Analysis: How 2021 became the year of ESG investing

BOSTON/LONDON, Dec 23 (Reuters) – Investors concerned about climate change and social justice had a record year in 2021, successfully urging companies and regulators to make changes amid record inflows into funds focused on environmental, social and… Corporate governance issues (ESG) were made .

Increasing extreme weather events and events that highlighted social justice issues, such as the death of George Floyd in Minneapolis police custody, helped keep ESG high on the agendas of investors, companies and policymakers.

A record $649 billion had flowed into ESG funds globally as of November 30, up from the $542 billion and $285 billion that flowed into these funds in 2020 and 2019, respectively, as the latest data from Refinitiv Lipper. ESG funds now account for 10% of global fund assets.

Stocks of companies rated highly for their sustainability efforts also rose. The MSCI World ESG Leaders’ Index is up 22% year to date, compared to a 15% gain for the MSCI World Index.

Investors flexed their muscles to question companies’ ESG credentials, culminating in a landmark board challenge against oil major Exxon Mobil Corp (XOM.N). Support for social and environmental proposals at US company shareholder meetings increased from 27% in 2020 and 21% in 2017 to 32% in 2021, according to the Sustainable Investments Institute.

“It was a turning point,” said Tim Smith, a director at investment management firm Boston Trust Walden.

He contrasted this year’s votes with one of the earliest corporate social policies, dating back to 1971, when just 1% of General Motors (GM.N) shareholders backed an investor decision to pull the automaker out of South Africa over the country’s racist social policies at that time.

Regulators have responded to the new pressure by making ESG disclosures a priority. The US Securities and Exchange Commission (SEC) has surveyed asset managers about the ESG classifications they use for their funds and is expected to flesh out guidance on company disclosures such as carbon emissions. Continue reading

The European Commission has completed most of its “Sustainable Finance Taxonomy” set of rules, according to which corporate activities can be labeled as climate-friendly. From next month, rules will apply to some sectors in the European Union.

Of the $6.1 trillion in ESG funds, Lipper says 59% of the money is held in Europe, the Middle East and Africa, reflecting the region’s past adoption of the investment trend.

Inflows into European ESG funds fell in 2021, but this was more than offset by rising inflows into US and Asian ESG funds.

Big wins for ESG investors urging change at companies this year included the replacement of three directors at Exxon Mobil, the rejection of a $230 million pay package for General Electric Co CEO Lawrence Culp, and a successful appeal for Union Pacific (UNP.N). to publish its statistics on workforce diversity. Continue reading

Catherine Winner, global head of stewardship at Goldman Sachs Group Inc’s (GS.N) wealth management division, who supported the critical efforts of shareholders at these three companies, said investors are no longer satisfied with companies delivering shareholder returns without more to do for the environment and society.

“It’s not just about the shareholders, it’s about everyone involved,” she said.

ESG SETBACKS

Certainly, ESG investors suffered setbacks in 2021 as well. Shareholder resolutions that garnered significant support but failed to secure a majority included a call to reform arbitration procedures at Tesla Inc (TSLA.O) and a call for Amazon.com Inc to review how it addresses racial justice and justice . Continue reading

Many top corporate investors have warmed to ESG decisions, even if they have not supported them most of the time. Of 49 climate-related resolutions this year, BlackRock Inc (BLK.N) supported 41%, up from 10% for a similar set of resolutions in 2020, according to advocacy group Ceres. Vanguard funds increased their support from 14% to 37%.

Both major index fund companies declined to comment on the Ceres report. However, you have previously said that companies must have proper risk oversight on environmental and social issues and that they seek to be transparent about their views. Continue reading

In the United States, companies can sometimes avoid having shareholder resolutions put to a vote by asking the SEC for permission. Thomas Skulski, managing director at proxy solicitor Morrow Sodali, said the SEC strengthened the hand of ESG investors in November by narrowing down the circumstances in which companies can skip voting. Continue reading

As a result, companies could face additional challenges over the next year related to operational issues, such as the use of consumer packaging or plastics, Skulski said. Continue reading

Reporting by Ross Kerber in Boston and Simon Jessop in New York Editing by Greg Roumeliotis and Lisa Shumaker

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