2022 was somewhat of a mixed year, with progress made on many issues despite concerns about greenwashing and the growing politicisation of ESG, particularly in the US. What, then, do we expect to see on responsible investment agendas over the course of 2023? 

Using TCFD as a catalyst for action 

As we approach the extension of TCFD governance and reporting requirements to LGPS funds and smaller pension schemes, ensuring that lessons learned from the first round of reporting are captured will be essential, so that TCFD does not become simply a ‘box-ticking’ exercise. Of particular interest will be the consideration of climate-related opportunities, with the financing gap highlighted at COP27 providing scope for investors. We also expect to see continued interest not only in established areas of investment, such as renewable energy, but also into other emerging areas.  

Ensuring net-zero commitments are met 

With many asset owners and managers having made net-zero commitments, these must be translated into tangible actions that create meaningful change. We want to see asset managers evolving and implementing transition plans, with transparent reporting on the progress made. Meanwhile, we’ll be helping our clients to build their own journey plans and take steps to create change, both in their investment strategies and their approach to stewardship. 

Driving accountability through stewardship 

We have regularly highlighted stewardship as a means of creating change, and we expect to see engagement between asset owners and managers continuing to grow in 2023. Greater emphasis will be placed on the outcomes achieved by stewardship activity, with topics such as modern slavery and biodiversity growing in importance, as we highlight below. Alongside the expansion of topics for engagement, we think developments to keep an eye on will include more focus on the influence of beneficiary views and greater scrutiny of the quality and resourcing of stewardship activities. 

Continued focus on social issues 

Covid-19, climate change and the cost-of-living crisis all emphasise the value of human capital and the need to treat people fairly. Addressed by the ‘S’ in ESG is modern slavery, which can manifest in many ways, presenting a challenge across what are often complex supply chains. But the prospect of European regulation should place the onus on organisations to identify and address this issue. As asset owners focus on the exercise of stewardship in light of the launches of the DWP’s taskforce on social issues and the PRI’s collaborative engagement programme, ‘Advance’, ensuring that the needs and rights of people remain part of this conversation will be essential. We’ll be exploring the actions that managers are taking on this subject. 

Biodiversity moving up agendas 

The agreement at COP15 and the expected finalisation of the Taskforce on Nature-related Financial Disclosures (TNFD) reporting framework are expected to catalyse further action to address nature-related risks. We expect asset managers to assess how these risks can be addressed through stewardship action, particularly regarding issues such as deforestation within supply chains, and better information to be made available to asset owners. While we anticipate product development in a bid to attract capital to nature-based solutions, our initial focus will be on educating and building accountability by asset owners. 

Better climate data, particularly in private markets 

Our 2022 exercise highlighted the reporting gap in private markets and the need for asset managers to drive improvements in reporting by underlying investment entities, so that risks can be understood and managed. We expect to see progress in this area when we complete our 2023 survey, and we will continue to push for transparency to aid improved decision- making. We expect continued movement towards more standardised templates, with integrated tools for ESG and climate analysis to help enhance data credibility.  

Driving real-world change 

The vital need for a global transition to net zero and a low carbon, sustainable economy underpins the key outcome from all these themes, which is real-world change. We want to see asset owners and managers focused on creating impactful outcomes while being able to demonstrate the consequences of capital allocation and stewardship activity. 

If you have any questions on anything covered above, please get in touch