What are the ESG market trends to watch out for in 2023?
- Longer-term decarbonization, expanding development of renewables
- The financial sector will resume honoring the importance of ESG investing
- No more reported data, yes to more sensing data
- More differentiation for developing economies
- The need to incorporate climate-related risks
- More corporate re-establishing and re-financing events
As the significance of Environmental, Social, and Governance (ESG) factors in investment decisions grow, companies across the globe are facing increased pressure to show their dedication to these domains. This year, we anticipate a continuation of the movement towards enhanced ESG reporting, as organizations strive to fulfill the changing demands of their stakeholders. Here are the ESG marketing trends to watch out for in 2023 to maintain the competitiveness and reputation of organizations.
Longer-term Decarbonization, Expanding Development of Renewables
On August 2022, MSCI ESG Research stated that the ongoing war in Ukraine and the global economy’s high inflation rate are impacting the efforts to reduce greenhouse gas emissions. Organizations prioritize energy security and affordability over reducing emissions. However, transitioning from coal and oil to natural gas is a practical option for power companies to address this challenge, but it may not be an effective solution.
In 2023, it is expected that companies will opt for long-term commitment to decarbonization and renewable energy sources, as the demand for responsible and sustainable business practices are two of the key factors that consumers and investors look for.
The Financial Sector Will Resume Honoring the Importance of ESG Investing
Over the past decades, there has been a fundamental shift in the way the financial sector gains investments. Financial institutions previously focused primarily on utilizing short-term profits for their consumers. Unfortunately, there has also been a huge need to take a long-term view and embrace ESG considerations as part of investment decision-making.
Fueled by heightened recognition of the dangers posed by climate change, this trend is further shaped by the expanding cohort of millennial investors who prioritize sustainable investing and the urging from regulators to incorporate Environmental, Social, and Governance (ESG) considerations.
Thus, it has also been proven that companies with strong ESG ratings outperform those with weaker ratings, making ESG an effective financial and legally responsible decision.
No More Reported Data, Yes to More Sensing Data
The endeavors to streamline key metrics or determine crucial elements by reducing them to a smaller, yet more rational set of standards, are ongoing. This is because company-reported ESG criteria are deemed too numerous and conflicting across material issues, which adds to the incomparability of results across standards.
Even though corporate reports have become more consistent, they have limited scope to fewer metrics. That’s why many stakeholders are expecting the expanded use of additional outside sensed data (satellite analysis) and dataset mapping analysis (emissions and biodiversity ratings). Luckily, the emergence of AI will help further understand text that can contribute to the overall ESG picture.
More Differentiation for Developing Economies
As the standards continue to develop, the ecosystem is also recognizing the need for technical and financial assistance for smaller or emerging economies to shift towards lower carbon energy sources and adapt to the ongoing impacts of climate change.
This matter requires a continuous understanding of the differences between developed and developing economies. In some cases, this may result in entry-level standards — which are less demanding and high-priced to report — for smaller companies and less ESG-developed countries.
The Need to Incorporate Climate-Related Risks
Financial losses due to climate change are partially caused by climate-related risks. With the hazardous effects of climate change becoming more serious, companies will be more exposed to risks such as extreme weather events, crop failures, and water shortages.
To protect these businesses from such risks, they will have to incorporate these into their sustainable and responsible decision-making processes. Although this trend is likely to escalate in the coming years, it’s expected to see more and more companies initiating proactive steps to secure themselves from them.
One effective way to do this is by using climate scenario analysis to avoid different climate change scenarios and their potential effects on operations. In that case, businesses can determine risks as early as possible and take aligned steps to alleviate them.
Corporate Re-Establishing and Re-Financing
In recent years, ESG investing has become increasingly popular, leading to many investors looking for companies which they can align their values with. This has led many corporations to not only recognize ESG principles but also embrace them to attract investments and remain competitive in the market.
To establish and finance their ESG initiatives, corporations issued green bonds, a type of fixed-income security used to finance projects with environmental benefits. These help them raise capital for their own ESG initiative. On top of that, it also shows investors their dedication to committing to sustainability.
In 2023, we should expect to see these ESG market trends and their relations with one another. It’s also understood that businesses of all sizes must focus on ESG policies to attain longer-term advantages. Various investors, consumers, and companies should also align their goals through ESG criteria.
Here at Science Park of the Philippines, we encourage our industrial parks in Batangas and other parts of the Philippines to follow ESG principles. Learn how Science Park of the Philippines SPPI’s ESG practices can help your business performance. Get in touch with SPPI.