ImpactAlpha, Jan. 3 – ESG – for enterprise operations and investment decision-making that account for environmental, social and governance considerations – took a beating from all sides last year. As ImpactAlpha’s David Bank wrote in our 2023 lookahead, ESG was seen as either “a barely disguised conspiracy to undermine capitalism or toothless box-ticking designed to pump up wealth-management fees.”
Rather, he said, the metrics may one day be seen as having “helped distinguish the leaders who ushered in an economy built around sustainability, inclusion and equity from the laggards who tried to block it.” In other year-end roundups, ESG practitioners agreed climate change and regulation will dominate ESG debates this year.
Other trends to watch:
- Proof points. ESG may be a hot button but research over the past year shows strong support for the practice from businesses, investors and the general public. In a guest post on ImpactAlpha, Manifest Social’s Ryon Harms rounds up a baker’s dozen of ESG studies that make the case.
- Opportunities for transparency, governance and impact. Investment research firm MSCI identified 32 trends including: Changing ESG fund names and labels. The rise of female corporate directors in Asia. New frontiers in lab-grown commodities. Sustainable cotton alternatives. Understanding the trends “will be a first step in assessing the potential impact they could have on investment portfolios,” writes MSCI’s Meggin Thwing Eastman.
- Premium on quality data. Growing demand from investors and increased regulatory scrutiny have put a premium on quality ESG data, says EY’s Narendra Tiwari. In the coming year, says Tiwari, more investors will seek accurate and reliable data, enabled by new digital reporting technologies, “to make more informed decisions about where to allocate their capital.”
- Strong leaders will seize the moment. Instability in the economy will strengthen the hand of business leaders with long-term views, found the Aspen Institute, which surveyed executives, journalists and scholars. Political posturing and increased scrutiny are “good for ESG,” says Thornburg’s Jake Walko. “It’s about growing ESG literacy – the noise and even the need to work through misinformation help build the understanding.” In 2023, strong leaders will seize the opportunity that exists to green the economy “to position and lead transformation, rather than retreat on talent or ambition,” says BCG’s Dave Young.
- Impact startups will mitigate corporate risks. Social impact and sustainability has improved exponentially in recent years; implementation and execution remains murky and patchy, says Microsoft’s Samira Khan. Among Khan’s #BigIdeas2023: Disruptive climate and impact startups will support the demand for better execution. Investment will flow to climate startups in 2023. The ‘S,’ for social, “will also be an opportunity area,” says Khan, as corporates ramp up focus on human capital in supply chains, including modern slavery in the fashion industry.