Global environmental challenges – including crimes against the environment – remain a key focus area for world and business leaders. Against this backdrop, regulators are stepping up to the plate to provide a sound framework for promoting sustainable leadership. We outline three key regulatory trends that we anticipate in 2020 and beyond in our latest blog in the ‘Views on 2020’ series from #Refinitiv.
- No country is on track to meet the UN’s Sustainable Development Goals by the agreed date of 2030.
- Policy makers are recognizing the critical role that the global financial system can play in sustainability and are holding them accountable.
- We highlight 3 key regulatory trends we anticipate to be enforced in 2020 and beyond which focus on long-term sustainable leadership.
Environmental challenges remain significant across the globe, and are exacerbated by environmental crime, the scale of which has grown exponentially in recent years. Counting the cost of this illicit activity is almost impossible, but one thing is certain: future economic growth depends largely on how quickly and effectively we are able to respond to the social and environmental challenges faced by our global society.
Despite the requirements of the UN’s 17 Sustainable Development Goals (SDGs) – that apply to all countries – no country is on track to meet these goals by the agreed date of 2030.
Policy makers are highly aware of this and are increasingly recognizing the critical role that the global financial system can play in the real economy – in either direction, promoting sustainability or undermining the progress already made in the pursuit of common environmental and social goals.
Existing regulation has already made strides
For decades, Europe has been a leader in environmental, social and governance (ESG) regulation, championing transparency and disclosure as critical tools to inform sustainable investment decisions.
By way of example, in July 2019 the UK government published the Green Finance Strategy (GFS), which aims to align private sector financial flows with clean, environmentally sustainable and resilient growth to strengthen the competitiveness of the UK financial sector. And in France in 2016, Article 173 of the French Energy Transition Law strengthened mandatory carbon disclosure requirements for listed companies and introduced carbon reporting for institutional investors.
ESG regulation and policies in Asia Pacific also continue to grow. Since the adoption of the UK Code in 2010, many Asian economies – including Japan, Hong Kong, Singapore, South Korea, Taiwan, Malaysia and Thailand – have implemented stewardship codes and similar initiatives to encourage more responsible investment by institutional investors.
Conversely, federal ESG regulation in the US remains relatively limited, with the ESG agenda increasingly driven at state level.
Three regulatory trends to expect in 2020
We expect regulators across the globe to continue to focus on promoting long-term sustainable leadership and, as such, have pinpointed three expected trends for 2020.
1. More tangible steps towards sustainability
Consumers, investors and business leaders alike need to re-align their strategies to focus on developing new business models and innovative solutions that tackle the social and environmental challenges that define our world. We expect regulators to take the lead in supporting this mindset shift and anticipate that new opportunities will emerge across all sectors, in the process creating new jobs alongside growing investments into research and innovation to support sustainability.
2. Enhanced transparency and disclosure
Investors continue to flag limitations in the availability and quality of ESG data as the biggest challenge for ESG integration into their investment processes. Regulators have recognized this fundamental challenge and are increasingly introducing new policies to improve data quality standards, disclosure, and data availability in the ESG metrics arena.
3. The shift to a longer term view
Corporate governance regulation has already targeted topics such as management and board compensation; board diversity; and the management and oversight of ESG risks, but as long as management remuneration remains linked to short-term results, we can expect limited changes at governance and strategy level. Executive remuneration should rather be linked to the integration of sustainability initiatives into both long term strategy and daily decision making processes, and we expect to see positive regulatory changes to support this.
Data to power sustainable decisions
Against this evolving regulatory backdrop, individual organizations can only make better, more sustainable investment decisions if they have reliable access to data that is rigorously quality controlled and consolidated to ensure completeness and comparability.
The data needed to support sound investment decisions is evolving and should include, for example, material ESG company disclosure information; asset level data such as agricultural and commodities data; corporate governance intelligence; financing and green bonds data, such as the one from the Climate Bonds Initiative (labelled green bonds are bonds that earmark proceeds for climate or environmental projects and have been labelled as ‘green’ by the issuer); developing news and more.
Watch: Refinitiv Perspectives LIVE – ESG Investment, a cure all for Asset Management?
ESG data and sustainability tools
Refinitiv’s comprehensive ESG data covers more than 70% of global market cap, with over 400 metrics to help organizations assess the risks and opportunities posed by companies’ performance in critical areas such as climate change, executive remuneration, and diversity and inclusion.
Our ESG Contributor Tool further empowers companies to actively manage their own ESG data, with advanced functionality that allows firms to:
- Contribute company ESG data for the current year
- Review and edit the historical ESG data that is already available for their companies
- Ensure that the investment world has access to their firms’ most up-to-date ESG data
The tool not only allows individual companies to view their own ESG scores for the current and prior two historical periods, but also allows a review of peer scores within each industry.
In order to promote the sharing of trusted data, we have also developed our Sustainable Leadership Monitor, a data-driven app that uniquely aggregates financial and ESG data to analyze the long-term orientation of companies and provide an invaluable tool for the private sector to make more informed decisions about their third-party relationships.
As 2020 unfolds, we will continue to partner with our clients and deliver the holistic data needed to make better capital allocation decisions in line with global sustainability goals and shifting regulatory trends.