Future Gazing – ESG Themes for 2023

    Stockholm (NordSIP) – International ESG data and analytics provider ISS ESG has compiled its top ESG themes for 2023 in a newly published Actionable Insights report.  The year ahead may seem daunting to institutional investors, with the ongoing war in Ukraine, the after-effects of the Covid-19 pandemic, uncertain economic conditions and an increased regulatory burden all conspiring to heighten risk levels.  The ISS ESG report provides a useful reference point for navigating the choppy waters ahead.

    Food industry needs radical reform

    Last December’s biodiversity focused COP15 led to an international agreement on a series of goals aimed at protecting and restoring natural ecosystems.  The so-called “30×30” target of conserving and managing at least 30% of the world’s lands, inland waters, coastal areas and oceans by 2030 has pushed the food industry towards the top of the sustainability agenda.  The ISS ESG report leads on this issue, highlighting the fact that the food industry is behind 90% of global deforestation, among a range of other detrimental factors.  This threat to natural carbon sinks is compounded by the sector being responsible for roughly one third of global greenhouse gas (GHG) emissions.  These stem mainly from methane related to meat production.  The report also points to monoculture, synthetic fertilisers and the resulting soil degradation as key problems areas, which need to be urgently addressed by regenerative agricultural practices and a complete re-evaluation of world-wide food production.

    Battery storage and an open mind needed for net-zero

    The race to net-zero also needs to be accelerated, according to ISS ESG.  The answer is a flexible approach making use of all available sources (possibly incuding nuclear) and generation techniques.  The Ukraine war has brought to light inefficiencies and dependencies that are now being more urgently addressed.  ISS ESG points to the need to ramp up investment in dispatchable renewable energy sources, which unlike typical solar or wind farms allow for provision to be adjusted according to temporary demand levels.  Rather than focus on new fossil-fuel generation, battery storage could be one of the answers to greater dispatchable energy in the power grid.  ISS also expects increased investment in the related commodities such as cobalt, lithium and copper, as well as further research and development into the various carbon capture, use and storage (CCUS) technologies as the net-zero movement gains pace.  ISS ESG believes data scarcity is a potential spanner in the net-zero works, and that information gaps should not be allowed to slow progress, with investors encouraged to make use of the best of what is currently available.

    Reporting burden set to grow at pace

    As a provider of ESG data and ratings, ISS ESG understandably devotes a large section of the 2023 report to the increasingly overwhelming and fast changing area of sustainability reporting.  As mandatory disclosure requirements spread around the globe, ISS ESG examines the correlation between disclosure rates and sustainability performance.  As shown in NordSIP’s Laundromat series, many larger companies make sure they comply with voluntary and mandatory sustainability reporting while continuing to operate harmful value chains.  ISS ESG are calling 2023 “the year of sustainability reporting,” with the expectation of greater scrutiny across all areas of the economy on behalf of central banks and regulators.  While purely governance-related reporting is mature enough to be reliable, environmental and social disclosures have a long way to go in terms of coverage, accountability and accuracy.

    Post-pandemic social hangover

    The closer attention on social issues and how they are handled by investee companies is another trend highlighted in the ISS ESG report.  The Covid-19 pandemic and related lockdowns had a significant effect on workforce mental health, and ISS expects much more attention to be paid by investors on companies’ management of that aspect of their human resources.  Its own analysis shows that 57% of companies for which they were able to gather the information score very poorly in terms of “mental health management.”

    The social impact of the large technology companies is another theme to consider in 2023, with ISS ESG expecting a degree of “digital backlash” from regulators and investors, concerned by harmful content and anti-competitive market structures.  ISS ESG also touched on the future of cryptocurrency and the supporting blockchain infrastructure, which suffers from poor governance and is responsible for GHG emissions exceeding those of medium-sized nations.

    In terms of regulatory and public policy trends, ISS ESG expects 2023 to be the year when biodiversity and social themes catch up with climate change.  The commitments made at COP15 will compel governments to begin implementing nature-related reporting and accountability frameworks along guidelines to be provided by the task force on nature-related financial disclosures (TNFD).  Initiative sin the US, UK and EU are also focused on strengthening reporting requirements by firms on human capital issues.


    Image courtesy of Luisella Planeta Leoni from Pixabay
    Richard Tyszkiewicz
    Richard Tyszkiewicz
    Richard has over 30 years’ experience in the international investment industry. He has worked closely with major Nordic investors on consultancy projects, focusing on the evaluation of external asset managers. While doing so, Richard built up a strong practical understanding of the challenges faced by institutional investors seeking to integrate ESG into their portfolios. Richard has an MA degree in Management and Spanish from St Andrews University, and sustainability qualifications from Cambridge University, PRI and the CFA Institute.

    Latest Posts

    Partner content


    NordSIP Insights Handbook

    What else is new?