Ross Kerber and Simon Jessop

BOSTON/LONDON – Investors worried about climate change and justice enjoyed a strong year in 2021. This was despite record-breaking inflows to fund funds that focus on ESG (environmental, social, and corporate governance) issues.

ESG rose to the top of investor, company and policy maker’s agenda due to extreme weather and social justice events such as George Floyd’s death in Minneapolis police custody.

Refinitiv Lipper’s latest data shows that $649 billion was spent on ESG-focused funds globally between Nov. 30 and 2020, compared to the $285 billion and $542 billion in 2019, respectively. ESG funds currently account for 10% worldwide in fund assets.

Gains were also recorded in stocks belonging to companies that are highly regarded for their efforts towards sustainability. This year’s MSCI World ESG Leaders’ Index has seen a 22% increase, as compared to the 15% gain.

Investors used their power to test companies’ ESG credentials. The result was a historic challenge by oil majors on the board. Exxon Mobil Corp (NYSE :). According to the Sustainable Investments Institute, support for environmental and social proposals in shareholder meetings at U.S. corporations rose to 32% by 2021, from 27% in 2020, and 21% respectively in 2017, according the Sustainable Investments Institute.

Tim Smith, an investment manager at Boston Trust Walden, said “It was watershed year.”

He compared the results this year to one of the first corporate social policy initiatives, which was in 1971 when only 1% General Motors (NYSE) shareholders supported an investor resolution calling for South Africa’s automaker to be forced out of South Africa because of its racist social policies.

ESG disclosures have been made a top priority by regulators in response to this new pressure. U.S. Securities and Exchange Commission, (SEC), has asked money managers to disclose the ESG categories they use for their funds and will likely provide guidelines on disclosures by corporations such as carbon emissions.

Most of the European Commission’s “sustainable finance taxonomy” rulebook has been finalized. This includes guidelines on what corporate activities are climate-friendly. Starting next month, rules will be in effect for certain sectors of the European Union.

According to Lipper 59% of $6.1 trillion is in ESG funds. This is a reflection of how the regions have embraced the investing trend.

However, inflows to European ESG funds fell in 2021. This was offset more than adequately by increasing flows into U.S. ESG funds and Asian ESG funds.

ESG investors have had some major wins this year in pushing for company changes. They were able to replace three directors at Exxon Mobil and reject a $230m pay package. General Electric (NYSE:) Lawrence Culp is the CEO of Co. A successful call Union Pacific (NYSE: ) to publish its statistics on workforce diversity.

Catherine Winner is the global head for stewardship Goldman Sachs Group Inc’s Asset Management Division, which supported the crucial shareholder efforts at these three companies, stated that investors don’t want companies that deliver shareholder returns while doing more for society and the environment.

She said, “It is not about shareholders. It’s about all stakeholders.”

ESG SETBACKS

ESG investors were also hurt in 2021. Although they received significant support from shareholders, these resolutions failed to gain majority support. These included a call to Tesla (NASDAQ) Inc to reform its employment arbitration process and a plea for Amazon.com to examine how it deals with racial equity and justice.

Even though they didn’t support them all the time, many top corporate investors supported ESG resolutions. BlackRock Inc. (NYSE:), supported 41% out of 49 resolutions on climate this year. That’s up from 10% in 2020 according to Ceres, advocacy group. Vanguard funds increased support to 37%, up from 14%.

The Ceres report was not commented on by the major index fund firms. They have stated before that there must be adequate oversight for environmental and social risks and that transparency is a priority.

The SEC allows companies to ask permission from the United States for shareholder resolutions not being put up for vote. Thomas Skulski (managing director, proxy solicitor Morrow Sodali) said that in November, the SEC made it easier for ESG investors to bypass voting by tightening the rules.

Skulski stated that companies could be facing more operational challenges next year, including how they use plastics or consumer packaging.