The Diverse Factors Behind ESG Adoption

ESG push and pull factors managers should be aware of in 2020

Alexander Booth, ESG verification analyst, INDOS Financial, London
Originally published in the January 2020 issue

Summary key points

• There has been a sea change in the ESG space with investors, regulators, asset managers and owners realising both the risks and opportunities posed by ESG.
• Regulation is set to increase across the world as central banks and governments begin to require ESG disclosures.
• The public is increasingly anxious regarding the pace of government action on climate change. This has led to a wave of litigation against a range of defendants for their lack of action, including investment managers and corporations.
• Investors from a range of generations are preferring to invest in ESG focused financial instruments offering a big opportunity for asset managers.
• The rise in volatility expected from climate change is offering opportunities for smart hedge fund managers who have a high degree of strategy flexibility.

PRI in person: The push and pull behind ESG adoption

The PRI in Person conference, held in Paris in September, was the largest PRI conference in history, reflecting the demand and urgency from attendees wanting to see changes in the financial system. 

The discussions covered a range of topics, including how the price of carbon is calculated, modelled results on which sectors would win under a climate transition and high-level discussions on the Task Force for Climate-related Financial Disclosure (TCFD), the Inevitable Policy Response (IPR) and the UN’s Sustainable Development Goals.

Across the four-day conference a number of push and pull mega trends emerged which will dominate in 2020. Whilst it was noted that a large number of funds still see ESG as a way to attract capital; the discussions at PRI in Person noted the shift in mindset of PRI signatories away from ESG as a unique selling point to the understanding of ESG as both a risk and opportunity. The old impediments to ESG integration, lower returns, transparency and greenwashing are being eroded by emerging push factors from regulators and pull factors such as performance.

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