2021 has put the ESG business and investment on the center stage, prompting 2022 to shine spotlights on the industry and propel it forward. As increasingly more investors and corporates around the world bring their engagement and commitments to sustainability goals, the paradigm has now shifted to carbon emission, tracking supply chains, green bonds, and ESG — environment, social, and governance.
RECORD NUMBERS FOR ESG INVESTMENTS
A record $649 billion poured into ESG-focused funds worldwide through November 30, up from $542 billion and $282 billion that flowed into these funds in 2020 and 2019 respectively, making ESG funds now account for 10% of worldwide fund assets.
In Asia, the ESG-labelled bonds amounted to $331 billion as of December 23, 32% higher than the whoole of last year. So when JPMorgan Chase & Co. anticipates Asian companies to raise as much as $100billion this year, or that environmental, social and governance bonds ‘could easily double in 2022’, the forecast is very likely.
NO.1 CATALYST: CLIMATE CHANGE
Climate change is the main drive of the ESG momentum. COP26 Summit in November together with Biden Administration’s policy shift on the Paris Climate Agreement have poised a considerable focus on climate regulations and changes. Industries around the world are now pushed towards net-zero carbon emission goal, and governments and policymakers made clear that climate change has a cascading effect no one can ignore.
Companies face rising pressure to track their carbon emissions categorised under the international ‘Scope 3 emissions’; carbon generated directly from a company’s core business; carbon indirectly generated by energy bought by a company; or carbon indirectly created by its supply chain — which represents 65-90% of all emissions.
Ultimately, 2022 will see companies monitoring and managing their carbon footprints with the help of more carbon tracing technologies and regulations.
ESG IN ASIA
With two-third of its GDP being at risk from climate impact, is the frontline of the climate crisis. Southeast Asia shows high and unmanaged ESG risk due to exposures to the production and consumption of steel, mining, coal, oil and gas, and rising water levels. Yet the region’s context of going forward with responsible investments and practices on environment, social, and governance remains limited.
Despite some countries lagging on the ESG strategies, there has been encouraging progress as companies and the ASEAN bloc itself strengthen their commitments in scaling green finance and shift toward the ‘how’ to achieve a sustainable future.
The ASEAN bloc released Version 1 of the ‘ASEAN Taxomy’ last November. The guideline provides a common language for sustainable finance among the 10 ASEAN member states, and under its ‘Foundation Framework’, countries are required to reduce greenhouse gas emissions, prevent pollution and deforestation, manage waste, and build resilience to the physical impacts of climate change.
DIVERSITY IN THE ‘E’ ’S’ ‘G’
Diversity is a core element in every aspect of ESG.
Companies with diverse leadership showcase financial advantages as gender diversity plays a large role in strategy and performance. Such companies are also likely to make progressive change, enhance inclusion in the workforce and supply chain, and contribute to the regulatory of female representations (G).
A diverse talent pool also enables businesses to gain insights into different and more localised communities, cultures, challenges, and needs. First-hand knowledge is vital for designing plans, strategies and solutions as companies push forward to achieve sustainable goals. Women’s role in contributing to climate change solution is well recognised (E).
And with COVID-19 affecting women in the workforce especially hard, leaving many among the 62 million workers in the Asia-Pacific with no choice but to facilitate increased family responsibilities, the ‘social’ aspect (S) is brought to the fore, underscoring the need for more companies that value gender equality.
ESG-labelled sectors have great potential for outperforming in 2022 and the coming years, as funds pouring and investors looking for strategies that benefit financially and sustainably. Strengthening diversity and inclusion in their ESG strategies can maximise financial performance, strengthen a sustainable future, and progress under an evolving market.