How will ESG change in 2022?

The new film Don’t Look Up tells the tale of scientists warning inept government officials that a massive comet is hurtling toward earth, only to be met with indifference, greed, selfishness, and neglect. You can likely figure out how this story ends, but this isn’t a film about how humanity would respond to a planet-killing comet; it’s a film about how humanity is failing to respond to a planet-killing climate crisis.

It certainly captures how many of us in the sustainability sector have felt like we were screaming into a void for years. But on our better days, we can also take stock of the tremendous progress that has been made across the spectrum of Environmental, Social, and Governance (ESG) issues: 2021 was a turning point. Sustainability issues are now integrated into global commerce, bringing hope that capitalism will better align with the needs of people and our planet.

So what will 2022 bring? Here are our top seven predictions:

From necessary disclosures to policy risks, here's what the industry could see in the coming months.

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The weather will get worse

Climatologists are confident that 2022 will be one of the hottest years on record. Already, on January 1st, the UK recorded its warmest New Year’s Day on record. And with La Niña (which brings colder weather) forecasted to end in 2022, it’s likely the next 12 months will deliver more extreme hurricanes, flooding, fires, and droughts. This is not news to most: An Ipsos study revealed that 60% of people polled globally believe that there will be more extreme weather events in 2022 than in 2021.

With increased extreme weather, funding for loss and damage and climate adaptation will demand more attention in 2022. The countries which are least prepared (and least responsible) for climate change will bear the brunt of climate-related damage. The United Nations Environment Programme (UNEP) estimates that funding for climate adaptation and damage must quadruple to $280 billion by 2030. This will be a focus of the COP27 meeting in Egypt.

Climate disclosure will be required

In 2021, the UKJapanNew Zealand, and Singapore mandated climate disclosure for publicly listed companies based on the framework from the Task Force for Climate-Related Disclosures (TCFD). In 2022, the U.S. Securities and Exchange Commission (SEC) and the European Union (EU) will require disclosure of greenhouse gas emissions and potentially other ESG issues as well. These new regulations will impact thousands of companies but sadly, it’s unlikely that the U.S. and Europe will align on the detailed requirements.

Standards will converge

There is hope for better alignment, as the new International Sustainability Standards Board (ISSB) finds its footing in 2022. The ISSB has already issued a draft climate standard and expects to release two reporting protocols on disclosures in the second half of 2022. With support from 40 of the world’s leading finance ministers, the ISSB will become the dominant standard for ESG disclosures integrated into financial reporting.

Voluntary ESG reporting will continue

In 2021, the business world hit peak sustainability reporting, with 92% of the S&P 500 and 70% of the Russell 1000 companies issuing reports. All of these are voluntary disclosures motivated by stakeholder expectations and the desire to building the company brand. With the advent of mandatory ESG disclosure, resources will be pulled away from voluntary reporting, but they will continue. Companies have invested too much time, effort, and reputation to walk away from these efforts.

ESG Investing continues to grow

Money flowing into ESG-branded financial products will continue its upward trajectory. 2021 was a record year for ESG investing. For the first time since the Paris Agreement, banks earned more fees arranging “green bonds” than by helping fossil-fuel companies raise money in the debt markets.

In fact, 2022 looks like it might smash the 2021 record. The trend will be stimulated by investment from new U.S. infrastructure funding and the capital flows from the $130 trillion pledged to finance net zero ambitions by the organizations in the Glasgow Financial Alliance for Net Zero (GFANZ). Bloomberg analysts predict that up to $2.5 trillion ESG-oriented debt will be issued in 2022, nearly doubling 2021’s $1.5 trillion.

Politics could ruin everything

All this progress has the potential to be reversed quickly in Washington. We saw this when Senator Manchin, Democrat from the coal-rich state of West Virginia, sided with Republicans to help block Biden’s Build Back Better plan, which contained billions to help drastically cut the country’s carbon emissions. With the 2022 midterm elections looming in the U.S., this legislative defeat will add fuel to the partisan divide and align conservatives behind climate denialism as democrats fight for unity.

It´s the economy, stupid

Mesmo sem a ação do governo, a realidade econômica continuará a impulsionar a transição para a energia limpa – mas talvez não tão rápido. A transição para energia renovável ganhará velocidade em 2022. Um estudo indica que  2022 será um ano recorde nos EUA para energia eólica, energia solar e armazenamento de baterias; os dois últimos vão dobrar e quintuplicar seus recordes anteriores, respectivamente.

Mas a energia de combustível fóssil também voltará em 2022. Os bloqueios do COVID reduziram  o carvão e o petróleo em 8,4% e 4%, respectivamente , e as emissões caíram 5,8% em 2020. Os combustíveis fósseis se recuperaram em 2021 e, em 2022, as emissões podem ser mais altas do que nunca . Espera-se que a demanda por carvão, o combustível fóssil de maior emissão, possa atingir um recorde histórico à medida que as economias continuam se recuperando da pandemia.

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