Page 18 - Investment Advisor January/February 2022

ESG HORIZONS

By Bernice Napach

What to Expect for Sustainable Investing in 2022

Through Q3 2021, global sustainable funds amassed some $4 trillion in
assets, including more than $330 million in U.S. mutual funds and ETFs.

ustainable investing, which set sure of climate risks under existing rules
new records for global and U.S. and to analyze disclosure and compli-
Sasset flows through the third ance issues relating to the ESG strate-
quarter of 2021, is expected to accel- gies of investment advisors and funds. It
erate in 2022 and beyond as demand has also created a new position of Senior
by institutional and retail investors Policy Advisors for Climate and ESG.
grows along with offerings from global In addition, the DOL is likely to finalize
asset managers. new rules on ESG investments that make
“Investing with a sustainable lens is it easier for 401(k) plans to choose invest-
foundational today,” said Kunal Kapoor, ments based on ESG factors. The rule,
in his keynote at the start of Morningstar’s which has already been proposed, undoes
annual conference in September. a Trump era rule that did just the opposite.
Underpinning this growth is cli- ADDRESSING CLIMATE CHANGE,
mate change and the risks it poses to OTHER ISSUES ADVANCING STANDARDS
the global economy, financial markets Their investments are spurring compa- Increasingly important is the need for
and individual companies during what nies to address not only climate factors standardization of terms and measure-
many hope to be a transition to a net but issues that impact workers, cus- ments pertaining to sustainability issues.
zero world where carbon emissions tomers and communities, according to “Getting to standardization and the
equal the amount of carbon removed Jon Hale, Morningstar’s Global Head harmonization of standards, which has
from the atmosphere. of Sustainability. He expects the influ- eluded the [asset management] industry,
Through Q3 2021, global sustain- ence of sustainability considerations on will be huge,” said William Burckart,
able funds amassed almost $4 trillion in financial reporting, oversight, risk and president of The Investment Integration
assets including more than $330 million regulatory frameworks will grow. Project, an applied research consulting
in U.S. sustainable mutual funds and Indeed, the Securities and Exchange firm whose mission educates investors
ETFs, which is almost twice the level of Commission is considering more stringent on how ESG can benefit their portfolios.
a year before, according to Morningstar. disclosure requirements on ESG issues by That standardization goal is expected to
Net flows into U.S. sustainable funds asset managers and by public companies, advance in 2022 due to the consolidation of
grew to $56 billion in the period as which could be adopted in 2022, and has several separate standard-setting entities:
74 new sustainable funds launched — already increased its reviews of both. the merger of the Sustainability Accounting
three-quarters of them equity funds. In the meantime, under Chairman Standards Board and the International
“The net-zero transition isn’t sim- Gary Gensler, the agency has been ask- Integrated Reporting Council into the
ply about reducing carbon; It’s a busi- ing money managers to explain the stan- Value Reporting Foundation (VRF)
ness model transformation akin to the dards they use for classifying funds as and, by June 2022, and the consolida-
Industrial Revolution,” wrote Michael ESG-focused, according to Bloomberg tion of the VRF and Climate Disclosure
Jantzi, founder of Sustainalytics, a News. It has also requested dozens of Standards Board (CDSB) to form the new
Morningstar affiliate which provides public companies to provide more infor- International Sustainability Standards
analytical environmental, social and mation about how climate change might Board. The ISSB is focused on developing
governance (ESG) research, ratings and affect their earnings or operations, the a comprehensive global baseline of high-
data to institutional investors and com- Wall Street Journal reported. quality sustainability disclosure standards
panies, in a recent report. “Grappling The SEC has created a Climate and to meet investors’ information needs.
with it is part of [a] fiduciary duty… and ESG Task Force in the Division of
Investors are adopting ESG as part of Enforcement to identify any material Senior writer Bernice Napach can be reached Adobe Stock
the transition to a net-zero world.” gaps or misstatements in issuers’ disclo- at [email protected].

16 INVESTMENT ADVISOR JANUARY/FEBRUARY 2022 | ThinkAdvisor.com