Attempting to predict short-term fluctuations in markets is typically a losing battle. So is trying to predict longer-term trends and making grand pronouncements about them. (Who in 2019 would have predicted the coronavirus pandemic?) But when it comes to ESG, listening to investors and understanding what matters to them can point to a gravitational pull in a certain direction. Here are three themes we see investors paying attention to in 2021 and beyond.
With President-elect Joe Biden appointing John Kerry as the first-ever US climate czar and his promise that the United States will rejoin the Paris Agreement on climate change the day he’s sworn in, it’s clear that the new administration is planning on elevating the climate crisis as one of the government’s top priorities for 2021. Many investors are rejoicing over the prospect of the US recommitting to tackling climate change and potentially regaining international leadership on the issue.
An encouraging aspect of Biden’s climate plan is his promise to require publicly traded companies to disclose climate risks and the greenhouse gas emissions in their operations and supply chains. This would go a long way toward providing investors with the transparency they need to make informed investment decisions. Although many companies already disclose this information, many others don’t. And investors can’t accurately evaluate climate risk in their portfolios until these gaps are closed.
Investors long ago recognized that climate change is an investment risk in their portfolios, but recently they’ve gotten bolder, using their votes on shareholder resolutions to signal to companies that climate risk can no longer be a back-burner issue. In fact, average investor support for environmental resolutions during the first six months of 2020 was 33%, up from 22% in 2019, according to Proxy Insight.
Beyond wielding their proxy votes, investors are also tackling climate risk by collaborating through initiatives coordinated by organizations like Ceres, the Principles for Responsible Investment, and Climate Action 100+. On the fifth anniversary of the Paris Agreement, some investors and asset managers, representing over $9 trillion in assets under management, even stepped forward to commit to support the goal of net zero greenhouse gas emissions by 2050.
Better disclosure around climate risks will help investors navigate these decisions more effectively.
Diversity and inclusion
Investors have been engaging on the issue of board diversity for years, but those efforts have been focused mostly on gender. This was always seen as a stepping stone to bigger and broader diversity conversations that could include race, ethnicity, and sexual orientation, among other things. In large part, investors started with gender because they had access to better data.
But the death of George Floyd reignited the fuel for the Black Lives Matter movement, and many companies began speaking out in support of their Black employees and the greater Black community. Investors were similarly energized and have shown interest in enhancing their diversity engagement initiatives, expanding their conversations beyond gender to include topics such as race, ethnicity, and sexual orientation.
Parametric did just that last summer when we wrote to the board chairs of all the Russell 3000 companies that lacked a female director. We had broader conversations about diversity at the workforce level as well, and we pushed for more diversity disclosure from public companies.