What ESG investors want: the outlook for 2022

2021 has been another momentous year for ESG finance. With the recent wave of new political and regulatory initiatives, the labelled sustainable finance market is now approaching $2 trillion outstanding.

Key take-aways included:

Turning pledges into action: following COP26 this year, the panel – Anna Aparkina from Deka Investment, Foppe-Jan van der Meij from Actiam, and Karin Göransson, from Handelsbanken Asset Management – agreed that 2022 would be about “turning COP26 pledges into action” with new national legislations impacting corporate strategies and investor decisions. In this context, the panellists stressed the importance of companies defining a credible strategy that outlines how they are going to achieve their net-zero pledges, how they will finance it and what interim targets they aim to reach and when.

Investors’ expectations towards the EU Taxonomy: with corporates obliged to start disclosing their EU Taxonomy-eligible activities from 2022, the panel members also shared their expectations for the format and granularity of these disclosures: data about the share of operational and capital expenditure of taxonomy-eligible activities are featuring high on investors’ wish lists, as well as companies providing a clear picture about their climate ambition – the journey matters as much as the achievements. At the same time, the panellists made clear that ESG investors will not only buy taxonomy-aligned bonds, but that some activities not included in the taxonomy could still be part of sustainable investment strategies.

Investor scrutiny around greenwashing: with sustainability-linked bonds (SLBs) more often linked to a higher risk of greenwashing compared to green bonds, the panellists said they would like to see SLB issuers focusing on fewer, ‘straightforward’ targets, which are easier to measure and to report on. They also referred to second party opinions as a key tool to determine the sustainable character of an issuance.

Sustainable debt for hard-to-abate sectors: while the investor representatives on the panel generally welcomed the fact that less sustainable companies can issue in the SLB market to help finance their much more challenging transition to zero/low carbon, they pointed-out that investors must still apply strict criteria on what is, and is not, sustainable.

Sustainable Finance Disclosure Regulation (SFDR): as a key asset manager-focused regulation, the panel agreed that complying with the SFDR will have a huge impact on how investors evaluate issuers. This will further drive demand for (genuinely) sustainable investment opportunities.

To hear more about the panel’s thoughts on key trends and challenges in 2022, please follow this link to watch the replay of the webinar.

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