Five key ESG themes for the coming year and the push towards a low carbon economy
No longer a niche consideration, ESG represents a structural shift in the industry that is here to stay, writes Julie Moret, head of ESG at Franklin Templeton Investments.
1. Shift from carbon reduction to climate transition opportunities
A few years ago, climate-related discussions among investment managers were dominated by carbon footprinting. That was largely sparked by the introduction of the French Energy Transition Law in 2015, which mandated reporting the carbon footprint of portfolios.
Recently, attention has shifted to the investment opportunities arising from climate transition. In our view, this is a positive development.
Speakers at both the RI Americas Conference and SASB Symposium agreed that capital markets had not yet priced in the transition to a lower-carbon economy.
2. ESG and innovation
Many of the biggest global challenges are ESG issues such inequality, climate change and population growth. We believe harnessing frameworks like the United Nations Sustainable Development Goals (SDG) can support new investment opportunities.
3. Public equity’s changing role
Traditionally, impact investments have been in private equity vehicles as they offer structural advantages. However, discussions at the RI Americas Conference and the SASB Symposium suggest this attitude might be changing.
Furthermore, the involvement of public equity investors in this space could create exit opportunities for smaller players and address liquidity issues.
4. Single-use plastics
A growing ESG theme is the impact of ‘convenience culture’ pollution. The world’s oceans contain 150 million tonnes of plastic, increasing by eight million each year. By 2050, it is predicted there will be more plastic by weight than fish in our oceans.
With only 9% of plastics globally recycled, this is an area governments are keen to address. The European Union (EU) has set a target that by 2025 90% of plastic is to be recycled. This shift will require companies to think about circular economy solutions.
5. Regulation and shareholder rights
We have seen some divergence between regulators in Europe and the US on ESG topics. While Europe is aiming to hardwire sustainability into its capital markets, there has been a growing corporate voice of dissent in the US against investor influence on sustainability factors.
It seems clear to us from the discussions that, despite increased lobbying from corporates, investors will continue to put pressure on companies to address ESG factors.