2021 Year in Review

After the events of 2020 solidified how companies need strong engagement with environmental, social, and governance principles, the seven ESG trends for 2021 that S&P Global Sustainable1 forecasted were prevalent throughout the year.

In response to demand and regulatory drivers, the quality and quantity of ESG data continued improving. Meanwhile, in the U.S., the new Biden administration reinvigorated ESG policies and climate urgency. With this growing global urgency around climate, conversations about energy transition became increasingly nuanced and the nature of transition conversations will shift from climate mitigation to climate resilience. While threats to nature and biodiversity took centerstage in ‘E’ discussions, social issues gained traction with investors and in global policy discussions.

Oil and gas producers and renewable energy companies turned to mergers and acquisitions (M&A) to weather the storm of the COVID-19 pandemic.

In 2020, there were 130 announced M&A deals in the energy sector worldwide. The industry was hammered by coronavirus-containment measures and the dramatic constriction of oil and gas consumption, a dispute between Saudi Arabia and Russia that pushed the price of oil into negative territory for the first time, and the 22-country coalition of the Organization of the Petroleum Exporting Countries and their allies agreeing to a historic production cut.

The short squeeze that sent the stocks of struggling businesses soaring early in the year —namely the brick-and-mortar video game retailer GameStop and cinema group AMC Entertainment—was expected to potentially alter risk management permanently and burst what many saw as a market bubble.

A short squeeze occurs when short sellers who bet on stocks that they believe will decline rush to cover their positions when the price instead rises—which ultimately pushes the stocks even higher.

The meme stock moment that affected equity investing was more than just a situational phenomenon, and ultimately raised retail investors’ profile in the market.

Texas’ exceptionally cold weather conditions in mid-February triggered multitudes of outages across the state’s gas, thermal, and wind fleets, forcing the grid operator ERCOT to instate rolling blackouts that left millions of Texas customers in the dark and without power during the polar freeze. Data that has emerged since then points to few measures that, in hindsight, could have reduced the severity of the consequences.

The coronavirus pandemic reformed the healthcare industry’s reliance on technology and innovation. Populations’ usage of telehealth and wearable tech during the COVID-19 crisis has created opportunities for ambitious direct-to-consumer digital health companies, enabling them to capture market share from more established traditional healthcare rivals and offering private equity and venture capital investors stronger market opportunities. But access to data and the appropriate handling of that data remains a huge challenge for all involved, according to sector specialists.

After the mega container ship Ever Given blocked the Suez Canal—one of the world’s busiest and most important trade channels—in March, the global economy lost billions of dollars from trade delays. The blockage left shipping schedules in disarray and created high spot container freight rates. However, some industries like steel or liquified natural gas were minimally affected by the disruption.

2021 was key for the London Inter-Bank Offered Rate (LIBOR) transition. Many non-dollar LIBOR settings are set to be discontinued on Dec. 31, 2021, leaving some so-called "tough legacy" debt issues for which no successor interest rate benchmark is clearly identified. The U.S. dollar LIBOR will likely be discontinued in June 2023. The Alternative Reference Rates Committee has identified the Secured Overnight Funding Rate (SOFR) as the recommended alternative reference rate to replace USD LIBOR.

As economic activity began rebounding from the COVID-19 pandemic in the string, rapidly rising inflation crystalized as a major concern for market participants. By year-end, inflation—propelled by high energy prices and supply chain disruptions—has surged to levels that haven’t been seen in decades.

As India faced a second surge of COVID-19 cases early in the year, localized lockdowns stagnated market demand for agricultural commodities and several agriculture and allied activities remained shut down for some time despite being exempted from government coronavirus containment restrictions.

Black women in America face several hurdles to success, particularly regarding educational and professional opportunities, with the white-Black wage gap for female professionals at $12,700 in 2019. These inequities also mean lost productivity and lost economic growth. If educational attainment among Black women had kept pace with that of white women from 1960-2019, the U.S. would have generated an additional $107 billion in economic activity.

These inequities, exacerbated by COVID-19, leave Black women even further behind economically, with a bigger percent drop in their participation rate and an unemployment rate now almost double that of white women.

Chinese President Xi Jinping’s ambitious energy goals for the country to reach carbon neutrality by 2050, a challenge for the world’s biggest consumer of electricity and polluter, will require large-scale deployment of carbon capture, usage, and storage to remove CO2 from coal-fired power generation and from hydrogen production. The country's efforts to decarbonize its power sector has triggered intense debate about the role of its existing fossil fuel-based electricity system and the extent to which the system will have to be recalibrated.

Private debt has emerged as a new frontier for credit investors in their search for yield, and for borrowers and lenders seeking closer bilateral relationships. The market has grown tenfold in the past decade with assets under management of funds primarily involved in direct lending surging to $412 billion at end-2020. The growing investor base, a lack of available data, and the distribution of debt across lending platforms make it hard to know how much risk is in this market—and who holds it.

As the United States recovers from the worst pandemic since 1918, the nation is confronted with a set of major challenges, some long in the making, but all of which have new urgency: reversing decades-long trends toward greater inequality of income, wealth, and opportunity (by households and by region); addressing climate change; eliminating systemic racism; and reinvigorating our democracy in a highly polarized political environment.

Gas and power prices surged across Europe due to energy dependencies, market constraints, and extreme weather events—creating an energy price crisis that sent shockwaves through the region’s energy and industrial industries.

The upheaval prompted some market participants to question natural gas’s viability in Europe’s energy transition. Companies canceled new gas projects and some even shut down their businesses entirely. Power prices are likely to remain elevated in Europe for 2022-2023, according to S&P Global Ratings.

Many world leaders considered the 26th U.N. Climate Change Conference in Glasgow, known as COP26, to be the last best chance for the international community to commit to combating climate change and limit global warming to between 1.5 and 2 degrees Celsius.

The conference, which concluded Nov. 12 after two weeks of deliberations, covered climate finance, the energy transition from fossil fuels, the potential for a powerful hydrogen economy, green free trade, and how countries can align their economic and climate goals. The actual outcomes of COP26 appear to be ambitious, but not aggressive enough—emerging as stepping stones on the path to achieving net zero.

While much of the world was rebounding from the COVID-19 crisis’ economic downturn, global supply chains continued to face pressures from pandemic-prompted changes in consumption patterns, surging demand for goods, shortages of workers, and pre-existing political pressures—which led to high shipping volumes and freight costs.

After consumer spending surged in September and holiday shopping began as early as October, many market participants foresee the merchandise supply-and-demand imbalance enduring into 2022.