Top 10 Urgent ESG Issues in 2022

top 10 urgent esg issues in 2022

What will be the top 10 urgent Environmental, Social and Governance – ESG – issues in 2022? Obviously, the Russian invasion of Ukraine increases the ranking of renewable energy and human rights. Other issues, such as greenwashing, have been bubbling to the top for some time. These are ESG Hive’s top 10 urgent ESG issues. Our thought-provoking list will answer your big ESG questions and spark your curiosity. Tell us, what are your top 10 ESG issues?

1. Renewable energy - the top ESG issue in 2022
Innovations and solutions for a greener future

Russia’s invasion of Ukraine could accelerate rich country’s transition to renewable energy.

 

Some European governments and companies moved quickly to ban imports of Russian oil and gas because these fund Putin’s aggression. Currently, global public anger is such that energy company Shell apologized for past purchases of Russian oil. However, when it comes to natural gas, Russia has a big hold over Europe. According to Statista, in 2021, Russian gas made up 50 to 100% of total gas imports in Europe:

 

Russian gas as percentage of total Country
100% Bosnia and Herzegovina and Moldova (some experts think that if Putin is successful in Ukraine he would invade Moldova next)
94% Finland (which is now debating joining NATO)
40-90% Central and Eastern European countries in NATO
+/- 50% Germany, Italy (two of the world’s largest economies)
Source: Statista 2021

 

Renewable energy as a national security issue

 

Consequently, reducing dependency on Russian energy is a national security emergency. Evidently, dependent European countries don’t want to fund Russia’s war. Nor do they want to be held hostage if Putin decides to withhold energy from them.

 

Immediately after the invasion of Ukraine, Germany announced that it would triple capacity for wind and solar power and double offshore wind capacity. Germany hopes these measures will bring forward by 15 years its target of generating almost all its electricity from renewable sources (to 2035.)

 

Furthermore, the European Union is expected to announce measures to “accelerate the clean energy transition and reduce permanently our dependence on imports of natural gas.” The EU had planned to achieve almost 100% reliance on renewables by 2050. Undoubtedly, the big questions now are, how much faster the EU hopes to transition and who is paying? In 2020, the EU estimated that over $900 billion in investment was needed to fund the transition to renewables. Is private capital ready to step up sooner?

 

 

No magic bullets

 

Obviously these actions don’t immediately phase out fossil fuels. In fact, Germany has announced plans to extend the use of coal to reduce its reliance on Russian gas. In addition, there is growing political pressure in the US to increase oil and gas production to control spiraling prices. Moreover, Russia still produces around 12 percent of the world’s oil and 17 percent of the world’s natural gas. It will still export to countries where fossil fuel use is growing, especially China, which signed a 30 year gas deal with Russia.

 

Nonetheless, Europe’s policies could ignite major injections of new investment into expanding renewable energy. In turn, this could help to reduce the price of renewables for consumers and accelerate uptake. In addition, the global public outcry could add momentum to existing climate activist calls for companies to switch to renewables more quickly.

 

 

2. Human Rights – an urgent ESG issue in 2022

 

Famously, campaigners have called out multinational companies on human rights violations in their supply chains. For instance, they have achieved better health and safety conditions for garment workers in Bangladesh, and reduced funding for wars through conflict resources such as “blood diamonds.”

 

Without a doubt, the corporate stampede from Russia opens up bigger human rights questions. What type of political system are companies willing to invest in and with what impact on the societies around them?

 

After the Soviet Union collapsed, leaders believed that foreign investment in Russia would promote peace, and free markets and prosperity in Russia. In fact, Russian living standards have been declining and Putin has has closed down space for Russian civil society and peaceful opposition. Foreign investment has not promoted market and political liberalization as intended. Unfortunately, the main benefits of globalization have gone to oligarchs and to Putin. Worst of all, Putin has used the country’s resources to build his control and menace democracies.

 

Clearly, divestment from Russia could trigger broader discussions on Wall Street and in Congress about the risks to US investors and societies of investing in countries that are backsliding on democracy and human rights.

