Geopolitical trends in ESG Investing

To understand the latest trends in ESG we will have to investigate the trends of last decade which paved
the roadmap of today’s advances in EGS. The concept of ESG is dated long back since 50s but in recent
year it has become a steppingstone in decision of many countries and businesses. In 2010 the shift
towards better corporate governance to win the trust of people for their belief in stock market after the
2008 financial crisis was evident. Environmental stewardship, laws, code of conduct, accountability
towards societal issues were the focus of businesses and governments.

For the first time, the United Nations Framework Convention on Climate Change (UNFCCC COP21) in
2015 witnessed significant non-public sector engagement in international climate discussions. The Paris
Climate Agreement that followed oxyacetylene the ESG movement by instilling urgency and setting an
internationally recognized framework of clear targets for tackling global climate change concerns.

Following this, there was an increase in ESG-related capitalist activity, as well as increased support for
environmental and social shareholder proposals and money inflows into ESG-themed investment goods.
As a result, corporations are under increased pressure to increase their ESG disclosures.

The breakthroughs of the 2010s laid the foundation for a much more refined ESG environment in this
new decade, which is anticipated to encourage widespread adoption of ESG-related strategies. The
following are some of the key trends and issues that are likely to feature prominently in the actions of
companies, investors, and regulators, reshaping the ESG landscape for years to come.

Net Zero Emission: Climate change will be a major theme as governments worldwide implement more
environment regulations. As a result, expect corporation and investor commitments to net-zero
emissions to become standard practice by the end of the decade. Because companies recognize the risks
and opportunities associated with proactively addressing climate risks, all sectors will participate in the
transition to a low-carbon economy, including those with high emissions that may have shown
resistance in previous years. Many businesses will seek to capitalize on new business opportunities and
establish themselves as climate leaders. Simultaneously, investors will become more engaged in climate
change issues and will most likely begin to incorporate climate risk into their voting policies, even going
so far as to vote against the boards of laggard companies.

Good Governance: Environmental & Social Issues: While traditional corporate governance will remain a
priority, particularly attempts to increase board quality, shareholder rights, and management incentive
structures, environmental and social (E&S) governance will take Centre stage for investors and boards.
The management of E&S risks will emerge as the new norm of comprehensive corporate governance
standards. Expect firms' corporate social responsibility activities to expand beyond just "giving back to
society" to include sustainability as a tool for methodically managing risk and creating long-term
shareholder value.

ESG rating Disclosures: By the end of the decade, ESG disclosures will be standardized and widely used.
As with corporate governance reform, increased investor pressure will be a primary stimulus for change.
Regulations will also be important, with comply-or-explain codes of best practices possibly addressing
E&S concerns. Early signals of legislative actions on corporate disclosures are already emerging in
several jurisdictions and may extend further. As previously stated, corporate governance rules, CEO
compensation disclosures, say-on-pay, and board-gender diversity mandates expanded swiftly during
the last decade as various countries learnt about establishing governance standards from one another.

Integration in ESG Investing: Asset managers will likely shift from ESG stewardship to ESG integration.
Improved ESG disclosures will make it easier for investment professionals to include ESG risk
assessments into their investment decisions. As more investors examine firms systematically based on
ESG concerns, engagement and proxy voting will extend beyond the issues on the meeting agenda. It is
uncertain when or how much the incorporation of ESG risk evaluations will affect capital flows.
However, when top asset managers launch new ESG products, the investing sector will face rising
criticism for "greenwashing." Regulatory measures (such as the EU Action Plan) and market-driven
solutions will almost certainly play an important role in developing sustainable finance norms.

Asset Managers leading from front: In the 2020s, ESG-related shareholder action will increase. For
decades, shareholder resolutions functioned as a forum for investors to identify and analyse governance
concerns (including E&S governance), resulting in corporate practise reform and the establishment of
standards (e.g., annual director elections and proxy access, among many other topics). Until recently,
asset managers were generally responsible for influencing change in company practises by responding
to shareholder petitions or proxy advisor policies.

