Investments

Evaluation: How 2021 turned the yr of ESG investing

BOSTON/LONDON, Dec 23 (Reuters) – Buyers involved about local weather change and social justice had a bumper yr in 2021, efficiently pushing firms and regulators to make modifications amid file inflows to funds centered on environmental, social and company governance (ESG) points.

Excessive climate changing into extra frequent and occasions highlighting social justice points, such because the dying of George Floyd in Minneapolis police custody, contributed to ESG rising to the highest of the agenda of buyers, firms and coverage makers.

A file $649 billion poured into ESG-focused funds worldwide via Nov. 30, up from the $542 billion and $285 billion that flowed into these funds in 2020 and 2019, respectively, the newest Refinitiv Lipper knowledge exhibits. ESG funds now account for 10% of worldwide fund belongings.

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Shares of firms rated extremely for his or her sustainability efforts additionally notched features. The MSCI World ESG Leaders’ index has risen 22% to date this yr, in contrast with the MSCI World Index’s acquire of 15%.

Buyers flexed their muscle to problem firms’ ESG credentials, culminating in a landmark board problem towards oil main Exxon Mobil Corp (XOM.N). Assist for social and environmental proposals on the shareholder conferences of U.S. firms rose to 32% in 2021 from 27% in 2020 and from 21% in 2017, in accordance with the Sustainable Investments Institute.

“It was a watershed yr,” mentioned Tim Smith, a director at funding administration agency Boston Belief Walden.

He contrasted the votes this yr with one of many earliest company social coverage measures, in 1971, when only one% of Normal Motors’ (GM.N) shareholders backed an investor decision for the auto maker to withdraw from South Africa over the nation’s racist social insurance policies on the time.

Regulators have responded to the brand new stress by making ESG disclosures a precedence. The U.S. Securities and Alternate Fee (SEC) has been asking cash managers in regards to the ESG classifications they use for his or her funds and is anticipated to agency up steering on company disclosures reminiscent of carbon emissions. learn extra

The European Fee has finalized most of its “sustainable finance taxonomy” rulebook on which company actions might be labeled climate-friendly. Guidelines will apply to some sectors within the European Union beginning subsequent month.

Of the $6.1 trillion in ESG funds, 59% of the cash is held in Europe, Center East and Africa, in accordance with Lipper, reflecting the area’s earlier embrace of the investing development.

Inflows in European ESG funds dropped in 2021, however this was greater than offset by rising flows into U.S. and Asian ESG funds.

Main wins for ESG buyers pushing for modifications at firms this yr included the alternative of three administrators at Exxon Mobil, the rejection of a $230 million pay package deal for Normal Electrical Co’s CEO Lawrence Culp, and a profitable name for Union Pacific (UNP.N) to make public its workforce variety statistics. learn extra

Catherine Winner, international head of stewardship at Goldman Sachs Group Inc’s (GS.N) asset administration division, which backed the essential shareholder efforts at these three firms, mentioned buyers are not glad with firms delivering shareholder returns with out doing extra for the atmosphere and society.

“It isn’t nearly shareholders; it is about all stakeholders” she mentioned.

ESG SETBACKS

To make certain, ESG buyers additionally suffered blows in 2021. Shareholder resolutions that drew vital help however didn’t acquire majorities included a name to reform employment arbitration procedures at Tesla Inc(TSLA.O) and a name for Amazon.com Inc to overview the way it addresses racial justice and fairness. learn extra

Many prime company buyers warmed as much as ESG resolutions, even when they didn’t again them most of them time. Out of 49 climate-related resolutions this yr, BlackRock Inc (BLK.N) supported 41%, up from 10% of the same set of resolutions in 2020, in accordance with advocacy group Ceres. Vanguard funds elevated their help to 37% from 14%.

Each main index fund firms declined to touch upon the Ceres report. However they’ve beforehand mentioned firms will need to have acceptable threat oversight of environmental and social points, and that they attempt to be clear about their views. learn extra

In the US, firms can generally keep away from placing shareholder resolutions to a vote by asking the SEC for permission. Thomas Skulski, managing director at proxy solicitor Morrow Sodali, mentioned the SEC strengthened the hand of ESG buyers in November by narrowing the circumstances beneath which firms can skip votes. learn extra

Consequently, firms subsequent yr may face extra challenges on operational points, reminiscent of how they use client packaging or plastics, Skulski mentioned. learn extra

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Reporting by Ross Kerber in Boston and Simon Jessop in New York
Enhancing by Greg Roumeliotis and Lisa Shumaker

Our Requirements: The Thomson Reuters Belief Ideas.

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