Environmental, social and governance (ESG) in the future may look very different from today, as all regions continue their commitment to responsible investments, according to Northern Trust’s new whitepaper ‘A Global Shift to an ESG Mindset’.
The paper affirms that “getting started today is key to keeping pace with this global force”. This is as a recent global survey revealed that 63 per cent of 200 fund buyers believe all funds would incorporate ESG factors in five years.
Over the last ten years, ESG investing has picked up momentum in the global asset management community, with particular regions and governments leaning deeper into the strategy than others. But as 2020 unfolded, regions that previously moved slowly to embrace ESG began to take more meaningful action, the report says.
According to Northern Trust, following the impact of the COVID-19 pandemic, as well as its accompanying economic recession, firms have made connections from the current experience to what the industry could face in the future.
This is as a result of environmental change, diversity, equity and inclusion initiatives and governance requirements, fueling adoption of socially responsible investment strategies.
“Now, as regions look closer at their ESG practices, regulatory bodies are stepping up their plans for oversight. Though certain geographic regions are more advanced in their ESG approaches than others, regional differences are quickly reducing as global frameworks and standards develop,” the paper notes.
While many European markets have long made ESG a focus in their investment strategies, other mature markets in parts of North America and Asia have had a less straightforward approach, Northern Trust found.
Europe is known not only as a regional leader, but as a global leader for ESG, and the EU has designed a structured, intentional, and growing web of policies while on a journey to achieve net zero targets and other positive impacts, according to the paper.
Northern Trust observes that US focus on ESG investing, for example, lost steam during the Trump presidency, but has picked up again under the Biden administration.
The paper stipulates: “In North America, the US and Canada vary in their approach to ESG investing and guidance designed to regulate it. While the US lags its northern neighbour, its regulatory bodies have begun to consider how to filter a sustainable perspective into its oversight of financial markets.”
Meanwhile, several of Asia’s host of developed countries are beginning to make headway on their own policies, while striving to be attractive locations for domiciling ESG investment funds.
Northern Trust predicts that regulators will guide the global frameworks, but as asset owners place more of an emphasis on investing in sustainable assets, and as asset managers survey their preparedness for supporting ESG investing in this new sought-after capacity, they should consider the ways their own defined ESG policies and emerging regulatory reporting requirements will impact their portfolios.
