As we celebrate Earth Day 2023, we have taken a look at the future of sustainable investing. In this blog, we will explore the top financial impact investment trends expected to shape the market in the year ahead.
1. ESG Backlash Sparks Debate on the True Meaning of Sustainability in Today’s Markets
The growing backlash against Environmental, Social, and Governance practices raises important questions about what we expect markets to deliver for society. While some view ESG analysis as a source of additional data for financial optimisation, others see it as in service of broader sustainability goals. In 2023, these differing perspectives will lead to loud debates about what we want markets to deliver and how we define sustainability.
2. Transforming the Sustainable Investment Market: How Regulators Aim to Drive Impact Investing with Integrity
Regulators in the EU, UK, and US jurisdictions have taken a crucial step towards fostering sustainable investment by addressing the issue of greenwashing and providing much-needed clarity to the market. However, the question remains: will these regulations be effective in driving more capital towards sustainable development and innovation, ultimately contributing towards a more sustainable future for all?
3. From Commitments to Results: Stakeholders and Clients Hold Investors Accountable for Impact
In recent years, we have seen a surge in commitments to sustainability, net-zero emissions, climate solutions, social development goals, racial equity, regenerative agriculture, and more. People want to see results, not just hear about pledges. The time value of impact is material, and investors will be held accountable for their commitments.
4. From Decarbonisation to Climate Solutions
Addressing the climate crisis is more significant than reducing our collective carbon footprint. This year, we will see more investment activity directed towards climate solutions that will underpin a sustainable economy, not just large-scale clean energy projects but also clean energy access, new technologies, and nature-based solutions.
5. Step up for Nature Gains Ground
The UN Biodiversity Conference in 2022 resulted in a landmark global biodiversity framework. The Taskforce on Nature-related Financial Disclosures (TNFD) has released its fourth and final beta framework for nature-related risk management and disclosure. The global framework for biodiversity will set the stage for investors and companies to step up for nature as they think about environmental issues more broadly.
6. The “S” in ESG gains traction with investors
The “S” in ESG is garnering more attention from investors as factors including the pandemic, economic turmoil, war, high-interest rates, and recessions in some markets adversely affect vulnerable populations.
7. ESG Talent Challenges
Hiring in sustainable finance is focussed on more junior positions, particularly in the public markets ESG sector, due to increasing maturity and the need to build capacity. Private markets are still in the early stages of ESG talent and hiring, and data quality is a significant challenge for ESG teams.
US firms are scaling back ESG hiring ambitions due to politicization, while European firms are exploring opportunities in Asia, where ESG is still in its infancy. Real estate ESG investors are focusing on asset management rather than investment, particularly in developing existing assets to be more efficient.
The Future
2023 is perhaps an inflexion year that continues to be marked by uncertainty and change. Amidst those changes, there will be outsized opportunities for progress. There is an increasing need for the industry to collaborate to ensure that investment plays a central role in supporting a sustainable economy that improves the well-being of all people and the planet. The future of financial investments is intertwined with the future of our planet. By investing in sustainability, we can build a better world for generations to come.
