MSCI’s Five ESG Trends to Watch in 2020

• The resurgence of stakeholder capitalism means that shareholders are no longer alone in finding channels to hold companies accountable.
• Whether it’s accessing capital or embarking on a workforce makeover, the top echelon of corporate management will find that deft management of ESG issues becomes a critical core competency.
• Climate change accelerates as an investment theme, driving a looming re-valuation for “brown” properties and a search by investors for opportunities through mining alternative data sources.

ESG themes are long-term, but some can emerge with sudden force. We are watching Five Trends we believe will unfold in 2020 to catapult ESG investing into the new decade:

1) Climate Change Innovators: Spotting the Sleeping Giants

Solving the climate crisis is likely to take innovative technology, scalable deployment and a bit of luck. Many envision climate saviors coming in the form of plucky startups. But alternative data is hinting instead at big, established players, biding their time and quietly assembling an arsenal of climate solutions.

In 2020, investors turbocharge their use of alternative data to spot the companies plotting to take a lead in propelling us toward a carbon-free economy.

2) New Terms for Capital: Ready or Not, Here Comes ESG

Banks have stepped away from some gun makers, and investors have been keen to channel money toward green energy projects. But for the average, middle-of-the-road company, ESG has mostly been tossed to the corporate social responsibility office or used to prettify annual reports.

In 2020, ESG storms the CFO’s office, elbowing its way onto the bottom line as financiers get creative with ways to bind ESG criteria to their terms of capital, introducing a plethora of corporate borrowers into the wide world of ESG.

3) Re-valuing Real Estate: Investing in the Eye of the Hurricane

Wildfires, storms, floods, droughts, heat waves…. Just as real estate investors and managers begin to grapple with what climate change might do to their assets physically, now they may also have to contend with accelerating regulation. Location matters in real estate, and vast portions of the global property stock are in cities and regions marching towards zero-carbon building standards.

In 2020, greening the property portfolio will move from a nice-to-have reputation booster to an imperative in the face of a looming “brown discount” if real estate investors don’t kickstart their journey to zero carbon.

4) The New Human Capital Paradox: Juggling Layoffs and Shortages

It’s time to retire old skills, bring new ones in, and fast. The pressure is on for companies to transform their workforces as competitors go digital, automated and everything in between. The trick is “How?” Workers aren’t the only ones needing disparate new skills – HR and management likely do too.

In 2020, many more companies will have to become human capital multi-taskers, laying off some workers on the one hand while on the other simultaneously recruiting scarce new kinds of talent that may seem alien to management. Like a high wire juggling act, any lapse could prove disastrous.

5) Keeping Score on Stakeholder Capitalism: Looking for Accountability in all the New Places

Stakeholders are hot right now. But glossy mission statements have done little to shift the enduring power dynamic between companies, shareholders and other stakeholders. Until now, only shareholders have had clear channels for holding companies to account. Bit by bit, other stakeholders are trying to influence the conversation.

In 2020, stakeholders without proxy cards will evolve their activism, joining forces with willing shareholders, and using increasingly sophisticated means to size up whether companies really “walk the talk” when it comes to their stakeholder commitments.

While we’re not quite at the point where “ESG investing” has simply become “investing,” the 2020 trends illustrate how its effects have reached across asset classes, industries and investor types.

Read the full article, that includes a variety of useful charts and graphs.

 

Article by Linda-Eling Lee, Global Head of ESG Research, MSCI; Meggin Thwing Eastman, Research Editorial Director, MSCI; and Ric Marshall, Corporate Governance Research (ESG), MSCI.