MSCI: Five Key ESG Trends to Watch in 2019

MSCI ESG Research has issued its 2019 ESG Trends to Watch Report, which identifies five key ESG trends in 2019 and the potentially overlooked costs and opportunities underlying these themes:

1. China’s central role in triggering a global trade war in waste: MSCI expects to see a globalized world forced to look locally for solutions on how to deal with waste.

In the wake of China’s decision of banning 24 kinds of solid waste, exporting countries scrambled to find new markets for their waste, which triggered waste-import bans in Thailand and Malaysia, with more countries, including Poland and Turkey, considering similar restrictions to stem the flow.

Correspondingly, major trash-exporting countries moved to curb their waste production. Some of the more vulnerable industries, like the restaurant industry, food and beverage manufacturers and the packaging sector, are likely exposed to any regulatory changes.

MSCI also identified as many as 12 relevant industries potentially exposed to malfeasant rubbish, including Agricultural Products and Office Services and Supplies.

2. Regulating the business of ESG investing: MSCI expects that regulatory developments will escalate around ESG investments, rather than ESG disclosures, with 2019 being a year to play catch up, as measures governing investors’ roles and duties compel the development of investment policies that address ESG more holistically as an investment-relevant risk. Of the more than 170 regulatory or quasi-regulatory measures proposed in 2018, 80 percent of them target institutional investors, not issuers.

3. Investment allocations to consider climate risk: While private assets like real estate may be the tip of the spear that will inevitably be impacted by climate in the next decade, MSCI expects that eventually all assets may have to be judged by the potential impact of climate change.

4. ESG from big data to big signal: It will become increasingly important to know how to extract the most relevant signals from a proliferation of ever-bigger data to achieve better-differentiated investments objectives.

ESG ratings today serve as a common language for measuring the long-term resilience of companies and their ability to manage emerging ESG risks and opportunities for a growing number of investors. The most successful investors will be those who recognize that they have an advantage only if they have a clear view and construct a signal to match

5. Leadership in the age of transparency: Amid the age of transparency and high-profile scandals, 2019 may mark a turning point for investors tired of paying the cost for companies slow to adapt when the internal becomes external and the whole world can judge misconduct for itself.

The age of transparency can turn into an age of vigilance. While the parade of CEOs behaving badly may be difficult to predict and avoid, replacing them and cleaning house in the wake of a scandal should not be.