In its global 2020 ESG Trends report, MSCI has identified five trends to watch.
1. Climate change innovators: spot the sleeping giants
Innovative technology will be essential to solving the climate crisis. Many expect climate saviours, with these solutions, to come in the form of start-ups. But MSCI’s research reveals big, established players may be biding their time and quietly assembling an arsenal of climate solutions.
Investors may be overlooking opportunities: in 2020 investors will ramp up their search for companies with solutions to halt carbon emissions. Yet investors may be overlooking key opportunities. Existing channels for investors identifying opportunities – such as through venture-capital funds – risk ignoring the potential in crowded R&D pipelines of large companies.
2. New terms for capital: here comes ESG
2020 may be the year ESG becomes an inescapable part of the financing conversation. For the average company, ESG has mostly been relegated to the corporate social responsibility office. Yet research reveals two considerations for CFOs who are not yet engaging in ESG conversations.
Companies with better managed ESG risks tended to enjoy a lower cost of capital: this is an indication the market views them to be less risky. At the same time, MSCI finds a set of developed market companies with stronger ESG quality tended to be less volatile and more resilient compared with peers. Among companies in the MSCI World Index, those with the highest ESG Ratings experienced three times fewer incidents or dramatically sharp falls in share price than companies with the lowest ESG ratings (between Jan 2007 – May 2017).
Loan terms are increasingly linked to ESG performance: companies and bankers are now putting this link to the test, by tying loan terms to ESG performance. In the coming years, there may be a direct payoff for companies to better manage their ESG risks or meet stated sustainability commitments.
MSCI’s top five trends to watch this decade continues tomorrow.