ESG and Climate Trends to watch for 2023

We've headed into the new year against a backdrop of major war in Europe, inflation, cost-of-living crises, energy markets in turmoil, rising interests rates, pandemic fatigue, political uncertainty and what feels like an unending stream of climate-induced disasters... With everything that is happening around us, what are MSCI's ESG research experts watching in 2023?

Marketing conditions could test investors' commitment to say-on-climate voting

More investors voted against corporate climate strategies in the 2022 proxy season compared to 2021. Investors tended to vote against climate plans in 2022 where the company's emissions trajectory was misaligned with global temperature targets, as measured by MSCI Implied Temperature Rise (ITR).

Regulators turn their gaze to ESG Funds

For much of the past decade, ESG-oriented funds have operated with limited regulatory guidance. But that looks to be rapidly changing. Regulatory interest in fund names and funds’ classification and disclosure obligations are ramping up globally. Spearheaded by the EU’s Sustainable Finance Disclosure Regulation, which imposes requirements on more transparent reporting for ESG funds, other major market regulators are following suit.

Cotton's crunch point and the future of fiber

Cotton makes up over a quarter of all the clothes we wear, but its harmful impacts, like soil degradation and water consumption, have spurred demand for more environmentally sustainable options. Apparel retailers have responded by working with third-party certifiers for sustainable cotton and exploring cotton alternatives. However, catastrophic flooding in Pakistan and the withdrawal of some certifications from much of China have created supply headaches.

Choking on smoke: The human-capital risks from air pollution

The World Health Organisation has named air pollution as the number-one global environmental health risk, causing millions of premature deaths and substantial economic losses. While companies polluting the air themselves may face risks that regulators or impacted communities might push for facilities to be shut down or overhauled, it may be overlooked that companies generating minimal pollution can also be impacted through worsening employee health or difficulty retaining talent in polluted regions.

Turning steel green(er) with blast-furnace upgrades

Global steel production is dominated by carbon-spewing blast-furnace technology that relies on coking coal, a key ingredient of the manufacturing process. Yet the steel industry has gotten more aggressive than ever in its carbon-reduction commitments. By Oct 2022, 17 companies, or 51.6% of the steel Global Industry Classification Standard sub-industry in the MSCI ACWI Index, had stated their commitment to reach net-zero or carbon neutrality by 2050 or before. It is an important step for an industry that accounts for some 8% of the world’s carbon emissions, but large economic and technological obstacles remain in meeting these targets.

Source: ESG and Climate Trends to Watch for 2023