ESG, Net Zero & Circular Economy Global Trends for 2022 and Beyond!
- ASEAN Taxonomy
In 2021 the Association of Southeastern Asian Nations released the Version 1 of the ASEAN Taxonomy for Sustainable Finance. It aims at providing a common language for sustainable financing among the ten country members (which, combined, comprise the 5th largest economy in the world). Initially, the ASEAN Taxonomy includes activities which fall under six sectors (Agriculture/forestry/fishing, manufacturing, electricity/gas/steam/air conditioning, transportation/storage, construction/real estate, water supply/sewage/waste management). The Plus Standard will identify activity-level criteria to determine whether or not the specific activity will meet the requirements. In 2022, we expect to see the development of Version 1 and the formation of the technical screening criteria.
- Improved ESG Data and creation of ambitious goals
Regulatory authorities around the world face significant challenges due to lack of clear definitions and standardized procedures. In Singapore, the Monetary Authority (MAS) published guidelines for the management of environmental risks. In India, the regulators are considering a disclosure and investing framework for the investment of mutual funds in ESG (to be released in October 2022). The need for credible and widely accepted standards for disclosing and reporting information will continue to grow in 2022. The role of ESG information will also continue to grow, as their influence on sustainability valuations, overview, and risk assessment will be strengthened. This means that not only the quantity of ESG information will grow, but also the quality, since more and more investment and funding decisions are based on ESG information. Continued ESG training of C-Suite Executives is critical for maintaining tangible results and credible communication of progress on ESG matters.
- Increased ESG Commitments
Rapid urbanization and industrialization in Asia over the past two decades have led to a huge demand for infrastructure, like energy, transportation, water supply and waste management. The COVID-19 pandemic brought to the surface significant problems in relation to infrastructure. For example, the shift of consumers to single use plastic bags, single use utensils, and increased packaging for health reasons, revealed significant gaps in waste management. The need for circular economy solutions, resilient and renewable energy sources, as well as greener buildings and more sustainable transport infrastructure is evident in many regulatory initiatives. In China, for example, President Xi Jinping committed to “firmly control” carbon emissions towards achieving neutrality by 2060. The increased demand for sustainability in a post-pandemic world will include many ESG related investment opportunities in Asia.
- Increased focus on the S (Social) of ESG
Over the last 2 years, the COVID-19 pandemic has brought social issues back at the top of the agenda, while at the same time it has revealed significant systemic issues. Schroders’ 2021 Global Investor Study found that more than 57% of investors globally said that social issues had become more important to them during the pandemic. In the past, the lack of measurable impacts and results in the social pillar, has led the spotlight on the environmental issues. What is obvious today is that considering social risks can made a difference in improving financial resilience. Investors will be expected to be taking a closer look in diversity, inclusion, and in all the current social issues.
In Australia, the modern slavery act, which commenced on January 1st, 2022, requires government agencies and local councils to take all necessary steps to ensure that all goods and services do not involve any form of modern slavery or human rights violation in their production.
- Fossil fuels de-investments and Renewable Energy
The challenge of cleaning investment portfolios from carbon will become even stronger in 2022. Already, big investment funds, like Dutch pension fund ABP, announced that they will step away from fossil fuels investments due to lack of opportunities. The shift to renewable energy sources is expected to continue, since reducing emissions remains a top priority for all stakeholders.
- Improved ESG Data and creation of ambitious goals
Regulatory authorities around the world face significant challenges due to lack of clear definitions and standardized procedures. In Europe, the Sustainable Finance Disclosure Regulation (SFDR) enforced mandatory ESG disclosures, while the EU Taxonomy includes a list of environmentally sustainable financial activities. The need for credible and widely accepted standards for disclosing and reporting information will continue to grow in 2022. The role of ESG information will also continue to grow, as their influence on sustainability valuations, overview, and risk assessment will be strengthened. This means that not only the quantity of ESG information will grow, but also the quality, since more and more investment and funding decisions are based on ESG information. Continued ESG training of C-Suite Executives is critical for maintaining tangible results and credible communication of progress on ESG matters.
- Generation Z Sustainable Life Style
Consumers will continue to push for more sustainable products as Gen Z is gaining more purchasing power as they join the workforce. There are three main product categories that will become even more sustainable: food, fashion, and lifestyle products. Regarding food products, consumers look for improved solutions when it comes to production (food production accounts for 26% of greenhouse gas emission), sustainable packaging (or less packaging), and a renewed preference to local products. Fashion is already exploring circularity solutions for the materials used in products, and a further boost is expected in 2022. Finally, lifestyle changes are evident in the switch to electric vehicles and digitalization of services.
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