 

ESG issues LGBTQI rights
Photo by Anna Shvets on Pexels.com
Top 10 Urgent ESG Issues in 2022: Russia closed down space for civil society and human rights, including LGBTQ+ rights

 
3. EU Taxonomy for sustainable activities

 

The EU’s Taxonomy for sustainable activities came into effect in 2022, making sustainable investing the norm in Europe. The Taxonomy has 6 main objectives to promote:

 

Climate change mitigation

Climate change adaptation

The sustainable use and protection of water and marine resources

The transition to a circular economy

Pollution prevention and control

The protection and restoration of biodiversity and ecosystems

–EU Taxonomy Regulations

 

Undoubtedly, “Taxonomy” sounds dull. However, it is really important because it gives everyone an agreed list of definitions of environmentally sustainable economic activities. Companies, investors and regulators can use these definitions to decide whether an activity is sustainable or not. This should help stop company’s false claims of sustainability, known as “greenwashing.” Moreover, the Taxonomy should help investors identify genuinely sustainable economic activities.

 

It is worth noting that companies are expected to make their disclosures conform with the Taxonomy rules. As Europe leads, other countries may follow. The UK recently announced similar climate reporting requirements and as for the USA…

 

 

4. ESG disclosure rules for US investment products?

 

Like the EU, ESG investment products have exploded in the USA. However, investors have no way of knowing what’s behind many ESG claims. ESG has so many definitions. For instance, it is hard to know whether an ESG “environment fund” invests in sustainable companies or just companies that reduce the impact of environmental regulations on their profits. It is possible that 2022 is the year that the U.S. Securities and Exchange Commission (SEC) starts regulating ESG investment product claims.

 

Indeed, SEC Chair Gary Gensler proposes ESG investment product disclosure standards in this video. Such regulations could help ESG investors select the products that really align with their values and goals as easily as reading the label on milk.

 

 

5. Greenwashing corporate climate targets

 

black car instrument cluster panel
Photo by Mike on Pexels.com T
Top 10 Urgent ESG Issues: Greenwashing corporate climate targets

 

Probably you’re familiar with greenwashing scandals such as Volkswagen. VW was caught using software to make false fuel efficiency claims.

 

Disturbingly, the greenwashing problem goes wider and not all greenwashing is illegal. The NGO Climate Disclosure Project (CDP) runs a global voluntary environmental disclosure system for companies, investors and governments. According to CDP’s most recent survey, most companies do not disclose sufficient details about their climate transition plans.

 

For instance, many disclosures contain very few key indicators of companies’ concrete actions to become carbon neutral. Without this information, it is impossible to judge how realistic are many companies’ climate transition claims. Pressure will mount on companies to disclose more detail to back up their claims, or face accusations of greenwashing.

 
 

6. Biodiversity – UN leads on some of the top 10 urgent ESG issues in 2022

 

The UN has defined climate change, pollution and biodiversity loss as the Triple Planetary Crisis. As humans expand, one million out of eight million plant and animal species are under threat from extinction. Furthermore, a lot of the ecosystems that people rely on are eroding.

 

Therefore, countries have organized a UN Conference on Biodiversity to agree on some goals for preserving nature in the next 10 years. The important next phase for the negotiations will be held in China in April-May 2022, where it’s hoped that the UN can adopt a Global Biodiversity Framework. Negotiators have proposed targets such as conserving 30% of land and sea areas.

 

Hopefully, the final international framework will influence business. Some market leaders may sign up to meeting UN targets voluntarily. Especially important sectors include finance, fisheries, food and beverage and agribusiness. Subscribe to our newsletter to stay informed on progress.

 

single-use plastic pollution top 10 urgent ESG issue
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Top 10 Urgent ESG Issues in 2022: Single-use plastic and biodiversity will be in the headlines

 

7. Single-use plastic – another urgent ESG issue for the UN in 2022

 

2022 is a busy year for the UN’s work on ESG. In March, over 175 countries signed up to a UN resolution to end the global scourge of single-use plastic pollution. The resolution addresses the full life cycle of single-use plastic from design, production to disposal. Reassuringly, there is a high degree of international consensus on the subject. Now countries will start negotiations to draft a legally binding agreement by 2024. Actually that is quite fast by UN standards.

