Recap of Key ESG Developments in 2022

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 2022 from global central bank tightening, continued supply chain constraints (including Covid disruptions in China), and Russia’s war in Ukraine.

• Renewables were a relative outperformer as Europe brought forward clean energy demand through its RePowerEU plan, and Biden’s decarbonization push included unprecedented US IRA legislation. 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 anticircumvention investigation, US ban on Xinjiang-produced components, and California net-metering policy changes. 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's worst annual 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 to reduced runs and price incentives.

• Broad ESG offerings such as the SPDR S&P 500 ESG Fund (EFIV, -20%) performed in 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 highly scrutinized as traditional energy shares soared (XLE +57%) and political ESG pushback continues 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 coal usage, overshadowed the recent global climate push, and caused over 1,000 companies to cease operations in the country.

• A host of extreme weather occurred around the globe while new attribution studies said climate change makes such events more severe and likely. Events included UK heatwave, Europe drought, Florida’s Hurricane Ian, and Pakistan flooding. The IPCC reported that 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 nations struggled 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 2022 included previously mentioned climate spending plans from the US and Europe, a global biodiversity agreement at COP15 in Montreal, as well as presidential elections in Australia and Brazil bringing pro-climate and biodiversity policies.

Social and Governance

• Worker strikes across a wide variety of sectors increased by 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 where rail workers were joined by workers across sectors.

• Big Tech remains under scrutiny with regulators focusing on 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 matters passed.

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.

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