2020 has certainly had an ESG flavour and as a theme it is spreading quickly. From a mention on Sir David Attenborough’s BBC documentary Extinction: The facts to a plot line on the popular American TV drama Billions, the role that the investment industry can play in tackling related issues is receiving more airtime too.
The general public’s interest and engagement with ESG issues has been slowly growing over time, with awareness being led by the environmental element. Much credit for this can be given to Sir David Attenborough whose big budget documentary series’ have opened the eyes of millions to the environmental plight of our planet. Likewise, although Extinction Rebellion may be divisive in their methodology, the extensive media coverage has certainly had the desired effect of increasing awareness and conversation around the issues of climate and the environment. The Black Lives Matter protests in the summer of 2020, as well as the impact of the COVID-19 pandemic have further opened people’s eyes to the ‘S’ in ESG – the social issues at play.
ESG factors as considerations for businesses and investors, along with the means by which the financial services industry can contribute to addressing these issues (both sustainable investing and more proactive impact investing), have seen a steady increase in interest and engagement globally over the last decade with a significant rise in the last four years. The chart below shows the increase in Google searches for three ESG related terms – ‘ESG’, ‘Sustainable Investing’ and ‘Impact Investing’ – over a ten year period relative to the peak in its interest, which in all cases has occurred in the last 12 months.
Data source: Google Trends
Increasingly, investors are not only expressing interest but are also putting their money where their mouth is. As of early November 2020, the European sustainable fund market has reached almost £800 billion in assets under management1. This acceleration in interest and engagement has significant implications for the financial services industry, some of which are already being played out in the form of upcoming regulations such as the 2021 EU Disclosure Regulation, MIFID 2,the Insurance Distribution Directive, and the 2022 EU Taxonomy. (If you need a refresher on what the various legislations entail, check out this previous blog post – What’s that coming over the hill? ESG regulation from the EU!
Clearly it is time for a ‘temperature check’. General levels of understanding and engagement are increasing, as is society’s expectation that sustainability and ESG factors should be considered at all stages by the financial services industry. It is also expected that actions are taken to address the issues at hand to, at the very least, minimise further negative impact and be a driver for positive change.
In short, the zeitgeist is ESG and it is coming for you whether you like it or not!
Sources:
1) Morningstar