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The ESG landscape for companies in 2019

Updated: Sep 4, 2019

2019 is off to another strong start for ESG despite total ESG equity assets shrinking in Q4 2018 along with the volatile market. Investors will continue to pressure companies to increase transparency beyond the traditional metrics and into more granular detail such as the board’s role in overseeing company culture and the skills present to ensure effective oversight of these factors

At the same time, investors are increasingly forming collaborations on topics across the ESG spectrum. Codification of the SASB standards, changes to the UK Stewardship Code and strengthening of actions around the Paris Accord will also impact the space. As an ESG Communications Specialist, understanding the impact of these ESG drivers will help ensure effective communication with your investors.

ESG ownership continues to grow despite market turbulence

In Q4 2018, the equity market experienced a downturn with the total value of equity investments plummeting by 15.4%[1] to $34.6tn. While the equity investments held by SRI investors lost 9.6% in value, the presence of core SRI investors in listed companies continued to grow in relative terms during Q4 2018 to 13.5% of all shares held by institutional investors globally.

[1] Source Leaders Arena and FactSet public ownership data.

Equity assets integrating ESG managed by UK and US investors saw the largest decreases in absolute terms during Q4 2018. The largest relative market losses were seen in Norway where SRIs lost 19% of equity value held in their portfolios.

Despite its still relatively low market penetration, ESG integration in the US continued to lead global ESG equity assets in absolute terms with circa $1.2tn in equity assets integrating ESG, representing 25.7% of the global ESG equity market value.

The number of indices and funds tying to ESG-related topics continue to grow with BlackRock, JPMorgan, Wellington, Sustainalytics and FTSE Russell being the latest to announce new products.

Looking ahead

Following the Climate Summit COP24 in December 2018, the climate regulatory risk will intensify. This risk to companies might materialise as early as 2025 once the emissions gap to achieve the Paris goals becomes more evident.

Diversity (gender, race and other), board composition and risk oversight will again be key ESG themes for investor engagement and proxy voting in 2019.

Board level oversight, as evidenced by inclusion in a committee charter, of ESG/CSR matters will become standard practice in the next few years.

Environmental and Social proposals will again dominate the number of U.S. shareholder proposals filed, with climate-related proposals leading the way. Many of these proposals won’t reach a final vote due to improved corporate-investor engagement.

Following the publication of the standards, investor support of SASB will now increase with key investor supporters encouraging companies to take a closer look at the framework for disclosure.

Leaders Arena’s customised quarterly ESG Market Deep-Dives help companies track the most recent ESG market developments and upcoming trends.

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