Report highlights how geopolitical and economic change, regulation, and technological innovation could shape ESG and climate finance
Rising geopolitical tensions, soaring inflation, and regulatory change underpin MSCI’s 11th annual ESG & Climate Trends to Watch report – an analysis of more than 30 emerging risks set to impact corporations and investors worldwide in 2023 and beyond.
Powered by research conducted by MSCI ESG Research analysts worldwide, the MSCI 2023 ESG & Climate Trends to Watch report highlights how global debates about what ESG and climate investing is now will impact what ESG and climate investing could be in 2023. The expanse of emerging ESG and climate issues will increase the number of financial risk considerations for both companies and institutional investors, such as pension funds, sovereign wealth funds, endowments, and asset managers.
Key themes covered in the 2023 list of 32 ESG and climate investing trends include:
- Innovations in the supply chain, including the prospects of tracking goods through blockchain technology and the mining of e-waste that could reshape the dynamics of controversial raw material sourcing;
- Changing governance, with exploration of how new corporate board demographics could play a role in say-on-climate and other proxy voting trends;
- Responses to regulation, including tangible impacts of new rules on asset managers, institutional investors, and corporations;
- Work life changes, such as the proliferation of railroad strikes and labor rights movements globally;
- New frontiers in measurement and transparency, with insurers and banks set to expand scope of emissions tracking;
- Emergence of new investments, ranging from lab-grown commodities to carbon as an asset class;
- And turning points for ESG assets, including green bonds and nuclear energy.
ESG and climate investing were thrust into new spotlights in 2022. Global regulators introduced rule proposals aiming to reduce greenwashing in the fund industry, in addition to introducing requirements for financial institutions to conduct climate stress tests, deforestation-free market-access rules, and potentially mandatory requirements to report on the Sustainable Finance Disclosure Regulation (SFDR)’s Principle Adverse Impact indicators. At the same time, politicians increasingly amplified partisan views on the concept of ESG.
With 2022 policymaker debates in backdrop, investors will also continue to evaluate how the climate crisis will impact their portfolios in 2023. The latest MSCI Net-Zero Tracker shows that listed companies will deplete their share of the global emissions budget for limiting temperature rise to 1.5°C by December 2026i.
For example, researchers explained in the ESG & Climate Trends to Watch report that the ongoing war in Ukraine and record levels of inflation globally may limit near-term pressure to reduce global greenhouse-gas emissions as governments prioritize energy security and affordability. However, MSCI ESG data reveals that major power companies are keeping their eyes on longer-term decarbonization trends and expanding deployment of renewables.
Meggin Thwing Eastman, Managing Director and Global ESG Editorial Director at MSCI, said: “Just as the world started to recover from the global pandemic at the start of 2022, it was hit with a series of climate disasters, a major war in Europe, spiraling inflation globally, and a cost-of-living crisis. Our annual ESG & Climate Trends to Watch report examines how these significant geopolitical and macro risks will transform the ways in which investors evaluate the impact that companies in their portfolios have on society and their bottom line. ESG risk is financial risk, and the ESG and climate research showcased in today’s report was conducted to support investor needs to synthesize previously unseen risks and incentivize companies to better manage both emerging issues and the longstanding, expansive threat of the climate crisis.”
About MSCI Inc.
MSCI is a leading provider of critical decision support tools and services for the global investment community. With over 50 years of expertise in research, data, and technology, we power better investment decisions by enabling clients to understand and analyze key drivers of risk and return and confidently build more effective portfolios. We create industry-leading research-enhanced solutions that clients use to gain insight into and improve transparency across the investment process.
About MSCI ESG Research Products and Services
MSCI ESG Research products and services are provided by MSCI ESG Research LLC, and are designed to provide in-depth research, ratings and analysis of environmental, social and governance related business practices to companies worldwide. ESG ratings, data and analysis from MSCI ESG Research LLC. are also used in the construction of the MSCI ESG Indexes. MSCI ESG Research LLC is a Registered Investment Adviser under the Investment Advisers Act of 1940 and a subsidiary of MSCI Inc.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future events or performance and involve risks that may cause actual results or performance differ materially and you should not place undue reliance on them. Risks that could affect results or performance are in MSCI’s Annual Report on Form 10-K for the most recent fiscal year ended on December 31 that is filed with the SEC. MSCI does not undertake to update any forward-looking statements. No information herein constitutes investment advice or should be relied on as such. MSCI grants no right or license to use its products or services without an appropriate license. MSCI MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE WITH RESPECT TO THE INFORMATION HEREIN AND DISCLAIMS ALL LIABILITY TO THE MAXIMUM EXTENT PERMITTED BY LAW.
MSCI ESG Research LLC is a Registered Investment Adviser under the Investment Advisers Act of 1940 and a subsidiary of MSCI Inc. Except with respect to any applicable products or services from MSCI ESG Research, neither MSCI nor any of its products or services recommends, endorses, approves or otherwise expresses any opinion regarding any issuer, securities, financial products or instruments or trading strategies and MSCI’s products or services are not intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Issuers mentioned or included in any MSCI ESG Research materials may include MSCI Inc., clients of MSCI or suppliers to MSCI, and may also purchase research or other products or services from MSCI ESG Research. MSCI ESG Research materials, including materials utilized in any MSCI ESG Indexes or other products, have not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body.
i The calculation in the October edition of the MSCI Net-Zero Tracker reflects listed companies’ share of the global budget for limiting the rise in average temperatures to 1.5°C, as of Aug. 31, 2022.
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