FactSet Research : Recap of Key ESG Developments in 2022

Recap of Key ESG Developments in 2022 ESG

By FactSet StreetAccount| January 5, 2023

FactSet StreetAccount publishes regular company-level and summary-style ESG news. Below is our 2022 recap of key ESG developments and insights.

2022 Market Performance

• Markets saw massive upheaval in 2022from global central bank tightening, continued supply chain constraints (including Covid disruptions in China), and Russia's war in Ukraine.

• Renewables were a relative outperformeras Europe brought forward clean energy demand through its RePowerEUplan, and Biden's decarbonization push included unprecedented US IRAlegislation. Established market segments, which are most able to ramp near-term sales, responded best including wind, alternative fuels, and solar. Solar names also managed a host of potential roadblocks, including the US Department of Commerce anticircumventioninvestigation, USbanon Xinjiang-produced components, and California net-metering policychanges. Lithium producers, led by Australia, performed very well along with the underlying commodity as EV makers scrambled to procure battery supply.

• Laggards included hydrogen, EVs, plant-based proteins. As with other tech sectors, investors punished speculative plays, including parts of the hydrogen and plant-based protein segments. The latter saw share price declines greater than 80% as consumers wrestled with higher grocery bills. Tesla was hindered by governance and demand concerns where Musk's attention on Twitter contributed to Tesla'sworstannual stock performance in history (-66%). Other EV names were pummeled with production delays, supply chain issues, and battery inflation. After major brands raised prices for their cars, demand seemed to falter into year-end, leading toreducedruns and price incentives.

• Broad ESG offeringssuch as the SPDR S&P 500 ESG Fund (EFIV, -20%) performedin line with broad market funds (SPY, -20%).Flows into ESG mutual funds and ETFs slowed but remained positive according to Barclays researchers using EPFR data. Sustainable investing was highlyscrutinized as traditional energy shares soared (XLE +57%) and political ESGpushbackcontinues to grow. Nonetheless, ESG fund flows held in relatively well compared to broad market funds, which saw slower inflows in 2022.

Environment

• Russia's war in Ukraine increased near term coalusage, overshadowed the recent global climate push, and caused over1,000companies to cease operations in the country.

• A host of extreme weatheroccurred around the globe while new attribution studies said climate change makes such events moresevere and likely. Events included UKheatwave, Europedrought,Florida'sHurricane Ian, and Pakistanflooding. The IPCCreportedthat even if nations follow through with current emissions pledges, it won't stop temperatures from rising to levels that increase future risk of such events.

• Elsewhere,COP27 climate talks dealt very little with limiting further emissions as developing nationsstruggled to earn compensation for continuing climate catastrophes. Meanwhile, the US Supreme Court narrowed regulatory powers in West Virginia vs EPA case, limiting the executive branch's powers to shape national utility and energy policy.

• Bright spots for 2022included previously mentioned climate spending plans from the US and Europe, a global biodiversity agreement atCOP15in Montreal, as well as presidential elections inAustralia and Brazil bringing pro-climate and biodiversity policies.

Social and Governance

• Worker strikes across a wide variety of sectorsincreasedby 39% in 2022. Notable events included Biden's intervention to stop a US rail strike, New York Times workers staging a walk-out, and a growing issue in the UK whererail workers were joined by workers across sectors.

• Big Tech remains under scrutiny with regulatorsfocusingon monopolies, M&As and expansion while a host of judgements and settlements were announced globally.

• Shareholder proposals lost steam amidst macro turmoil. Only 10% of shareholder proposals related to environmental matterspassed.

Chart of the Week: Select 2022 Stock Market Returns

In 2022, established renewable segments such as solar (Invesco Solar ETF - TAN pictured in yellow) outperformed the broad market (State Street SPDR S&P 500 ETF - SPY pictured in brown), aided by global energy demand and new funding in the US Inflation Reduction Act. Emerging technologies such as EVs underperformed (KraneShares Electric Vehicles & Future Mobility ETF - KARS pictured in orange) amidst supply chain issues and global monetary policy tightening. Tesla (TSLA - pictured in green) experienced its worst year of stock performance on record as governance and demand issues detracted.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.