After two years of Covid-19 outbreaks, lockdowns and market volatility, the investment industry started 2022 with a feeling of optimism that, in the words of D:Ream, “things can only get better”.
But the optimism quickly faded as Russia invaded Ukraine and rising energy prices spiralled out of control into a crisis. As we move towards the end of the year in the UK, we are faced with inflation at more than 10%, a looming recession, a cost-of-living crisis and unions feeling the only way they can be listened to is through striking.
Focusing on the world of ESG investing, this year has also been one of challenges with some regions seeing outflows for the first time in years, albeit minimal, and the backlash in the US gaining more traction.
However, there are some positives to take away and this has largely been centred around the huge leaps forward for regulation. After being announced at the end of 2021, the International Sustainability Standards Boards has been full steam ahead this year creating a global disclosure framework to implement in early 2023. The UK investment industry welcomed the Financial Conduct Authority’s proposals around the much-anticipated Sustainability Disclosure Review and the Transition Plan Taskforce was launched.
Across the pond this year, the Inflation Reduction Act was introduced. The Securities and Exchange Commission proposed a rule requiring public companies to disclose their greenhouse gas emissions, and proposed two other rules designed to combat greenwashing, which would affect fund naming and marketing for advisers and fund providers.
We have also seen positive steps in APAC regions. The Hong Kong Green Finance Association is looking to boost sustainable investment by applying its common ground taxonomy to ESG funds. The Japan Financial Services Agency is working on anti-greenwashing efforts, such as a code of conduct for ESG evaluation and data providers and supervisory guidelines for ESG mutual funds, while Australia is looking into mandatory climate disclosure.
Europe, applauded for being a leader on all things ESG, has had a more tricky year – a victim of being so far forward with its own sustainable investment legislation perhaps – and kicked off 2022 with the controversial decision to include gas and nuclear in its green taxonomy. The Sustainable Financial Disclosure Regulation has also come under scrutiny for greenwashing, as funds sitting within the ‘greenest’ category Article 9 are still investing in fossil fuels.
When reflecting on this year, another shift to have taken place is around the pressure from the investment industry for governments, corporates and regulators to do more.
Particularly around the times of the change(s) of prime ministers in the UK, and in the lead up to COP27, investment firms teamed up to call for action around sustainability and net zero either through the lens of government legislation or through setting more stringent net-zero targets. I wrote more about this in detail here, but while reviewing the comment pieces and interviews with senior ESG investment experts we have run this year, it’s clear the level of collaboration is increasing and therefore, for those governments, corporates and regulators – the pressure is on.
As we look to 2023, the combination of increased regulatory focus and the implementation of the legislation outlined above, with a united investment industry putting pressure in the right places… there are reasons to feel optimistic again about the year ahead.
Matt Crossman, stewardship director at Rathbones, puts it perfectly in our Sustainable Standpoint series: “Perseverance in this is vital and this ultimate goal is not completely out of our reach.”
We look forward to covering the next big milestones in the path to net zero and providing our readers with the resources, content and analysis so that momentum continues in this next shift forward.
ESG Clarity is taking a break over the festive period. We will be back on 4 January 2023. We would like to take this opportunity to wish our readers a wonderful Christmas break and a smashing 2023.