ESG Expectations in 2022
It is expected that there will be actions by regulators, corporations and investors to increase the importance placed on ESG factors in investment decisions across global capital markets in 2022. We are in the early stage of building the necessary capital market infrastructure to fully price companies’ greenhouse gas emissions, people management impact, and board and employee diversity into security prices.
Stock and bond prices in 2022 will be affected by changes in how companies provide this information to clients, increased client appreciation for the relevance of this type of information as well as expanded use of the information across investor types. Understanding these factors and system-level changes will become more important than ever as more investors incorporate ESG information into their investment decision-making process. Currently, investors receive information about companies’ carbon exposure, human capital and diversity information from a range of non-standardised sources, such as company websites, corporate social responsibility reports, sustainability reports, company regulatory filings or simple estimates. However, government regulators around the world have indicated they will begin or advance requirements for the disclosure of carbon, human capital and some diversity data. We expect rules in major global markets including the US to have enough clarity to see a meaningful impact in 2022. A new environment of higher quality data will increase the need for expert ESG analysis to incorporate the information into securities prices.
Additionally, professional investor activism has reached a critical point and will drive the need for expert ESG analysis further in 2022. It is expected that companies will strengthen the rigor of their reporting and to create greater transparency. The market may perceive higher risk exposures as this information change occurs. Investors and companies will quickly see that some companies are behind and a competitive dynamic will accelerate. One potential outcome is enhanced performance expectations for those companies with strong ESG management practices and investors initially seeking lower risk exposures across carbon, human capital and diversity.
Source: Calvert Research and Management