While every year comes with its share of surprises, unexpected joys and setbacks, it’s fair to say that for most of us 2020 did not go according to plan.

COVID-19, and the health and economic disruption it caused overshadowed virtually every aspect of life over the past year. Many lives were tragically lost, and health – physical, psychological, emotional – has suffered. Businesses have been disrupted, and in many cases failed. New words and phrases entered our daily lexicon: lockdown, social distancing, quarantine, flattening the curve, zooming, and so many more. And we all learned to live, work and cope with uncertainty in ways we hadn’t ever imagined.

esg playbook

Undoubtedly, the impact of COVID-19 will be with us for years, long after the pandemic passes. But the long-term societal effects of the past year may extend beyond tragedy and disruption. In an increasingly fractured world the pandemic often served to exacerbate our political differences, but it also united the world in overcoming a common challenge, and made us more aware of our interconnectedness. Many of these themes will feel familiar to ESG investors, who have long been aware of the risks and opportunities created by long-term, global forces.

Indeed, this growing awareness has had, and will likely continue to have, a significant impact on the investment and capital allocation choices of investors, businesses, and even governments. As the pandemic raged through multiple waves, investment flows into ESG funds and sustainable assets continued to accelerate. ESG-themed investments outperformed the broader markets, as risk horizons appeared to extend beyond the next quarter and began for the first time to take into account wider societal issues ranging from climate change to racial equity. While ESG investing had already been on the rise, we expect that 2020 will be seen as the inflection point that ultimately will bring it into the mainstream.

Below we highlight just a few of the stories that shaped this world-changing year for ESG investors.

  • Investor Initiatives. Professional investors and major investment managers have become increasingly active in joining sustainability initiatives and engaging issuers on improving sustainability practices and transparency over the past year. BlackRock, the world’s largest asset manager set the tone early in the year, with CEO Larry Fink’s groundbreaking letter to CEOs, indicating that sustainability would become a central consideration in the firm’s investment process going forward.

BlackRock CEO Letter Highlights Climate and Sustainability

  • Government Action. Governments world-wide have had a major impact on the sustainable investing world over the past year, from issuing tens of billions of dollars in sustainable finance instruments to help offset the social and economic impacts of the pandemic, to setting net zero emission targets for their countries. The election of Joe Biden as the next president of the U.S. will likely prove to be one of the most impactful events going forward for ESG investors, given the incoming administration’s focus on climate and sustainability issues, including his promise to return the U.S. to the landmark Paris Agreement.

Biden Promises to Rejoin Paris Agreement On First Day in Office

  • Sustainable Finance. The sustainable finance world grew up in a big way in 2020, as financial innovation proliferated with companies increasingly linking financing terms with sustainability goals, and governments issuing tens of billions of dollars in sustainable finance instruments in order to help offset the social and economic impact of the pandemic. The year got off to a slower than expected start as COVID-19 caused many issuers to pause and change course, but ended with a bang as issuance took off to record heights.

Moody’s Raises Forecast for Sustainable Bond Issuance Again, Now Sees $425B in 2020

  • Reporting and Disclosure. As capital increasingly flows into ESG-themed investments, and investors and issuers look to up their sustainability games, the need for consistent, relevant and standardized measurement and reporting of sustainability factors impacting companies has never been more apparent. Several countries will soon be mandating sustainability-linked disclosure, and ESG reporting is likely to one day go hand-in-hand with financial reporting for companies. A major step towards this integrated reporting future took place this year, with the announcement of a merger of reporting and disclosure-focused organizations SASB and IIRC.

SASB Merges with IIRC to form the Value Reporting Foundation

  • ESG Tools and Services. With investor focus shifting heavily towards sustainability factors, data, research and service providers have stepped up with a proliferation of ESG investing tools and services. Consolidation in this market has picked up in recent months, as providers position themselves for a bright ESG investing future. One of the larger deals this year was Deutsche Börse’s $1.8 billion acquisition of ESG solutions provider ISS.

Deutsche Börse Acquires Corporate Governance & ESG Solutions Provider ISS in $1.8 Billion Deal

  • Energy Transition. Climate change is likely to remain top of mind as a key focus for sustainable investors, as hundreds of billions of dollars flow towards renewable and clean energy solutions. Many companies have set ambitious emissions reduction targets, and increasingly looked to power their businesses using renewable sources. Private equity and infrastructure investors have moved into this market in a big way this year, and investment managers have set up many climate-focused investment funds and vehicles for their clients. In one of this year’s landmark announcements, the EU unveiled a key element of its renewable energy strategy, presenting plans for massive growth in offshore wind investments, to the tune of nearly €800 billion through 2050.

European Commission Presents Massive €800 Billion Offshore Wind Strategy

To all our readers, thanks for joining the ESG Today community, and all the best for a healthy, happy and prosperous 2021!