Bob Jenkins is LSEG Global Head of Research.
What were the key theme(s) for your business in 2022?
Two of the biggest themes heading into 2022 both saw significant headwinds around core issues of transparency and trust.
Crypto began to crumble from within as prominent players highlighted the dangers of low to non-existent levels of business transparency and regulation. Left unchecked, many players operated with seeming impunity and reckless abandon as basic principles of business fair play were overlooked amid the overwhelming confidence in the continued ascent of this still-nascent asset class. Without regulation, the crypto winter could become an ice age.
ESG’s reputation suffered this year on a couple of fronts. First, the war forced people to rethink how adamant they need to be in expressing their ESG values—particularly as it related to energy and weapons. This step back in turn heightened the scrutiny of the ongoing question: how do you gauge the “ESG-ness” of companies and industries in the first place? For political pundits and other skeptics, it made for an opportune time to vocalize their misgivings while also calling for needed reflection by those within the supportive ESG community seeking to enhance standardization and transparency. Ultimately, more standardized and transparent disclosures by companies will allow ESG analytics to mature and become more reliable, so this minor setback may turn out to benefit the responsible investment movement.
What was the highlight of 2022?
The resiliency of Europe was the highlight of 2022. Not only rallying around Ukraine, but the broad regional sacrifices that were readily accepted in providing that support as well as the ingenuity and perseverance that has since been shown in hastening their independence from reliance on Russia. For a continent that was moving headlong into retrofitting itself for a greener economy, they have been pivoting to a different plan to get there while shoring up their interim energy needs which, in an indirect and unexpected way, may actually expedite the green energy journey they’re on. Certainly, there will be more challenges in the months to come—particularly through the winter—but there should be a good deal of optimism that the greater European region will emerge in a stronger and more independent position.
What are your expectations for 2023?
Despite the continued wildcard that is China and its potential impacts on the global economy, central banks will likely see the lagging impacts of their policy actions having meaningful effects on slowing the rise of stubborn inflationary pressures over the course of 2023. Interest rates should top out by Spring and credit rates should ease, which will help soften recessionary pressures as we move into the second half of the year. Fixed income will likely be the more attractive asset class as stocks may see some headwinds as the lagging effects of tightening policies feed through to corporate earnings and stymie the feelings of wealth among consumers and their spending habits. It will likely be a flat to moderately down year for overall growth with stocks treading water and fixed income perhaps being the sole bright spot across the major asset classes.
What trends are getting underway that people may not know about but will be important?
The trends taking place in ESG regulation will become increasingly important for the markets as policies around what constitutes the varying degrees of “greenness” start to take shape. Across the board, companies seeking either debt or equity capital for their businesses stand to benefit from the “greenium” that comes from having a bona fide, pro-ESG footprint. As regulators clarify the attributes needed to attain that status, investment managers will be seeking said evidence to enable attaining the greener “impact” classification for their funds’ investments in those companies (e.g. Article 9 funds under SFDR). With the U.K. and U.S. enacting similar regulatory measures as the EU, the beginnings of alignment and standardization will start to form which will undoubtedly impact how companies disclose their operations and, ultimately, alter how they operate and how investors assess them.
