ESG Investment Trends to Look Out For In 2022

Environment, Social and Governance (ESG) investing is rapidly growing as more investors now consider how their investment decisions align with their values. It is a broad area but here, we look at some of the trends that are likely to impact ESG investing in 2022.

An Increase in Net Zero Pledges

More companies are now pledging to reduce their carbon emissions in 2022 and so, net zero carbon emission promises are going to grow further this year. While this is a trend that is going to rise, you can expect more businesses to change the way in which they operate.

The number of companies that engage in carbon offsetting is also expected to rise. This will allow firms to offset those emissions they can’t remove from their process by supporting projects that remove emissions.

Some companies have already made net zero targets, including Microsoft, BT, Sainsbury’s, and PwC.

However, when it comes to investing, it is important to consider Greenwashing, which is when a company claims to be eco-friendly but is not truly meeting its claims. In fact, research conducted by the NewClimate Institute found that out of the 25 climate pledges of some of the world’s largest companies, many are only committing to reducing their emissions by 40%, not 100% as terms like net zero suggest.

Climate Change and Dealing with the Social Effects

ESG investors have placed climate change high on their list of priorities for many years although social factors are now being considered. This is done to gain a clearer understanding of the way in which climate changes and policies impact communities and people.

This is a wide-reaching area and so, it can range from the way in which moving from fossil fuels will inhibit developing countries to how extreme weather will impact communities. So, the drive to understand the social effects of climate change is underpinned by the pledge that was made during COP26, as countries aim to reverse climate change. With over thirty countries committing to the pledge, the aim is to support communities and workers that will be impacted by the change to a greener economy and so, this is likely to have an effect on ESG investment.

Supply Chain Analysis

During the pandemic, supply chain matters have proven their importance. Many companies found their operations disrupted by supplies and entire supply chains were impacted and still, some businesses are struggling to get hold of the materials that they require.

Businesses can obtain security from solid supply chains and supply chains will be analysed to determine how companies commit to ESG. This trend might instil more confidence in investors although by analysing supply chains that are complex, it could mean that challenges are faced by investors and companies alike.

Companies Will Be Expected to Pay Their Way

Over the last few years, we have seen many headlines whereby companies have been found to not be paying enough tax or the right tax. The amount that these companies have to pay will be determined by their location and their industry but following the pandemic, it will mean that this is a trend that is going to be under real scrutiny.

During the pandemic, governments borrowed vast amounts of money in order to provide support and healthcare and so, it is expected that taxes will rise. So, as individuals will be placed under more pressure to pay their taxes, businesses are going to come under greater pressure to pay their way, especially if they received support during the pandemic.

So, with companies under pressure to pay their way, it will be interesting to see how this impacts investor activities this year.

Demand for Standardised Reporting is Growing

Greenwashing is becoming a serious worry for investors and so, there will be increased pressure for reporting standards to improve as well as regulation. It can prove challenging to hold businesses accountable if their reports contain vague targets and it can make it difficult for investors to consider different investment opportunities alongside their ESG criteria. As a result, this will lead to a call for better standards.

The Financial Conduct Authority has already started this process with the aim of ensuring that investors have more clarity.

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