It’s been a mixed year for sustainable investing: on the one hand, the financial sector has made a broad commitment to zero – not to mention an industry-wide effort to prepare for and implement the EU’s Disclosure Regulation. On the other hand, there has been growing skepticism about how far ESG integration and sustainable investment practices actually go. We see five developments that could reduce mistrust and prevent greenwashing in the future.
1. regulation becomes more stringent
The rapid growth of sustainable investment requires an appropriate regulatory framework to guide the financial industry and asset managers in particular.
European-led regulators around the world are sharpening their pencils to set, monitor and enforce standards and disclosure practices related to sustainable investing. Although the transition from the SFDR (Sustainable Financial Disclosure Regulation) to MiFID II (Markets in Financial Instruments Directive II), CSRD (Corporate Sustainability Reporting Directive) or the EU taxonomy can be difficult: the good news is that they are moving in the right direction, namely towards greater ESG integration, data transparency and defining common metrics.
Other areas of sustainable investing that are the subject of increasing voluntary and formal industry and regulatory initiatives across regions include governance (voting and participation), implementation of spin-off strategies, and thematic and impact investing.
As sustainable investing evolves, investors will be better equipped to ensure they are not being sold empty promises.
2. road to CO2-Neutrality provides economic opportunities
According to McKinsey, a management and strategy consulting company, by 2050 $3.0 to $3.5 trillion in annual investment will be needed to meet the challenges of the energy transition. That’s half of global corporate profits. However, investment offers significant economic opportunities and is critical to mitigating the worst effects of climate change.
Last November’s climate conference in Glasgow helped governments and investors commit to 2050. Around 450 financial institutions managing or advising on $130 trillion in assets have today joined the Glasgow Finance Alliance for Net Zero (GFANZ).
This requires fundamental changes in the financing of the financial sector and investment in the real economy. At the same time, stakeholders are advocating for the necessary policy changes that will lower the cost of emissions and pave the way for a more sustainable and inclusive economy.
3. The importance of the activities of stewards is increasing
Oversight activities, including voting at annual shareholder meetings and communicating with companies and politicians, have become increasingly important in recent years.
This has led to closer scrutiny of asset managers’ governance practices: do they support climate-related shareholder proposals? Do they even provide some themselves? Are you involved in the many industry debates about mandatory corporate climate reporting – and if so, what are you campaigning for and why?
Gone are the days of flying under the radar: how asset managers vote and participate. This will increasingly influence whether they can attract customers. The main focus is on climate-related issues, but increasingly areas such as diversity and inclusion are also on the agenda.
4. Measuring impact is becoming increasingly important
It is human nature to want to make a positive impact. It is the same with investors. The impact investing can and should have is still debated. Nevertheless, it is already in high demand.
We believe that in addition to assessing environmental and social impact at the company and portfolio level, we are increasingly…