ESG Trending Topics: Fall 2022

The ever-evolving sustainable finance space appears to have entered a paradoxical phase. While some headlines discuss regulations aimed at legitimatizing environmental, social, and governance (ESG) strategies, others highlight firms and politicians that denounce ESG investing altogether.

However, behind the headlines, investment professionals are pushing forward with increasingly sophisticated ESG strategies. Given the overabundance of ESG information in the media, what topics are the most important?  

Over the coming months, we’ll perform a deep dive into this question and the specific themes attracting stakeholder attention. 

Why is this important? The relative importance of ESG topics continues to evolve as businesses and stakeholder values change. However, news and industry reports can provide insight into the themes stakeholders feel are the most important.  

Tracking Stakeholder Attention: November 2021-October 2022

For today’s analysis, we’ll analyze data on 26 ESG factors defined by the Sustainability Accounting Standard Board (SASB) for U.S. and European large-cap companies over the trailing 12 months (i.e., November 2021 through October 2022). Our universe of U.S. large-cap companies will be defined by the SPDR S&P 500 ETF Trust (SPY), while our European large-cap universe will be defined by the iShares Europe ETF (IEV).  

To see which factors have received the most attention, we’ll use a data point exclusive to FactSet Truvalue data known as “Dynamic Materiality.” This is also calculated using the volume of ESG articles on each company from the FactSet Truvalue SASB Scores DataFeed, which extracts and analyzes relevant information from 100,000+ sources, is updated daily, and is not reliant on annual or biannual reporting. 

U.S. Large Caps: Top Factors 

As of October 2022, 9% of all articles in a trailing 12-month (TTM) period for U.S. large-cap companies were tagged to the topic of Competitive Behavior, followed by approximately 8% for GHG Emissions and Data Security, respectively.  

These rankings are the same as three months prior, from July 2021 to August 2022. Competitive Behavior maintained the top spot in part because Alphabet (GOOGL), Apple (AAPL), Amazon (AMZN), and Meta Platforms (META) have received a myriad of allegations related to anti-competitive behavior, such as:   

• U.S. Justice Department accuses Google of paying billions maintain search engine dominance illegally 
• UK regulator investigating of Apple and Google over “duopoly” in mobile markets 
• UK antitrust watchdog orders Meta to sell Giphy 
• Apple and Amazon face antitrust investigation in Spain 

Competitive Behavior is discussed in more detail below. Rounding out the top five are Product Design & Lifecycle Management at just over 7.5% and Labor Practices at 6.6%. 

Source: FactSet 

U.S. Large Caps: Top Movers 

On a percentage-point basis, Competitive Behavior also witnessed the largest percentage-point decline of all 26 factors during this period at -3.3 percentage points (from 12.4% to 9.1%). This decline is actually a continuation of a downward trend that began after Competitive Behavior hit its three-year peak in June 2021, as Technology companies were under heavy scrutiny for anti-competitive practices.  

On the other hand, Product Design & Lifecycle Management recorded the largest percentage point increase of all 26 factors at +1.4 percentage points (from 7.6% to 6.2%). The number of articles related to Product Design & Lifecycle Management stayed relatively consistent between November 2021 to October 2022, but a decrease in articles related to other topics drove its increase in relative importance.  

 
Source: FactSet  

U.S. Category Spotlight: Competitive Behavior

The category of focus in this quarter’s report is Competitive Behavior. Competitive Behavior encompasses social issues related to the existence of monopolies and anti-competitive practices. As previously noted, Competitive Behavior was the factor tagged in the highest percentage of articles during this 12-month period at 9.1%.  

The top five companies by total trailing 12 months article volume are Alphabet, Apple, Amazon, Meta Platforms, and Microsoft (MSFT), with each seeing an article volume between 2,000 and 6,000. These articles captured high-profile lawsuits, fines, and investigations.  

Another way to identify companies that have faced concerns regarding Competitive Behavior is to look at company-level Dynamic Materiality. This measures the percentage of all articles about a company related to Competitive Behavior topics.    

Looking at the top 10 companies by company-level Dynamic Materiality surfaces a different set of companies concentrated in the Healthcare, Technology, and Finance sectors. For instance, 48.6% of DaVita (DVA)’s article volume over the last 12 months has been related to Competitive Behavior—indicating this is the most important topic to its external stakeholders.  

It is possible to drill into the topics or events driving this stakeholder attention by exploring Truvalue Spotlight Events, which are algorithmically detected ESG events generated by identifying and scoring articles about the same company, topic, and issue. 

The bottom half of the graphic below displays the top Spotlight Events by total article volume related to the companies identified. This offers quick insight into investigations, lawsuits, and acquisitions related to antitrust concerns.

Source: FactSet 

European Large Caps: Top Factors 

Over 40% of all articles over the same period were related to GHG Emissions and Product Design & Lifecycle Management. The stark difference between the top Europe and U.S. categories demonstrates the emphasis placed on climate change and managing the environmental and social lifecycle impacts of products and services in Europe. 

Source: FactSet 

European Large Caps: Top Movers 

Access & Affordability saw the steepest decline in Dynamic Materiality with -2.5% (from 5.5 to 3.2). This was driven partly by the decrease in article volume for biopharmaceuticals companies related to COVID-19 between 2021 and 2022.  

Product Design & Lifecycle Management continues to grow in dominance and saw a +2.2% increase (18.3% to 20.5%). The top companies by volume of articles related to Product Design & Lifecycle Management are Volkswagen (VWAPY), Rolls-Royce Holdings (RYCEY), Bayerische Motoren Werke (BMWYY), and Stellantis (STLA). The key theme across each of these companies is the development of electric vehicles and research and development (R&D) related to sustainable fuels.  

 
Source: FactSet 

Conclusion 

The clear difference in the top ESG topics between Europe and the U.S. reflects two things: the issues that garner the greatest media attention in each region and the high-profile companies present in each market. The issues that bubble up and receive the greatest coverage in a given market are consistently in flux as the macro environment changes, new information emerges, and significant events dominate headlines. This quarterly series will explore the evolving Dynamic Materiality of ESG topics to identify changes to stakeholder values and trends emerging at the industry level. 

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.