"ESG risk is financial risk," said Meggin Thwing Eastman, managing director and global ESG editorial director at MSCI, in a news release. "ESG and climate research showcased in today's report was conducted to support investor needs to synthesize previously unseen risks and incentivize companies to better manage both emerging issues and the longstanding, expansive threat of the climate crisis."
Changing governance refers to the shifting demographics on corporate boards. For example, the number of female directors in Asia-Pacific is rising in part due to gender diversity regulations in Malaysia and South Korea. The average age of directors by market and gender is also something to watch as developed market directors tend to be older and emerging markets younger, with female directors being younger on average, according to the MSCI's findings.
Researchers said investor opposition to corporate climate strategies will be important after the average proportion of votes against such strategies went to 9.6% in 2022 from 3.1% in 2021. Whether or not climate-focused boards push back against such opposition is also a factor to pay attention to for investors.
In the regulatory sphere, researchers are watching rules around ESG fund names and disclosures of ESG integration and climate targets, which will be important considerations for investors. Banks will also be eyed to see whether they can create the right models for climate risk data as required by law. Companies linked to deforestation will likely face higher scrutiny, MSCI said. After the European Union's 2022 Digital Markets and Digital Services Act, companies that can adapt to the regulations the quickest will be deserving of attention according to the research.