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Top ESG Investing Trends to Watch Out for in 2023

Published on Dec 08, 2021

Today, ESG investing enthusiasts and sustainability-prioritizing consumers can access extensive information on market trends, public policies, and socioeconomic crises. The result is a generation of investors and consumers who are hyper-aware of how corporate initiatives affect our environment, society, and governance.

This generation believes in responsibility, focusing on sustainable investing trends and demanding accountability. In response, corporations worldwide rethink their principles, being more mindful of the following aspects.

How will they utilize energy and resources more efficiently?

How can they foster diversity, equality, and inclusion?

And whether their governance is of the highest standard.

ESG Investing trends The pressure is twofold. After all, this generation shapes the success of corporations and governments. Consequently, governments worldwide are finally listening and issuing policies that punish ESG-violating corporations. 

The two pressures have made one thing clear: sustainability is the future. Last year, the demand for sustainable investments surpassed traditional products while more stakeholders adopted global ESG reporting and investing trends.

Investors, especially after 2020, are steering toward companies willing to be accountable, make a change, and mitigate their negative impact. In other words, corporations that exhibit a high ESG performance are also likely to be highly valued. 

What is ESG Investing?

ESG investing considers how effectively a company or project complies with the environmental, social, and governance requirements across financial disclosure standards or sustainability accounting frameworks. Accordingly, investors and fund managers revise their stock selection, asset valuation, and portfolio development strategies.

The related performance monitoring, benchmarking, and peer analytics encompass the metrics aligning with the United Nation’s vision and specified sustainable development goals (SDGs). Simultaneously, ESG data evaluates the risk-based financial materiality of each compliance initiative.

The ESG market is teeming with hope, hype, and exciting innovations. Its stocks are a worthy addition to your portfolio and are undoubtedly one to look out for in 2023. What do we expect? Here are the trends that are likely to emerge. 

What Are the Global ESG Investing Trends to Watch Out for in 2023?

ESG reporting becomes more authentic and transparent,
More carbon commitments,
Don’t forget ‘S’,
More industries welcome ESG,

Taking cybersecurity seriously.

1. ESG Reporting Becomes More Authentic and Transparent

It is great to see corporations take responsibility for their actions and make the world cleaner, more diverse, inclusive, and ethical. There is just one problem: it is challenging to ascertain how they progress in these areas.

If ESG performance and stock price are correlated, it is in a company’s best interest to engage in ESG reporting. Besides companies voluntarily disclosing their ESG data, several data analytics and market research agencies also report their ESG performance, assigning every company an ESG score. Every agency may have its in-house framework to assess ESG performance and determine a score. And that is precisely the issue. 

Today, there exist hundreds of agencies that together have produced thousands of ESG ratings. Who is to say which one is accurate? The ecosystem lacks strict, universal guidelines for determining a company’s ESG score. As a result, the lack of standardization leads to disagreement and confusion. Worse, it instead encourages companies not to prioritize ESG compliance. Similarly, stakeholders become unsure about sustainable investing trends based on global ESG reporting methods. 

The lack of standardization discourages innovation in ESG because the advancement may go unrewarded. What if you, as a business owner, adopt a socially and environmentally responsible practice that never reflects in your ESG rating? Since most frameworks are closed, ‘black boxes,’ you may not even find out why your compliance score did not increase. And since your ESG rating remains unchanged, it is likely that so will your valuation. 

On the other hand, companies can exploit the confusion to gain a higher rating and valuation. That is called greenwashing. It involves making lofty but vague claims that create hype. Or by self-labeling an entire fund or initiative ‘green’ even though it is only partially green. For example, a company may label itself environmentally friendly because it recycles. However, it could conveniently conceal the emissions produced by manufacturing and shipping. When a company claims to be sustainable, it should be green throughout the supply chain. 

But all that is about to change. Standardization is on a steady rise. The EU’s sustainable finance disclosure regulation (SFDR) stipulates that investment firms must disclose activities that negatively affect biodiversity and similar SDG concerns through principal adverse impact indicators. Singapore’s monetary authority has issued guidelines on environmental risk management. Likewise, regulators in India, a notable emitter of greenhouse gases, have proposed a framework for disclosing ESG investments in mutual funds to facilitate transparency and standardization. 

Greenwashing is ESG’s greatest foe. And in 2023, we could finally fight back. Frameworks could become more transparent, aligned internationally, and regulated. 

2. More Carbon Commitments 

The United States and European Union have pledged to become carbon-neutral by 2050. What does that mean? It means the two will offset the carbon they produce by planting trees, capturing and storing carbon, and simply using renewable energy instead of non-renewable energy. 

It is great to see corporations take responsibility for their actions and make the world cleaner, more diverse, inclusive, and ethical.

However, recently, China and India, too, joined the initiative. China has pledged to become carbon-neutral by 2060, while India has committed to carbon neutrality by 2070. That is outstanding news because China, India, and the US represent the world’s biggest emitters of greenhouse gases.

In 2023, we expect to see innovations to help countries fulfill their SDGs commitments. Giants like Google, Microsoft, and Apple are already miles ahead, using their ample resources to become carbon-free by 2035.

