2021 was arguably the breakout year for ESG investing.

Data from Refinitiv shows that a record US$650 billion went into ESG-focused funds globally this year, easily beating the US$542 and US$285 billion inflows in 2020 and 2019 respectively.

Trends this year include the boom in green bonds, with global bond issuance in that sector reaching as high as US$500bn this year.

Shareholder activism is also on the rise, pushing companies on ESG issues aggressively.

In Australia, environmental groups like Market Forces caused tension at the Big Four’s AGMs, demanding that banks abide by their 2050 commitments and stop funding fossil fuel projects.

Regulation is also getting tighter, with the US SEC pushing for ever greater ESG disclosures from companies and funds.

 

ESG investing – what to expect in 2022

Against this backdrop, what could ESG investors look forward to in 2022?

According to David Callaway of Callaway Climate Insights, despite what many investors hope, fossil fuels will remain an important sector in 2022 and beyond.

“There’s $22 trillion in fossil fuel assets in the world’s banks and insurance companies, and outstanding loans in fund management companies,” Callaway told Investopedia.

“You can’t just shut that off.”

“If only we could convince the ‘evil’ fossil fuel executives to just stop or convince the ‘evil’ banks not to invest in them, but it’s going to be much trickier than that,” Callaway said.

Greg Taylor, Chief Investment Officer at Purpose Investments agrees, saying that for ESG investors, “it won’t be black and white, and there’s going to be different shades of grey”.

“It’s not going to happen overnight, so I think you should look at the theme of energy transition, and really focus on what companies are doing to get us to a new world of cleaner energy,” Taylor told Wealth Professionals.

For research house MorningStar, consistent and streamlined ESG reporting standards will become the norm in 2022.

“Imagine a world without generally accepted accounting principles. It would be chaos. That’s essentially where we are now,” said the MorningStar research.

Morningstar CEO Kunal Kapoor also believes that more individual investors will start investing in sustainable funds through their retirement plans.

“How ironic it might be that the final people to join this party may be a critical catalyst for moving the conversation toward the impact of portfolios to address the ESG issues. In doing so, they could be the force that creates change,” Kapoor said.

Other experts agree with Kapoor, saying that 2022 will be a busy year for ESG investments within the pension industry.

“2022 will see the continued rise in the incorporation of key ESG issues, including but not limited to climate change, into defined contribution (DC) investment design,” said Janus Henderson Investors director of institutional DC, Dave Whitehair.

Hymans Robertson chief investment officer, David Walker, added that the pension industry has made “great strides” on ESG, but more must be done.

“The need for action and a continued drive to act will follow us into next year, with the importance of companies doing more to address, and meet, their climate obligations,” Walker said.

With all this happening, there will be a big shift to green jobs, according to Karin Kimbrough, chief economist at LinkedIn.

Kimbrough said that 24 million jobs worldwide could be created by the green economy within this decade.

“A growing number of young people are actively looking for green jobs, and candidates with green skills are being evaluated differently and setting themselves apart,” Kimbrough said.

Notable ASX ESG stock news this week

Fortescue Metals (ASX:FMG), which via its subsidiary FFI (Fortescue Future Industries) has been very vocal about a pivot to hydrogen, this week published its annual Modern Slavery Statement, reiterating the company’s commitment to respecting and supporting human rights.

Fortescue CEO, Elizabeth Gaines, said: “Modern slavery is one of the biggest human rights issues facing the world, and Fortescue has been at the forefront of industry in Australia in introducing practices to identify and remove slavery from our supply chain.”

“As a leader in the resources sector, Fortescue recognises our vital role in working collaboratively with our suppliers, government and the community to address this important issue,” Gaines said.

Meanwhile, blockchain tech company, DigitalX (ASX:DCC), has this week appointed a woman CEO, Lisa Wade.

Wade is a former Head of Digital Innovation and Sustainability at National Australia Bank, and has over 30 years’ experience in financial markets with a strong background in blockchain project development.

Women currently represent only around 5% of all ASX-listed companies’ CEOs, and Wade was the only female CEO appointment on the ASX in 2021.