Expect ESG to Be a Market Driver in 2022 | ETF Trends

Environmental, social, and governance (ESG) funds brought in around $120 billion in flows last year as increasing focus by regulator bodies, advisors, and investors continued to propel the space forward. 2022 is expected to see more growth for ESG, not just in terms of greater inflows but as an actual trend that will shape markets, reports Yahoo Finance.

Global markets are seeing a growth fiscally centered around renewables and sustainable energy, and it’s expected to pick up within the U.S. this year as well, believes Aniket Shah, the global head of ESG and sustainability research as Jefferies.

“We are seeing 2022 as the year when ESG not only becomes mainstream, but it starts driving markets a lot more,” said Shah in an interview with Yahoo Finance Live. “And the reason why this will happen is because core parts of the financial system, including the central banks, are going to become even more serious about climate change as they are today.”

Analysts are anticipating the stalled Build Back Better bill that focuses on climate change within the U.S. to pass sometime in the first half of 2022 and mirror a global trend of increased focus on decarbonization from regulatory bodies. The passage of the bill would be a huge boon for ESG funds, but in the meantime, the change is being driven from the bottom up.

“It’s a lot less of a policy-driven market in the United States and a lot more driven by what asset managers need to see, what banks need to see, and how companies can differentiate themselves,” said Aaron Franklin, head of sustainable finance at SMBC. “That’s distinguished from the European approach of having a bit more of a top-down, did this comply with the definition of sustainability.”

Regulation could very well be coming from the SEC this year in regards to climate change disclosures from companies; last year, the regulatory body compiled public statements regarding ESG reporting and the kind of data and metrics being used. The vast majority were in favor of increased disclosure and mandates around what is reported, how the information is collected, and accountability.

In addition to domestic regulations, the newly created International Sustainability Standards Board created during the global summit could also be releasing regulations on disclosures that would apply to financial markets early this year as well.

“We see the ISSB becoming the global standard-bearer of ESG disclosure in 2022,” analysts from Jefferies wrote. “As more companies disclose ESG-related information based on ISSB, the standard will become the driver of materiality, just like with financial disclosures. We recommend investors become familiar with the ISSB approach in 2022.”

State Street Global Advisors offers a variety of ESG funds with different investment strategies and plans, from the broadly investing SPDR S&P 500 ESG ETF (EFIV), to a governance-focused fund with the SPDR SSGA Gender Diversity Index ETF (SHE), to a fund that focuses on clean energy technologies with the SPDR S&P Kensho Clean Power ETF (CNRG).

For more news, information, and strategy, visit the ESG Channel.