One of the strongest messages communicated by our analysts in this year’s ESG Survey is the effectiveness of government regulation in changing companies’ behaviour. While investors, consumers, employees, and competitors all have a role to play in shifting practices, it is only regulatory updates that can compel businesses to improve.

The three years over which we have run the ESG Survey have been some of the strangest and most difficult I’ve seen across the financial markets. Beginning in 2021 when much of the world was still locked down, our analysts followed their sectors through a war in Europe, supply chain crises, and rampant inflation. And despite these existential challenges, they have tracked tangible and heartening improvements in companies’ ESG profiles.

But it is clear from this year’s survey that the looming threat of a recession has now slowed progress and that the financing necessary for companies to meet their net zero goals is seriously lacking. The survey does offer insights from Fidelity’s analysts as to how this gap can be overcome, however. 

Leading the charge is government policy. Over 60 per cent of our analysts said that regulation was one of the top three most important factors for driving change in environmental, social, and governance practices. 

This dynamic is particularly noticeable in China, where the government’s pledge to make the country carbon neutral by 2060 has shown the power of top-down intervention.

Where next?

Our analysts have identified a range of both push and pull policies that they think will ensure companies improve their practices. Tristan Purcell, an equity research analyst focusing on European industrials, recognises that more stringent building regulation and the faster enforced adoption of renewables in power generation are two of the clearest, already proven methods for driving change, for example. 

Harriet Wildgoose, an analyst in our sustainable investing team, notes that in agriculture and across food systems – segments that generate around a third of our greenhouse gas emissions[1] – current incentives are “often misaligned with net zero and nature goals and need to be redirected at the national and regional level towards solutions such as regenerative farming techniques.’

Other suggestions from our analysts across industries range eclectically from enforcing the recycling of mattresses to offering rebates on the installation of heat pumps. 

Click on the link bellow to read the full article.

Government regulation will drive real change in ESG (fidelity.be)

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