2022 ESG Round Up

Posted 18 January 2023

Although the global shift towards ESG clearly outdates the year 2022, it is possible that we will look back on the events of the past twelve months as an inflection point in the principle’s trajectory.

While in previous years, the concept of Environmental, Social and Governance had certainly built momentum and was becoming ever more ingrained within the fabric of society, the events of 2022 have perhaps helped contextualise the need for ESG more than any other.

Up until this point, each person or business will have had differing exposures to ESG. Some may have read surveys or reports on gender imbalances within boardrooms, while others may have been moved by the most recent David Attenborough documentary. While each experience is valid, for the average person, the topic may still have seemed conceptual – something that is simply happening, rather than happening to us.

The energy-price fuelled rise in inflation this year has changed that.

In February, Vladimir Putin launched his illegal war on Ukraine and in the process exacerbated inflationary forces which had already been rising post-pandemic. Oil and gas made the headlines, with prices skyrocketing on account of Russia’s dominion over the commodities, but so too did agricultural products, many of which were exported out of Ukraine.

Core inflation has since become embedded within many an economy, with the ripple effects of the energy price rises being felt throughout.

For many, this event has helped reframe the importance of ESG, and in particular, helped expedite the global energy transition project, lest nations be held hostage for oil and gas again in the future. Solar, wind, hydrogen, and even nuclear options have been discussed at length across global governments, as each seeks to become more self-sufficient in the wake of recent events.

But energy transition was not the only meaningful ESG outcome of 2022, with other notable developments including:

• Biden administration introduces The Inflation Reduction Act
In mid-August, President Biden’s Inflation Reduction Act (IRA) was officially passed despite opposition from the Republican Party and myriad lobbyists. The bill commits a $369bn package of climate-related investments, which estimates suggest will cut US greenhouse gas emissions by circa 40% by 2030.

• New measures stemming from COP27
The highlight of a stodgier United Nations Climate Conference this year was the introduction of the Loss and Damage Fund, which will endeavour to provide financial assistance to the nations most vulnerable to climate change. Throughout 2023, 24 countries will coordinate the delivery of funds and what form that will eventually take.

• The FCA tackles ESG data providers
In an attempt to address one of the more frequent criticisms of ESG, or rather ESG data and ratings providers, the Financial Conduct Authority has sought to create a uniform set of standards for firms to be upheld to. This voluntary Code of Conduct will be developed by an independent group and is intended to be “internationally consistent”.

• A more methodical approach from the FCA
The FCA is pushing for a more standard method, but the UK government’s involvement in developing its taxonomy is equally crucial, albeit riddled with difficulties, as the EU version has shown!

While much of 2022 has been challenging, it is clear that geopolitical events have, in some ways, served to galvanise the international community with regard to ESG.

Legislation continues to unfold across developed economies, with corporates and industry at the heart of this push. Certainly, here in the UK, the FCA’s push towards a more consistent approach to ESG standards and practice will be welcomed.

Moving into 2023, we remain cautiously optimistic over how this and other regulatory movements will improve the mechanisms behind ESG, and allow businesses to integrate more seamlessly with its principles.