The evolving ESG paradigm: How issuers and asset managers must adapt in 2024


During Diligent’s annual user conference, governance leaders discussed a notable increase in anti-ESG sentiment.

A key takeaway was the shift of investors from merely expressing concerns to actively demanding tangible actions and oversight from issuers, particularly regarding climate transition. This change in investor behavior underscores the growing importance of ESG (Environmental, Social, Governance) considerations in the financial world.

DMI’s research sheds light on the nature of ESG proposals gaining traction. It appears that proposals emphasizing transparency in disclosures, rather than dictating company strategies, are receiving greater support. Investors are showing a preference for insights into actual practices, especially in critical areas such as environmental impact and plastic pollution. This trend suggests a move towards more informed and responsible investing.

The bar for effective climate transition is being raised. Initiatives like Climate Action 100+’s second phase, focusing on concrete climate transition plans, reflect this trend. Shareholders are increasingly challenging management’s “say on climate” proposals and seeking greater accountability. Voting against directors is one method investors are using to enforce their expectations.

Kirsten Snow Spalding, Vice President of Ceres Investor Network, highlighted in a DMI interview the investor demand for comprehensive climate transition action plans. These plans should detail the company’s approach to climate lobbying, capital expenditure alignment, and efforts supporting a sustainable economic transition.

The regulatory landscape is also evolving rapidly, with significant implications for climate reporting. The U.S. Securities and Exchange Commission’s upcoming climate rule and the International Sustainability Standards Board’s new framework are set to establish new benchmarks for climate disclosures globally. The European Union’s Corporate Sustainability Reporting Directive (CSRD) will also impact international companies operating within the EU. These regulatory changes reflect a growing demand for standardization and transparency in climate-related reporting.

With evolving regulations, the interplay between climate, ESG, and corporate risk is becoming increasingly apparent. Investors are demanding transparency and accountability from portfolio companies, particularly concerning their net-zero targets. This trend is mirrored in the growth of ESG-themed assets, as indicated by the National Bureau of Economic Research’s finding that global index funds with an ESG mandate have almost doubled in the past three years.

ESG considerations are now a critical part of risk management strategies. Compliance with emerging regulations is just one aspect of this shift. Environmental, social, and governance issues are now central to managing risk, as evidenced by the increasing focus on ESG factors in S&P 500 sector reports and the growing adoption of risk management software to better integrate sustainability with financial reporting.

Despite reduced support for some ESG proposals, the importance of ESG in investment and corporate governance is not diminishing. Instead, the nature of ESG scrutiny and investor expectations is evolving. Companies and asset managers need to adapt to these changes to stay relevant and responsible in the emerging financial landscape.

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