News and Views

4 ESG trends businesses and investors should watch in 2021

Eden Marish Roehr
January 29, 2021
News and Views

4 ESG trends businesses and investors should watch in 2021

A year ago, if you had asked anyone to predict what 2020 would entail, chances are that they’d have been wrong. If the past year has taught us anything, it’s that nobody can predict the future in an increasingly unpredictable world.

Yet some ESG trendlines have remained true even amid all the uncertainty. With cautious optimism, here are four ESG trends we believe will continue to play out moving into 2021:

1. Engaging  investors on ESG is no longer optional

Last year brought record-breaking temperatures, raging wildfires, cataclysmic storms, political unrest, and a pandemic — global challenges that have illuminated the glaring inequalities of the status quo. At a time when we need to rethink our social, political, and economic structures at scale, businesses are embracing the role as catalyst for positive change. And investors are noticing the business opportunity for driving financial value with environmental, social, and governance (ESG).

Most recently, BlackRock Chairman CEO Larry Fink reaffirmed this in his 2021 letter to CEOs when he wrote: “We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.”

Meanwhile, the Federal Reserve is adopting fiscal policies that account for climate risk. More business leaders around the world also are calling for a shift toward a stakeholder model of capitalism in which corporations answer to the needs of all stakeholders.

More than just an ideological shift, the data shows that investors are putting their money where their mouth is: Americans invested over $17 trillion in sustainable assets in 2020, representing a 42 percent increase from the prior year. Globally, the money invested in ESG nearly tripled to $45 trillion.

ESG investments will continue to grow in 2021. This also means that companies that best articulate their ESG strategies to investors stand to reap the financial rewards.

2. Food companies usher in plant-based proteins

Moving into 2021, we can expect large retail and fast food corporations to continue to double down on their commitment to sustainability — thanks in no small part to the growing demands and expectations of Gen-Z and millennial customers. In the past year alone, plant-based alternatives to meat have seen exponential growth: take Impossible Foods, for example, which is now offered in over 11,000 grocery stores across the U.S. — a 77-fold increase from its pre-pandemic retail numbers.

Meanwhile, Woolworths recently unveiled its 2025 Sustainability Plan with ambitious goals to expand its alternative protein range, source animal products more sustainably, and reduce virgin plastic used in product packaging. Likewise, McDonald’s recently announced its vegan take on the Big Mac: the McPlant, a plant-based burger coming to stores in 2021. Taco Bell, not to be outdone, recently announced its new partnership with Beyond Meat to create a novel plant-based protein in 2021.

Underpinning these changes is a need to fundamentally reimagine our food system by collectively embracing plant-based diets, regenerative agriculture, and innovative technologies. In 2021, corporations are signaling a growing desire to spearhead these solutions. New research suggests that the adoption of plant-rich diets could halve global food system-based GHG emissions. And this could be highly lucrative to investors — the plant-based protein market is currently worth over $20 billion, and is expected only to grow.

3. Fashion industry embraces the triple bottom line

While the fashion industry might pride itself on trendsetting, it at times has been “so last week” when it comes to ESG. But Vogue Business predicts that 2021 will bring about the democratization of sustainable fashion, as companies integrate sustainability into their business models and transform eco-conscious fashion from the luxe exception to the universal rule.

Some fashion companies are opting to play it safe with their sustainability strategy by pursuing so-called “secret sustainability.” This is when a company pilots, tests, and implements sustainability measures before marketing them to consumers.

Circularity, which has become a popular buzzword in sustainability circles, will continue to thrive in 2021 as brands like Patagonia rethink why and how we buy and sell clothes. The secondhand apparel market has grown 21 times faster than its traditional counterpart over that past three years, according to thredUP, and will swell to $23 billion by 2023. Poshmark, an online platform for buying and selling used clothes, ended its first day of public trading this month with a valuation of over $7 billion. In 2021, it’s clear that sustainability is in vogue.

4. ESG goes to Washington

After four years of federal inaction on climate and other ESG issues, the newly minted Biden Administration is making up for lost time. Biden has already issued executive orders to block the Keystone XL Pipeline, re-join the Paris climate agreement, and has even proposed a net-zero carbon emissions target for 2050.

In exciting news for corporate sustainability professionals, under the direction of the Biden Administration, the Securities and Exchange Commission could begin to enforce ESG disclosure standards for American companies, initiating a long-awaited effort to regulate corporate sustainability reporting.

Predicting the future is futile. But there’s plenty of reason to hope that 2021 will be a better year — one in which ESG continues to evolve as businesses innovate to address the most pressing problems of our time.

4 ESG trends businesses and investors should watch in 2021
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