3 Themes for ESG Investing in 2021

VIDEO: Will 2021 be the year ESG investing finally makes it into the mainstream? Morningstar's Hortense Bioy looks at three themes for sustainable investors 

Holly Black 06/01/2021 17:13:00
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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Hortense Bioy. She is Director of Sustainability Research at Morningstar. Hello.

Hortense Bioy: Hi, Holly.

Black: So, it's been a big year for sustainable or ESG investing. So much money flowed into this area this year, which I think was surprising given the crisis we were going through. So, you're here to talk about three themes for ESG for the year ahead. Should we look at climate change first? I think that's a big theme.

Bioy: Yes, climate change and the risk associated with it, I think that will continue to rise on the public and corporate agenda. If there was a silver lining in the coronavirus pandemic, is that it has forced many people and companies to think about sustainability issues and climate change in particular. People now are no longer thinking that climate change is an abstract externality and something that is not going to affect them. This year, we're going to see more companies talk about climate change and disclose more information and data on how it will impact the businesses so investors can make better informed decisions.

Black: So, I think the second theme is the S in ESG, which stands for social, is going to become more prevalent as well. We saw that this year with some high-profile controversies such as Boohoo and the modern slavery issues there. What are you seeing in this space?

Bioy: Yes, another ESG theme for this year certainly is human capital management which captures issues such as diversity and inclusion, but also employee engagement and skills development. So, the pandemic has not only exacerbated social and gender inequalities but also accelerated structural changes in labor markets. And what we are going to see this year is investors putting more pressure on companies to disclose more on how they treat their employees, but also how diverse the workforce and management boards are and also how well-prepared companies are for a future when new technologies will make a lot of jobs redundant and require rescaling a lot of people.

Black: Okay. So, our third theme is ESG moving mainstream. Now, people have been talking about this for years. Is 2021 finally going to be the year that ESG does become the norm?

Bioy: Yes, absolutely. I think 2021 will be the year when ESG really becomes mainstream. ESG consideration will become the norm when investing. On the portfolio management side, we can expect the vast majority of managers to integrate ESG factors into the investment process and at the same time, we're also going to see higher flows into ESG-focused and thematic and impact funds, helped by the fact that product disclosure will start improving, especially in Europe, thanks to a new regulation that requires asset managers to provide more information on how ESG factors inform the investment decisions and strategies.

Black: Hortense, thank you so much for your time. For Morningstar, I'm Holly Black.

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Holly Black

Holly Black  is Senior Editor, Morningstar.co.uk

 

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