effective approach to that of a more sustainable one. We are witnessing solutions that limit and manage medical waste. It truly is an incredible step in the right direction!
Banks accelerating the transition to a low carbon economy: Allocating resources to enable responsible, strategy led use cases for sustainable finance can become a key driver for ESG investments. Green finance, once sanctioned by the major banks in the world can contribute massively to a low carbon economy! Development finance communities, philanthropy and international aid will act as sources for capital.

This is a great opportunity for ESG asset managers to experiment with and leverage ESG integration to ensure business as usual, and provide clients with not only sustainable solutions, but a deeper sense of purpose. The demand for socially, environmentally conscious products will grow in line with the consumer preferences of younger investors. Targeted investments have already started taking shape, and are sure to take over the financial landscape. None of this is easy, of course, and scalable standardization of ESG processes across sectors, geographical locations and regulations remains to be the toughest nut to crack. Data interpretation models may also differ, and corporate mismanagement may also give way to errors.

This is where technology and automation can aid business leaders drive strategic decision making. Smart systems, interconnected devices and robotic process driven automation can make a world of difference for teams that operate remotely. Large enterprises and small suppliers are equally accountable for their sustainability footprint, and assessing this impact to derive mitigation plans becomes a priority in today’s time. resustain™ is a smart platform built for performance management, risk analysis and reporting all in one. With the resustain™ Enterprise platform, our teams have been helping global clients tick off their sustainability and ESG goals. Easy to use, digital first and data driven approaches are what will drive the future of ESG investing. It’s time for enterprises to become more mindful of their impact on communities, employees, customers and suppliers to ensure a better future for us all!

The author is the Head of Products at Treeni Sustainability Solutions

#sustainability Sustainable Business #Resustain #2021 #sustainabilitytech corporate sustainability #FinTech #Industry4.0 #Finance #ESGRisks TechandESG #Covid19 #Coronavirus #BigData #Analytics #Fightagainstcorona #AI #Industry4.0 #Transformation #Digital Transfomation Investment institutional investors

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Treeni is your ESG consulting & technology partner to redefine sustainability strategy, minimize ESG and Supply Chain Risks and build enterprise resilience.