MSCI, the world’s largest index provider, expects five trends to emerge this year that will drive environmental, social and governance investing over the new decade.
Investor interest in strategies that adhere to ESG standards has been rapidly growing. BlackRock Inc. unveiled a plan on Tuesday to put climate change issues at the center of its investment strategy for the roughly $7 trillion of assets it manages. A survey last year found that 95% of fund managers globally have adopted, or plan to adopt ESG criteria.
MSCI analysts including Linda-Eling Lee identified the following key themes for 2020 in a report earlier this month.
- Investors will increase the use of data to find large companies focusing on climate change innovation, rather than start-ups.
- Financiers and lenders will find ways to include ESG criteria in their terms of capital.
- Environmental factors will increasingly be taken into consideration in real estate investment, as local governments enact zero-carbon building standards.
- Companies will need to balance job cuts due to automation with hiring workers with skills in new fields.
- Stakeholders without proxy votes will join forces with shareholders to maximize their influence.
As an example of the kind of data investors might exploit to find climate change innovators, MSCI cites patent filings. The analysts note that the largest filers of low-carbon patents over the past five years include such corporate giants as Toyota Motor Corp., LG Chem Ltd. and General Electric Co.
“Companies with the most resources and large R&D budgets (more likely to file more patents overall) could also become the most capable of introducing efficient low-carbon solutions into the market,” the analysts said.
MSCI has launched multiple gauges focusing on ESG and climate change over the last few years. Earlier this month, It added 15 fixed-income ESG- and factor-based corporate bond indexes to its gauges “to meet investor demand”.
© 2020 Bloomberg L.P.