 

In the meantime, the UN Environment Programme (UNEP) has offered help to businesses to move away from single-use plastics to circular economic practices. In 2022, US-based companies will face growing consumer pressure, as well as pressure from the UN, to move away from single-use plastics.

 

 

 

8. Adapting business to life after the pandemic

 

CEO of Blackrock, Larry Fink, writes an influential annual letter to CEOs covering issues in stakeholder capitalism. It is so influential because Blackrock is the world’s largest asset manager, with a portfolio in excess of $9.5 trillion. Evidently CEOs need to pay attention to Blackrock’s ESG priorities.

 

In 2022, Fink underlined the need for businesses to adapt to life after the pandemic. He argued that the relationship between employers and employees has changed. Whereas employers used to expect employees’ full-time presence at work, family sacrifices and were disinterested in employees’ mental health and pay prospects, Fink argued,

 

That world is gone.

Larry Fink, CEO Blackstone, Letter to CEOs

 

What might take its place? Fink argued that companies that attract and retain talent will thrive. These companies reflect their employees’ values. They take mental health, work-life balance and financial well-being seriously. Moreover, they prioritize sustainability, diversity, equality, childcare and flexible working arrangements, and they forge strong values-based bonds with their employees.

 

Furthermore, Fink argued that companies that do not adapt are at risk of failure. They will not encourage the talent in their organization to thrive and innovate to their full potential. Consequently, he argued that these companies will fall behind on technology and sustainability.

 

According to Fink, and many ESG advocates, the impact of companies on their stakeholders is not subordinate to a company’s financial value. Whereas some have accused ESG of simply being “woke”, Fink has forcefully responded that ESG is the key to success in contemporary capitalism.

 

 

9. Defining the ‘S’ in ESG

 

Evidently, the urgency of climate change and the threat to profits from bad corporate governance have promoted significant attention on ‘E’ and ‘G’ issues in ESG. However, the ‘S’ has been a bit of a research and investor orphan. Whereas the ‘G’ is well established in business schools and the projections of the economic impact of climate change have alarmed business into action, there is much less research on how S(social) issues affect a company’s profitability. Moreover, some common perceptions have been that performance in ‘S’ is not financially important and that ‘S’ is too intangible to measure.

 

This is about to change. In the last few years, activists have made demands that companies promote gender and racial justice and equality. Businesses are beginning to understand that their value is linked to how they treat their stakeholders, and their impact on society.

 

At this time, there are a number of initiatives trying to define and explain why ‘S’ matters. For instance, The Thomson Reuters Foundation, Refinitiv, the International Sustainable Finance Centre (ISFC), White & Case, Eco-Age, The Mekong Club, and the UN Principles for Responsible Investment (PRI) have an ESG working group on Amplifying the S in ESG. Their White Paper makes the case for ‘S’ issues that should be included and measured.

 

As social issues remain central to public debate, we can expect to see more start-ups with social impact objectives, and for ESG reporting initiatives, ratings agencies, disclosure teams and asset managers to focus more on ‘S’ in how they value a company.

 

 

 

For some time, litigation relating to companies’ social responsibilities has been on the rise. One study estimated that since the 2015 Paris Climate Deal, plaintiffs around the world have filed more than 1000 climate-related cases. In fact, many of the plaintiffs are children who have made cases for future damages based on insufficient preventive action by companies. Already, courts have set major precedents. For example, Royal Dutch Shell was ordered to lower its emissions by a court in The Hague.

 

Interestingly, the law firm Latham & Watkins LLP argued that ESG-related litigation is likely to grow. Not only would climate-related litigation continue to rise, but the firm expected litigation to grow from activist shareholders in two other areas. Firstly, in relation to challenging damaging human rights practices in supply chains. Secondly, in relation to concerns about the accuracy of company’s voluntary ESG disclosures and legal challenges to greenwashing.

 

ESG Hive investigates how to divest from Russia
ESG Hive’s Top 10 Urgent ESG Issues in 2022

Top 10 Urgent ESG Issues in 2022

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Tags :
Biodiversity,Community impact,Conflict,Environment,ESG Basics,ESG Strategies,Governance,Greenwashing,Human Rights,Oil and gas,Renewable energy,Shareholder activism,Social,Supply chains,Waste pollution
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