Report highlights 10 key trends for investor focus likely to impact portfolio risk-return and stakeholder engagement priorities
NEW YORK (January 30, 2024) — ISS ESG, the sustainable investment arm of ISS STOXX, today released its annual global outlook report, Actionable Insights: Top ESG Themes in 2024, to kick off its ESG Themes and Trends 2024 thought-leadership series. The new report draws on comprehensive ISS ESG data, with research and insights from ISS ESG’s financial research and sector leads, climate specialists, and regulatory experts to help investors identify key ESG risks and opportunities likely to impact their portfolios in 2024.
Ten of the key global trends identified by ISS ESG that sustainable investors will likely be focusing on through 2024 include:
- The European Union (EU) has adopted regulation that will, by the end of 2024, require some commodities and products that enter the European market to be deforestation free. This regulation may encourage heightened awareness of the economic and environmental impacts of land-use change and portfolios’ exposure to nature-related risks.
- Rising demand for critical minerals as inputs for renewable energy is shaping mergers and acquisitions within the mining sector and encouraging public efforts to secure access to these minerals. Mining companies also face the challenge of decarbonizing their extraction activities.
- Industrial sector companies generally perform poorly on the management of environmental matters in their supply chains. Nevertheless, companies may improve their supply-chain data disclosures in 2024, encouraged by the Recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD).
- Digital health technology is dramatically expanding, a trend that creates both investment opportunities and cybersecurity and privacy risks. Investors may accordingly want to advocate that companies tighten their information security management systems and practices in the future.
- Companies have been rapidly integrating generative Artificial Intelligence (AI) into their products and services, a process that might bring future liabilities. Although AI-related regulation is still developing, existing privacy and property laws already provide a foundation for potential liability.
- In an uncertain macroeconomic environment, in which volatility, inflation, interest rates, and geopolitical risks are expected to remain elevated, alternative investments can provide investors with an idiosyncratic opportunity to generate alpha and to actively consider the Net Zero transition.
- The complexity of climate change impacts, the global regulatory push for standardized climate-related disclosures, and the diversity of investment preferences mean that financial institutions will continue to demand climate scenario analysis tools. Wider adoption of climate scenario analysis means the methodology behind such analysis is likely to become more refined.
- National and international regulations and standards have targeted PFAS chemicals because of these chemicals’ health effects. The EU may ban the chemicals by 2027, for example. Risks from regulation, lawsuits, and controversies may foster heightened investor concern about companies’ involvement in PFAS and exploration of alternatives to the chemicals.
- Investors face the challenge of identifying which firms have superior ESG performance and linking that performance to the firms’ financial performance. ISS ESG offers ESGF, a rating that considers a firm’s ESG risks and opportunities along with its Financial Quality measured over time. ESGF can help investors navigate the volatile market likely in 2024.
- Ensuring investors have sufficient information to evaluate ESG issues accurately is a top priority for global financial regulators. A diversity of regulatory approaches, however, raises the possibility of fragmentation among regulatory regimes, with disclosure standards lacking interoperability and compatibility. Although leading reporting standards developed by the International Sustainability Standards Board, the European Commission, and EFRAG became more aligned in 2023, sustainability reporting will likely remain fragmented in the future.
Bonnie Saynay, Global Head of ESG Investor Research at ISS ESG, said: “Regulation, technology, natural capital, and climate change are among the major forces likely to shape the ESG investment landscape in 2024. Environmental concerns as well as the risks and opportunities raised by emerging and evolving technologies such as AI have encouraged regulatory and other legal responses. All these factors, combined, form the context for companies and investors in 2024.”
Saynay added: “Our new report demonstrates how ISS ESG’s proprietary data and research team, with significant capital markets experience and sectoral expertise, help support investors in evaluating and prioritizing evolving ESG risks and investment opportunities.”
To download a copy of the full report, please click here.
About ISS ESG
ISS ESG solutions enable investors to develop and integrate sustainable investing policies and practices, engage on sustainable investment issues, and monitor portfolio company practices through screening solutions. ISS ESG also provides climate data, analytics, and advisory services to help financial market participants understand, measure, and act on climate-related risks across all asset classes. In addition, ESG solutions cover corporate and country ESG research and ratings enabling its clients to identify material social and environmental risks and opportunities. For more information, please visit us at: www.iss-esg.com
About ISS STOXX
ISS STOXX GmbH, through its group companies, is a leading provider of comprehensive and data-centric research and technology solutions that help capital market participants identify investment opportunities, detect qualitative and quantitative portfolio company risks, and meet evolving regulatory requirements. With roots dating back to 1985, we today deliver world-class benchmark and custom indices across asset classes and geographies and serve as a premier source of independent corporate governance, sustainability, cyber risk, and fund intelligence research, data, and related offerings. Our products and services give clients the scale and leverage they need to grow their business more effectively and efficiently. ISS STOXX, which is majority owned by Deutsche Börse Group, is comprised of more than 3,400 professionals operating across 33 global locations in 19 countries. Its approximately 6,400 clients include many of the world’s leading institutional investors who turn to ISS STOXX for its objective and varied offerings, as well as companies focused on ESG, cyber, and governance risk mitigation as a shareholder value enhancing measure. Clients rely on ISS STOXX’s expertise to help them make informed decisions to benefit their stakeholders.
Executive Director, Communications