Commentary

Take Five: Looking Forward, Looking Back

This week’s major stories impacting ESG investors, in five easy pieces.

For many, the turn of the year affords the rare time and space to measure progress. The start of 2023 helps us assess the state of our efforts to battle against climate change, offering hope and a healthy dose of reality.

A record-breaking year – Climate-related records were broken in many fields in 2022, some more welcome than others. Last year was confirmed as one of the warmest on record by numerous scientific bodies, including the UK’s Meteorological Office, the US’ National Oceanic and Atmospheric Administration, Germany’s DWD weather service and Meteo France. Records were broken in the sale of electric vehicles too, the low-to-zero emissions vehicles overtaking diesels in a UK market still recovering from the pandemic, while the Chinese market continued to streak ahead, led by BYD. Rental fleets are one source of growing demand, with Hertz reporting a sharp drop in maintenance costs, contributing to steeper profits, and justifying a new order with General Motors for 175,000 more vehicles.

Blowin’ in the Wind – The end of the year offers many ways of measuring the pace of the transition to renewable energy. National Grid EOS, the UK’s electricity system operator, reported record reliance on renewables in December, including a daily record 20.918GW of wind-generated electricity on the penultimate day of the year, which also saw 87.2% of electricity generated from zero carbon sources. This follows reports that the UK exported record volumes of electricity in 2022, much to France due to the damage the summer drought did to its nuclear capacity. An Angry Clean Energy Guy might not seem an obvious source for optimism, but renewables investor Assad Razzouk’s top ten list of last year’s positive moves away from fossil fuels demonstrated the sheer range of reasons for hope, especially for anyone who had read the latest Scandi noir over Christmas.

Crystal balls – This year’s ESG Investor previews of environmental, social, and governance themes focused on nature-based solutions, human rights due diligence and fair corporate taxation. But does our track record suggest you should take any notice? This time last year, we predicted – somewhat optimistically – that 2022 would be the ‘year of delivery’ on the commitments made six weeks earlier at COP26. We also forecasted that workers’ and human rights would be ‘finally at the forefront’ of investor priorities, which proved largely accurate, if for different reasons than anticipated. We hedged our bets on governance, nodding to several likely themes, including efforts to rein in executive pay. We were hardly sticking our necks out, given long-running discontent, but could 2023 be the year when the investor anger finally boils over?

Ageing autocrats – The significance of governance risks for investors over the next 12 months was underlined by Eurasia Group’s list of the top ten risks of 2023. As a political risk consultancy, you would rightly expect the uncertainty and instability caused by authoritarian regimes in Russia, China and Iran to top Eurasia’s rankings. But in among them were also the risks posed by another group of ‘ageing autocrats’, the ‘tech bros’ running the world’s leading social media platforms and technology companies. These firms had a rough year and the 18,000 job cuts announced by Amazon suggests 2023 will see threats from many directions.

One more for the road – The new year started with indications of the scrutiny companies and governments will face for their ESG performance, in the form of legal and shareholder challenges. Climate litigation has doubled since 2015, and there is scope for much more to come in 2023, from challenges to governmental and corporate net zero transition plans to action by asset owners whose calls for lobbying clarity have been rejected. So we feel there is little risk in offering one more prediction and echoing the Guardian’s expectation that 2023 will be a watershed year for climate litigation.

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