Compliance with the ESG principles began to play a significant role in making investment decisions and risk management of companies. According to Barron's, ESG-linked indices and ratings cover $8.4 trillion in assets in the US market now. Responsible investment is the norm now amid climate change and attempts by governments and companies to reduce human impact on nature.
However, in 2022, the ESG transition has slowed dramatically, and skepticism about the “greenness” of companies, on the contrary, has grown.
In December 2022 Financial Times published a forecast for the energy sector for the current year. The authors of the publication write about the complete cessation of support by investors for proposals to combat climate change. BlackRock recorded a 10% drop in support for green solutions in companies compared to 2021.
One of the main negative factors for companies and investors in 2022 was energy prices. Soaring fuel prices have weakened efforts to combat climate change. Europe has reopened coal-fired power plants and revived its appetite for liquefied natural gas. In the USA, at the end of the year, the market was criticized for insufficient shale production.
Prior to the release of the latest financial statements, BP was actively declaring plans to switch to renewable energy sources and wanted to abandon fossil resources by 2030. In February 2023, BP said that the phase-out of oil and gas would be much slower throughout the decade. Emissions by the beginning of 2023 will be reduced by only 25% compared to 2019 - before that, the company planned to reduce emissions by 40%. In parallel with the growth of investments in clean energy, BP will also increase spending on traditional energy sources.
A similar trend was observed in the US solar energy. The expansion of the solar panel network has slowed down compared to 2021.
In 2023, the US Securities and Exchange Commission wants to provide climate risk disclosures and standardize this information.
The US Inflation Reduction Act (IRA) provokes adjustments in the business plans of large companies. Volkswagen has suspended construction of an EV battery plant in Eastern Europe and is now looking to launch a similar facility in North America. Via the new US program, the automaker can receive € 10 billion in subsidies - business assistance, according to the IRA, involves support and tax incentives for green technologies.
The European Union promised to work out similar measures.
On the one hand, in this way lobbyists of large automakers want to minimize losses for their business. On the other hand, Volkswagen has already stated that a full transition to electric cars will require about 40% fewer workers, since they simply have fewer parts.
The shift towards ESG is not just a whim or a product of modern media attention. The underlying drivers of change are real. First, there are clear existential threats to humanity, especially climate change and inequality - these problems are already costing business and society real money. The cost of inaction is rising. Second, the price of new solutions is dropping exponentially, especially in clean energy and transportation. Third, and perhaps most importantly, norms are changing. Young customers and employees increasingly want companies to act. These are the trends that ultimately draw attention to sustainable development.
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