3 ESG Investing Trends for 2022 and Beyond
The value placed on environmental, social, and economic (ESG) issues have continuously grown throughout 2021, going beyond boardroom conversations to involve a broader range of stakeholders. ESG criteria serve as additional considerations for investors alongside financial factors when they screen companies that they are interested in investing in. Companies with strong ESG ratings typically outperform their peers. Indeed, this is supported by a 2015 study in the Journal of Sustainable Finance & Investment, which shows that firms with higher ESG scores typically demonstrate more robust financial performance. For these reasons, ESG investing is becoming increasingly popular among both individuals and institutional investors. With ESG expected to remain a major force in the financial world, here are three investment trends for 2022 and beyond that you should watch out for.
1. Carbon Offsetting
As climate change becomes an increasingly pressing global issue, decarbonisation is making its way up on the list of agenda for countries, with more policies drafted to pave the way towards a greener economy. In late 2020, more than 110 countries, including the U.K., Japan, and Korea, pledged to reach carbon neutrality by 2050. Closer to home in Singapore, the government will be rolling out carbon tax hikes in phases from the current S$5 per tonne to S$80 per tonne in 2030. As more and more countries adopt environmental regulations and emissions-trading schemes, the carbon market, through which companies trade carbon credits, is expected to become even more active and profitable. As a relatively new market, there is also further room for the carbon market to grow, presenting an attractive opportunity for astute investors to generate significant returns.
2. The Improvement of ESG Data
Beyond policies, governments and the broader public alike are exercising greater scrutiny over companies’ ESG practices. For example, the U.S. Securities and Exchange Commission (SEC) has established the first-ever Climate and ESG Task Force to examine ESG-related disclosures and compliance issues and identify gaps or misstatements. In the face of mounting pressure, companies have taken significant strides in improving their ESG performance. One area where progress has been particularly evident is in the quality of ESG data, which is now more comprehensive and transparent. This positive development enables investors to obtain a clearer understanding of an organisation and uncover existing or potential financial risks, allowing them to make more informed decisions on where to allocate their capital.
3. Asia’s Increase in ESG Commitments
Asia has also been gaining pace in making ESG commitments. For example, South Korea has announced mandatory disclosures of ESG for companies with a total asset value of KRW 2 trillion and above from 2025. This mandatory disclosure will also be extended to all companies listed on the Korea Composite Stock Price Index (KOSPI) from 2030. Meanwhile, the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) have jointly set up the Green and Sustainable Finance Cross-Agency Steering Group. This is an agency that aims to coordinate and manage climate and environmental risks to the financial sector, speed up the growth of sustainable finance in the country, and support climate strategies proposed by the government. In Singapore, the Monetary Authority of Singapore (MAS) and Singapore Exchange have initiated a digital disclosure portal, ESGenome, that provides a structured and efficient way for firms to report their ESG data. This ensures that information is gathered in one place and is presented in a standardised format that allows investors to retrieve the data and draw comparisons between different companies easily.
H2 KPMG’s Decarbonisation Efforts and Achievements to Date
The importance of ESG initiatives and carbon accounting is expected to increase in the corporate sphere, and firms are ramping up their decarbonisation efforts to stay ahead of the curve. Companies such as KPMG in Singapore have achieved various milestones, such as increasing renewable electricity usage across its global operations from 56 percent in 2020 to 74 percent. Despite successes, these companies continue to recognise the need to do more. In the case of KPMG in Singapore, the company has embarked on several initiatives, ranging from setting carbon accounting measurements to working with relevant authorities to engage the industry. For example, KPMG in Singapore has partnered with leaders from the Trade Associations and Chambers and main industry players in the energy, utilities and real estate sectors to formulate a collective decarbonisation blueprint. When implemented, this blueprint is expected to make imminent contributions to Singapore’s decarbonisation plans and significantly support the nation’s transition to a low-carbon economy.
Within the company, KPMG in Singapore has rolled out various other initiatives to target internal stakeholders. For example, the company will be setting an Internal Carbon Price to measure and account for its carbon impact and targets to cut emissions by 50 percent by 2030. To address the social aspect of ESG, women now account for nearly half of the organisation’s workforce and are expected to fill over one-third of leadership roles by 2025. Beyond engaging internal stakeholders, KPMG supports its clients in areas such as their ESG transformation plans, ESG reporting and ESG assurance. Through this, KPMG’s clients are able to make better contributions towards the achievement of the United Nations’ (UN) sustainable development goals. These ESG efforts have placed firms like KPMG in a better position to deliver long-term value for stakeholders and increase their resiliency in this rapidly evolving world.