Mid-year ESG outlook: What are the key themes to watch?

Momentum continues to build in the ESG space in 2022. We will continue to scale our engagement with portfolio companies and will participate in United Nations conferences focused on climate change and biodiversity. As global and country-specific regulations continue to evolve, there will be developments in areas such as climate disclosure data, sustainability and biodiversity.

• New developments in the ESG regulatory landscape – We are seeing more and more regulatory proposals promoting data comparability and coverage. This includes the US Securities and Exchange Commission’s proposed rules for climate-related disclosures and two proposed standards from the International Sustainability Standards Board (ISSB), a new global standard-setting body. The ISSB’s proposed general sustainability-related disclosure requirements and climate-related disclosure requirements are out for consultation until late July.¹ We can expect debate and further discussion in the second half of 2022 as the industry takes further steps to create standards on ESG reporting for companies.
• Scaling of engagement efforts – As part of both our compliance to developing regulatory standards and more fundamentally our stewardship commitment to clients, Invesco engages in dialogue on ESG with thousands of companies annually. In 2021, Invesco conducted more than 3,000 engagements on environmental, social and governance (ESG) topics, which we expect to scale through the year. Throughout the second half of 2022, we expect our engagement efforts to scale and become even further embedded within our approach to ESG integration. For example, as of August 2022, the EU’s Markets in Financial Instruments Directive IIⁱ legislation will require that all clients in Europe must be asked about their “sustainability preferences”. As part of this, Invesco is developing and scaling an engagement approach to consider principle adverse impactsⁱⁱ for financial products in scope.
• Biodiversity & COP15 – The second part of the UN Biodiversity Conference will take place in the third quarter of 2022. Governments from around the world will agree to a new set of goals for nature over the next decade through the Convention on Biological Diversity post-2020 framework process.² Before then, the Taskforce on Nature-related financial disclosures plans to release a second iteration of the framework by end of June. These developments set the stage for an increased industry focus on nature and biodiversity towards the end of 2022 and into 2023.
• Climate adaptation & COP27 – The 27^th United Nations Climate Change conference is scheduled to take place in Egypt in November 2021. At the conference, and more broadly, there will be an increased focus on climate adaptation. Unlike mitigation, climate adaptation attempts to deal with the adjustments needed to respond to actual or expected effects climate change. Research shows that only 20% of climate financing is committed to adaptation.³ Despite seeing significant growth in the issuance of green and sustainable bonds globally – forecasted to reach $1.5trillion in 2022⁴, only a low percentage of green and sustainable bond issuances are focused on adaptation.