In a year when the pandemic sent the world into a tailspin, there was a silver lining for the world of ESG investing.

The strategy moved from the peripheries of finance to the mainstream. So did many of the “S” issues that seasoned environmental, social and governance investors have for years pressed companies to address, such as racial disparities, worker pay and safety issues, and fair access to health care.

In response, corporations said they would become more socially conscious, adding to the momentum behind ESG. For instance, Bank of America Corp., Sephora USA Inc. and Nike Inc. were among the companies that have either earmarked funds, formed task forces to address racial inequality or pledged support for Black-owned businesses.

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“ESG was firmly put on the decision-making table in 2020 after being a strategy that was ‘nice to have,’” said Felix Boudreault, managing partner at Sustainable Market Strategies, an ESG research firm in Montreal. “It’s now a performance issue that senior executives must address, whether they believe in it or not.”

Investors said they will put increased pressure this year on companies to address racial and gender diversity, as well as climate change. BlackRock Inc., the world’s biggest money manager, said it will support more shareholder proposals that hold directors accountable on both topics and added that it will vote against those who fail to act. The company also said it will focus on issues that affectbiodiversity and the natural environment.

Here are some of the main ESG topics (in alphabetical order) that investors say they plan to focus on in 2021:

Biodiversity

The “E” in ESG has typically been shorthand for carbon emissions and climate change. Now though, a growing number of investors at firms including Fidelity International and Axa Investment Managers are focusing on the separate but interrelated threat of biodiversity loss: an impending natural catastrophe that could have enormous economic consequences, with more than half of the world’s total gross domestic product dependent on natural resources from food to ingredients for medicine.

“Biodiversity loss and climate change present critical financial and economic risks,” said Jenn-Hui Tan, global head of stewardship and sustainable investing at Fidelity International. “Investors have a key role to play in protecting biodiversity and creating positive biodiversity outcomes. While good progress has been made in our understanding around the pricing and integration of climate-change risk, it’s now incumbent on us to learn to price natural capital correctly.”

Clean energy jobs

As renewable-energy companies grow, in some cases eclipsing the size of oil majors for the first time, so are green jobs. The U.S. Bureau of Labor Statistics has said solar installers and wind-turbine technicians will be the two occupations that have the fastest employment growth in the 10 years through 2026. But the rate of unionization of such jobs is low.

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Domini Impact Investments, one of the pioneers in socially responsible investing, plans to press renewable companies on worker protections and rights, as the job market transitions away from oil and gas companies to a low-carbon economy.

“It’s past time to focus on the ‘S’ in these green companies,” said Corey Klemmer, director of engagement at Domini in New York. “There’s huge job creation in the emerging energy sector, which is good, but we want to make sure those jobs are as good or better than the ones they’re replacing.” She declined to name the companies that Domini will pressure.

Climate finance

While 2020 was pegged as the year of climate action, 2021 may prove a more decisive one. In November, the U.K. will host world leaders for the United Nations climate summit, COP26, a landmark event in which governments are expected to submit ambitious emissions-reduction targets six years after the signing of the Paris Agreement.

The event also will focus on how financial-services companies are contributing to the fight against global warming, with former Bank of England Governor Mark Carney leading efforts to refashion the industry to accommodate a transition to net-zero emissions.

“COP26 gives us perhaps the only opportunity we will have to put markets on the trajectory of delivering the Paris Agreement,” said Steve Waygood, chief responsible investment officer at Aviva Investors in London.

Waygood set up the International Platform for Climate Finance last year to facilitate finance industry discussion on how to support the Paris objectives. He’s now lobbying for the creation of an accord at COP26 to formalize commitments from banks, insurers and exchanges on contributing to a lower-emissions future.

Executive compensation

The chasm between employee and executive compensation got wider in 2020 as workers were laid off, while managers with share-based incentive packages benefited as stock markets rallied. Chief executive officers of the biggest U.K. companies will have made more in the first three business days of 2021 than the median worker will earn for the entire year, according to High Pay Centre, a London-based think tank.

Money manager Federated Hermes said it will make the case again in 2021 for switching to simpler executive pay arrangements that are aligned with long-term success.

“As the impacts of the pandemic continue, we expect boards to use their judgment to ensure executive pay can be justified in the context of the experience of other stakeholders,” Amy Wilson, who works in engagements at Federated Hermes, said in a 2021 outlook.

Human capital management

While environmental issues have historically been easier to measure, “S” data on employee welfare are becoming more granular by measuring such things as turnover, retention and employee happiness. Calvert Research and Management, one of the biggest socially responsible fund managers, plans to press companies on whether, and how, they are using  the data to ensure employee wellbeing in the workplace.

“Social science shows that a greater sense of wellbeing causes employees to perform better,” said John Wilson, director of corporate engagement at Calvert, a unit of Boston-based Eaton Vance Corp. “We plan to have more robust conversations with companies about how they are engaging with their employees, and if their workers feel well-treated and have a sense of purpose.”

Racial diversity

After the killings of unarmed Black people by police last year, Americans underwent a reckoning over its centuries-old issue of race relations. BlackRock and Vanguard Group Inc. have said they will push companies to address racial and gender diversity in 2021. And other investors have filed shareholder resolutions asking companies to carry out civil-rights audits to assess how their operations, products and services affect minorities and contribute to systemic racism.

“A 360-degree review of their impacts is important to assess how anti-racist they say they are,” said Jonas Kron, chief advocacy officer at Trillium Asset Management.

Relocations

Some financial firms are shifting jobs to Florida and Tennessee from New York, and out of London to other cities in the European Union. At the same time, some technology companies are relocating their headquarters to Texas from California and elsewhere. Given this backdrop, Vanguard plans to track whether companies are moving simply to avoid state-specific regulatory issues.

“We will be looking to ensure companies aren’t making short-term decisions at the expense of long-term shareholder value,” said John Galloway, head of investment stewardship at Vanguard.

Social impact of gaming

The wave of lockdowns in 2020 has resulted in a boom for the gaming industry. But that has deepened the social cost on users, as well as developers. Gratuitous violence in some of the games and online abuse of young users are prevalent these days. In addition, the lack of diversity among developers sometimes leads to stereotyped representations of minorities in the games. ESG investors are increasingly seeing the need to address those issues, along with the working conditions for the developers themselves.

“The time is right for investors” to take on the industry as demand for gaming accelerates into 2021, said Peter van der Werf, an engagement specialist at Robeco, a Dutch money manager.

Supply chains

The need for greater transparency on global supply chains was made clear by the COVID-19 pandemic. While companies will need to consider the risks of disruptions caused by climate change and other big events, investors will be asking companies to provide greater visibility into their operations related to labor practices, health and safety, and human rights.

Robeco said it will push automakers, technology hardware producers and apparel companies to boost due diligence of human rights in their supply chains.

“Respect for human rights is strongly associated with value-chain resilience and a stable business operating environment,” Van Der Werf said. “In parallel, investors are increasingly aware of and concerned about the significant operational, financial, legal and reputational risks portfolio companies might face when they fail to manage human-rights risks.”

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