However, smaller companies should follow global ESG trends, becoming more attractive as sustainable investing opportunities since renewable energy has become cheaper and scalable. Chinese and Indian companies will embark on an identical pathway, making breakthroughs in battery storage and optimization tech. 

In 2023, especially considering COP26, we expect more companies worldwide to make green and sustainable commitments.  

And hopefully, follow through. 

3. Don’t Forget ‘S’

The ‘E’ in ESG has been the go-to for companies since it is the easiest to define and measure. When Apple, Google, Microsoft, or an entire nation commits to becoming carbon-free by a specific year, the target is well-defined, and progress is easy to track. Compare the target to becoming inequality-free by 2050. The problem is harder to define (‘what inequality’) and even harder to track (‘how do we measure discrimination’).

what is ESg Investing But we must solve the problem—especially today when so many vital decisions rely on the help of technology. And so much technology is unregulated, using which we, knowingly or unknowingly, promote discrimination. 

Take COVID-19, for example. The pandemic exposed and further widened long-standing inequalities across healthcare, education, and technology, among other domains. Its brunt was borne by whom? 

Given a choice, not men but women were more likely to quit their jobs to support their families since their wages were lower. Doing so minimized the family’s financial hit. Minorities and low-income communities were more likely to get the infection. At the same time, they were also less likely to get the vaccine. 

There are several other examples. Take hiring and law enforcement. Today, both rely on AI to some extent for decision-making. The problem is the data the AI relies on is historical, reflecting decades-old systemic biases. Therefore, unregulated AI tech can threaten the social metrics vital to ESG and sustainable investing trends in 2023.

When Amazon deployed such an AI to identify and screen candidates for technical roles, it discovered that the AI discriminated against women. For various socioeconomic reasons, white men have dominated the tech industry. Amazon’s AI looked at the data and inferred that men are superior to women regarding technical know-how. Remember that such a decision could make or break someone’s life. Amazon tried to refine the AI but soon gave up and abandoned the project. 

4. More Industries Welcome ESG 

The overwhelming majority of ESG funds comprise investments in technology. As explained, investors turn to technology because progress in the sector is much easier to define and measure. 

However, in 2023, investors can expect ESG investing trends to expand and emerge in various industries. That is excellent news because it is a win-win for both sustainability and investors.  

The movement will bring an all-around positive change in the market. When different industries adopt ESG principles, the market will finally be able to address the concerns of multiple stakeholders. Whereas, for investors, the expansion presents an opportunity for diversification. 

Healthcare is a fitting example. The world certainly does not want to see a repeat of 2020. That is why countries are forming pacts to translate short-term mitigation initiatives into long-term strategies for preventing and managing future pandemics. One approach demands that nations share genomic and contagion-related data openly and transparently. Other demands that high-income countries support low-income ones by supplying medical aid and vaccines. 

The COVID-19 pandemic also saw a steep rise in anxiety and other mental conditions. And the healthcare industry is now pushing the hardest to highlight the importance of mental health, especially for low-income communities with less access to care. In 2023, physical and mental health care can no longer be a privilege. The sector has to become more inclusive. 

And that is just healthcare. At SG Analytics, we provide ESG consulting services to businesses that belong to various industries, from finance, mining, energy, IT, and insurance to software, pharma, biotech, and hospitality. 

5. Taking Cybersecurity Seriously 

So many industries have gone digital in the last decade. As a result, we do so much online. We contact family and friends, shop for groceries and gifts, book tickets, and even bank online. 

In doing so, we generate vast amounts of data. Over 80 billion gigabytes every year, according to estimates. Much of that data is private and sensitive: messages exchanged with friends or family, transaction data, and bank information. The data must remain confidential and not fall into the hands of malicious agents. 

And that is not the only data that needs protection. While identity theft and phishing are the most common forms of cybercrime, companies also want to protect themselves against intellectual theft: patents, designs, future projects, business strategy, etc. 

In 2021, financial theft and intellectual property damage led to over 6 trillion USD losses. According to cybersecurity watchdogs, as more companies become cloud-enabled, the figure will climb to 10 trillion USD by 2025.

What do the global ESG investing trends have to do with it?

Companies that deploy such systems are responsible for making them secure—to protect your (and their) sensitive data. Since cybersecurity is increasingly urgent, companies fulfilling this responsibility will likely be valued higher. 

About SG Analytics  

SG Analytics is an industry-leading global insights and analytics firm providing data-centric research and contextual analytics services to its clients, including Fortune 500 companies, across BFSI, Technology, Media and entertainment, and Healthcare sectors. Established in 2007, SG Analytics is a Great Place to Work® (GPTW) certified company. It has a team of over 1100 employees and a presence across the USA, the UK, Switzerland, Canada, and India.  

Apart from being recognized by reputed firms such as Analytics India Magazine, Everest Group, and ISG, SG Analytics has been recently awarded as the top ESG consultancy of the year 2022 and Idea Awards 2023 by Entrepreneur India in the “Best Use of Data” category.

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