Several major and famous asset managers have taken a more aggressive attitude in the last five years,
spearheading policy initiatives focusing on board renewal, board gender diversity, and director over-
boarding. Recent letters from the CEOs of BlackRock and SSGA indicate that asset managers are taking
the lead in implementing changes and holding boards accountable to a higher level of ESG standards.
Even if the proposal filing process becomes more difficult for proponents, shareholder resolutions will
continue to play a significant role in promoting change.

Governance as a changemaker: Expect corporate governance issues to become more prominent in

proxy battles as activists strive to construct a case for board member change. A rising percentage of
significant asset managers (including notable index funds) believe that enhanced governance will boost
long-term shareholder returns, indicating that high financial performance alone will not be enough to
protect corporations from economic activism. The key disputes will continue to be driven by financial
concerns that render firms sensitive to activism. However, anticipate activist efforts to focus on
corporate governance as a method of unlocking even higher rewards.

Smarter Analytics Drive ESG Practices and Protocols Using Data and Technology: Data and technology
will enable us to significantly improve our capacity to measure, compute, and monitor ESG aspects, as
well as assess their relevance and influence on long-term value generation. Better visibility on difficult
variables such as resource consumption and biodiversity would very certainly allow for the
establishment or development of international frameworks and objectives on several major concerns,
like the Paris Climate Agreement. Improved and uniform disclosures will enable investors to evaluate
the effects of ESG variables on values. Artificial intelligence is expected to play a significant role in
detecting patterns tying economic success to ESG variables.

Diversity and Inclusion: In addition to boardroom diversity, corporations and investors will focus on
diversity throughout the company, from the C-suite to the general staff. Equal pay, equal opportunity,
and company culture policies will also be scrutinized more closely. Expect female representation on U.S.
boards to exceed 30% in the early half of the decade, creeping closer to gender parity by 2030,
particularly at bigger corporations. Despite a low starting point, the number of top female executives
will more than double by the end of the decade. (At the moment, women make up just approximately
6% and 5% of CEOs and board chairmen in the United States, respectively.

Increased Concentration on Metrics and Goals (including ESG): The 2010s' trends will continue, with a
growing share of incentive payments being performance-based rather than time-based, and the usage
of restricted stock continuing to surpass the use of stock options. Large investors could expect to refine
their CEO salary review procedures in addition to current evaluation standards established by proxy
advisers and other third parties. This tendency may lead to increasing resistance to executive
compensation schemes during say-on-pay votes, emphasizing the openness and appropriateness of
performance criteria, as well as the strength of objectives.

Geopolitics and Public Opinion: Politics will play an increasingly important role in defining the ESG
environment as geopolitical tensions, trade conflicts, and populism impact business behavior both
directly and indirectly. National security concerns may impact commercial partnerships and mergers and
acquisitions in the energy, technology, and industrial sectors, as was the case with the Qualcomm-
Broadcom deal, which was halted on such grounds by a presidential executive order in 2018. The Carlos
Ghosn crisis (former CEO of Renault and Nissan, now on the run as this piece was written) also highlights
how national politics may have a direct influence on corporate governance. Sanctions against persons
and corporations from certain nations are unlikely to be lifted. Furthermore, public pressure—and, in
many cases, populist rhetoric on a broader range of social and environmental concerns—may increase
regulatory pressure on corporations and their shareholders in connection to ESG issues.

While the groundwork for many of the trends and concerns mentioned above has been established, we
anticipate seeing broad adoption of ESG-related practices across industries and countries over the next
ten years. Companies, investors, and governments who fail to act on ESG would likely face greater risks
and lose out on major possibilities compared to ESG leaders in several critical areas, ranging from
improved access to funding to launching new business initiatives.

Demonstrating ESG leadership will eventually become a differentiating element for entities in both the
public and private sectors, and market players stand to benefit greatly by embracing ESG stewardship as
part of their competitive advantage.