ESG funds and priorities took center stage at several points during the year as increasingly more investors pushed for sustainability and better corporate reporting and practices. 2021 brought about real traction at the shareholder level for ESG priorities, and next year looks to bring even more engagement and challenges regarding company operations as regulators circle around ESG classifications and reporting.
Severe droughts, flooding, and hurricanes brought home the reality of global warming for many people across the U.S., and this was reflected in ESG becoming a top priority for many investors, companies, and policy makers, reports Reuters.
$649 billion was invested in ESG-focused funds globally through the end of November, already up from the $542 billion invested in 2020 and $285 billion in 2019; ESG funds currently make up 10% of all global funds. Worldwide performance of ESG companies has driven the MSCI World ESG Leaders’ Index up 22%; over the same time period, the MSCI World Index was only up 15%.
“It was a watershed year,” said Tim Smith, a director at investment management firm Boston Trust Walden.
The Power of Shareholders Grows
Shareholders are increasingly challenging boards on their sustainability practices, and with the ousting of three of Exxon’s board members by hedge fund activist Engine No. 1 earlier this year, companies are paying attention. Environmental and social proposals at shareholder meetings have gained support this year within the U.S., rising to 32% from 27% in 2020 and only 21% in 2017.
This kind of pushback at a fundamental level is anticipated to continue with the SEC making it harder for companies to be able to avoid skipping shareholder votes in November, a big boon for ESG investors. In 2022, companies could face a growing number of filed challenges over their sustainability and business practices as part of the growing pressure to adhere to ESG principles.
“It’s not just about shareholders; it’s about all stakeholders” said Catherin Winner, global head of stewardship at Goldman Sachs Group Inc.’s asset management division.
The SEC has also requested information from asset managers regarding how they classify ESG metrics in their funds and how and what data businesses report. While no regulations have been announced yet, it is anticipated that the regulatory body will be looking to finally provide some guidelines within the space next year.
With climate change and emissions being drawn sharply into focus at this year’s global climate summit, regulations and changes are expected for industries going forward as the world works towards net-zero carbon emissions. Overall, ESG priorities are only set to grow, and funds with an ESG focus have great potential for outperformance in the coming years.
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.