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Here are our forecasts of the macro trends that will drive the next year

If you are feeling like us, you will be heartily glad to see the end of 2020. But what will 2021 bring? We are not going to place bets on when the pandemic might end or economic recovery start. But here, in the last edition of Moral Money for 2020, are our thoughts and forecasts for what the new year is likely to deliver for environmental, social and governance issues in these peculiar times. Please tell us if you agree — or not.

There are not many silver linings to the dark cloud of Covid-19. However, here is one: to the surprise of many (including us), the pandemic accelerated interest in environment, social and governance issues in 2020, and Moral Money predicts this will intensify in 2021. There are at least five reasons:

1. The ESG boom is now being driven as much by risk management as activism: Covid-19 has shown company executives and financiers around the world the perils of ignoring so-called “externalities”.
2. The “externalities” around climate change will be increasingly on the agenda in 2021 due to the COP26 meeting, more instances of extreme weather and polls that show society broadly cares about global warming. Covid-19 proved the perils of ignoring science; it also showed that behaviour can change in surprising ways when the public understands the nature of the emergency.
3. Big money increasingly has a stake in promoting the ESG agenda, for its own benefit, and will lobby for this in 2021. Larry Fink, chief executive of BlackRock, recently told Moral Money that he viewed climate finance as the second big structural shift of his investing career (the first was the rise of securitisation — which he spotted early on, and used to launched his career). And while longtime ESG enthusiasts scoff that Mr Fink is late to the game compared with earlier activists, the key point is this: since Mr Fink (and others) have spotted a momentum trade in ESG, they are determined to maintain this momentum.
4. Transparency is rising in a manner that will make company boards and investment committees nervous about falling foul of ESG norms in 2021, particularly in the face of millennials who have used transparency to demand change (be that employees, customers or anyone else). The shock of the #MeToo movement in 2019 and Black Lives Matter in 2020 has shaken executive attitudes. Even if you hate the idea of “stakeholderism”, ignoring ESG can be bad for shareholders.
5. Politics will back ESG momentum in 2021 too. In the UK, Prime Minister Boris Johnson has thrown his weight behind green reforms. The European Commission is pressing ahead with its green taxonomy and green stimulus plans. The incoming administration of Joe Biden has put climate policy at the centre of its staffing decisions, and is likely to push for rapid ESG investing reforms. China pledged to go carbon neutral and Japan has followed with its own promises. Indeed, these days it is tough to find any government — except Brazil — that is not trying to get a green halo in some form.

To be clear: we are not predicting that the growth of ESG will have a smooth trajectory in 2021. There are big problems dogging the sector such as a lack of accounting consistency, different transatlantic policy approaches, too much money chasing too few viable investment products and the difficulty of deciding how the “E” of ESG should be balanced against the “S”. This will probably produce some scandals and greenwashing complaints in 2021. But the direction of travel is clear: ESG is moving from the margins to the main stage.

So what should investors watch for in particular? Here are a few thoughts . . .