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123RF/Weerapat Kiatdumrong

Many companies have paid lip service to being socially responsible, but this year they may finally be forced to walk the talk, suggests a new paper from MSCI Inc.

The paper highlights the trends in environmental, social and governance (ESG) investing that MSCI expects to gain traction in 2020. In particular, it forecasts that mainstream companies may be forced to take sustainability seriously due to financial firms attaching ESG considerations to their funding.

“In 2020, ESG storms the CFO’s office, elbowing its way onto the bottom line as financiers get creative with ways to bind ESG criteria to their terms of capital, introducing a plethora of corporate borrowers into the wide world of ESG,” the report said.

MSCI reported that ESG-linked loans totalled US$71.3 billion in the first three quarters of 2019, which was more than double the amount issued in the same period the previous year.

Whereas green bonds tie financing to specific projects, ESG-linked loans are geared to companies’ overall ESG performance.

“Applying the ESG criteria to the issuer’s overall operations maintains the transparency for the [lenders] while allowing a larger group of companies to access capital based on their ESG performance,” the report said.

At the same time, MSCI also said that it sees growing pressure from external stakeholders on companies to enhance their ESG performance.

“In 2020, stakeholders without proxy cards will evolve their activism, joining forces with willing shareholders and using increasingly sophisticated means to size up whether companies really ‘walk the talk’ when it comes to their stakeholder commitments,” the paper said.

Other ESG trends flagged in the report include the prediction that large established companies will take the lead on combating climate change, rather than startups; and that real estate assets will be re-valued based on their vulnerability to exposure to climate-related threats, such as wildfires, floods and heat waves.