ESG Trends and Developments: Standard Chartered, Kroll Study, and European Regulator's Stand

In a dynamic landscape shaped by environmental, social, and governance (ESG) considerations, various entities are making significant moves and decisions.

Standard Chartered’s Green Guarantee in Oman:

Standard Chartered, a prominent player in sustainable finance, has taken a notable step by issuing its inaugural green guarantee. The beneficiary of this green guarantee is China Energy Engineering Shanxi Electric Power Engineering Company (CEEC-SEPEC), and it pertains to a solar project in Oman, where CEEC-SEPEC plays a crucial role as the main engineering, procurement, and construction (EPC) contractor. The move signifies the bank's involvement in fostering cooperation between China and the Middle East, aligning with its broader engagement in such collaborations. Standard Chartered views this partnership as not only reinforcing economic ties but also paving the way for future opportunities while demonstrating the shared commitment of China and Oman to promote sustainable growth.

Kroll's ESG and Global Investor Returns Study:

Kroll, a global firm specializing in risk and financial advisory solutions, has conducted a comprehensive study exploring the relationship between ESG ratings and historical returns of publicly traded companies. The findings highlight the financial advantages associated with strong ESG performance. According to the study, companies with robust ESG scores delivered an average annual return of 12.9%, surpassing the 8.6% average annual return of ESG "laggards." This 50% premium in relative performance underscores the tangible benefits of ESG excellence. Kroll's analysis encompasses data from over 13,000 companies worldwide, providing valuable insights into the connection between ESG efforts and financial outcomes. In Asia, the disparity is particularly striking, with ESG leaders achieving an average annual return of 11.6%, doubling the 5.8% return recorded by laggards. However, it's worth noting that 38% of Asian companies were categorized as ESG laggards, with only 6% classified as leaders, as of December 2021. In contrast, North America had 17% laggards, while Western Europe had 6%.

ESMA's Stance on ESG Terminology in Fund Names:

The European Securities and Markets Authority (ESMA), the regulatory body overseeing Europe's financial markets, is resolute in its stance on restricting the use of "ESG" and "sustainability" in fund names. Despite receiving criticism from asset managers, ESMA remains committed to its proposal. Major firms like BlackRock, Amundi, and the asset management unit of Goldman Sachs have voiced concerns about certain aspects of ESMA's plan, which they believe could be challenging to implement. ESMA's proposal aims to establish criteria for the use of ESG-related terms in fund names, holding fund managers accountable for their use. Patrik Karlsson, senior policy officer for investment management at ESMA, emphasized that fund managers have the choice to opt-out of using such terms if they disagree with the criteria, emphasizing flexibility in compliance.

ESG Challenges Amidst Evolving Landscape:

ESG investing continues to evolve, facing challenges and scrutiny. Some "green" funds underperformed in 2022, raising questions about the efficacy of ESG strategies. Additionally, concerns about "greenwashing" scandals have added complexity to the ESG narrative. Various factors, including Russia's invasion of Ukraine, rising energy costs, supply chain disruptions post-COVID-19, and the effects of net-zero policies on energy prices, have made ESG investing a harder sell to investors. Notably, some U.S. states have taken legal action against asset managers, alleging compromised performance in ESG funds. The debate around ESG's impact and implications is evolving, with differing perspectives on its role in the corporate world and its effects on end-investors.

While ESG investing faced challenges in 2022, with many sustainable investing indices underperforming their benchmarks, the ESG landscape remains dynamic and subject to ongoing developments and debates.