China and the USA lag behind Europe in terms of ESG

“I no longer have a conversation with a company where ESG is not a topic,” said a European commodities analyst at Fidelity: “And on the rare occasions when I don’t ask questions about it, the company managers bring it up themselves.” ESG, an acronym for environmental, social, and governance has become a key issue for companies and has become even more important in 2021, according to the latest Fidelity analyst survey.

Each year, the investment company surveys its global analyst network to see what they take away from direct conversations with companies and industry representatives, providing an overview of sentiments and trends. And one very strong trend is ESG. Above all, E, the environment, plays an important role. According to analysts, almost a quarter of all companies will reduce their CO2 emissions to zero by the end of this decade. By 2040, 43 percent of companies will have done so, and by 2050, two-thirds of companies worldwide will have achieved the net-zero target, according to the estimates of the Fidelity analysts. Europe is the most advanced in this respect. The proportion of companies operating in a CO2-neutral manner by 2030 is significantly higher in Europe than in China or the U.S., for example.

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Chinese companies still reticent about disclosure

However, Europe is not only a leader in climate protection but in ESG matters in general. As in previous years, Fidelity analysts observed increased ESG activities most frequently in European companies. However, the focus on sustainability has also increased in all other regions, and these are likely to continue to catch up. Take the U.S., for example, where a Fidelity analyst for North American financials complains that awareness of sustainability issues in the U.S. lags significantly behind Europe. However, this has changed since the change of government. President Joe Biden, unlike his predecessor, is characterized by strong climate protection ambitions.

Even in China, the laggard in terms of sustainability, the ESG focus in companies has recently increased. Jenn-Hui Tan interprets this as the first impact of China’s touted goal of achieving climate neutrality by 2060. “In the direction that legislators are going, companies are going,” says Fidelity’s global head of stewardship and sustainable investing. Regulation is one of the main drivers of sustainable corporate behavior worldwide, including in Europe. In China, however, there is still a long way to go. Thus, the verdict of a China analyst is quite different from the statement of his colleague for European stocks mentioned at the beginning: “ESG is far from being the top priority for my companies. Disclosure of data is limited and only when specifically asked do those responsible care.”

Globally, however, the direction is clear: For years, the proportion of analysts who recognize a willingness to implement and communicate ESG measures at the majority of the companies they observe has been growing. In the current study, more than half (54 percent) of the analysts surveyed said this for the first time.

COVID-19 brought social aspects to the fore, but only temporarily

And what impact has COVID-19 had on companies’ ESG behavior? Analysts observed that during the pandemic, Factor S, or social aspects, became much more important to companies. Employee welfare, in particular, moved to the forefront. However, this was probably only temporary. In the survey, the analysts also give their assessment of how companies’ priorities will develop in 2021. Here, social aspects fall back somewhat. On the other hand, factors that had lost importance in 2020 are once again attracting more attention, according to the analysts, such as returns for shareholders, growth investments, and mergers and acquisitions.

Nevertheless, ESG remains on the corporate agenda. Increasing regulation is likely to ensure this, but the focus of many Corona fiscal packages on sustainability is also reinforcing the trend. Sustainability specialist Tan also sees investors as having a duty to encourage companies to operate sustainably through active engagement.

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(Featured image by zhushenje via Pixabay)

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First published in NACHHALTIGKEIT DASINVESTMENT, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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