Covid-19 chaos may have eased in many parts of the world thanks to immense vaccine rollout programmes, but 2022 has certainly been a turbulent one.
The war in Ukraine, energy prices, soaring inflation and the cost-of-living crisis all spring to mind, while the onslaught of extreme weather events demonstrated that climate change remains a major global challenge to address.And what of responsible investment (RI) during all this uncertainty? After strong returns in recent years, many RI funds suffered during 2022, in part due to typically low exposure to the oil and gas industry, which has benefited from surging energy prices.
Additionally, RI-orientated strategies are typically weighted towards growth stocks and sectors such as technology and healthcare, which have endured a downward rating thanks to uncertainty around inflation and interest rates. Longer term we firmly believe that the investment case remains intact, especially as related opportunities broaden in their nature.
Responsible investing is mainstream investing
Despite these headwinds, RI remains very popular - which brings me on to my first thought for 2023. Environmental, social, governance (ESG); sustainable; socially responsible investment (SRI); impact … all these terms and types of investing that sit under the RI umbrella are everywhere now.
Indeed, Bloomberg has suggested that ESG assets could exceed $50trn (£40trn) by 2025. It feels like every corner of the investment industry has woken up and wants to better understand the idea of investing for people and the planet alongside financial returns.
For us the focus is on quality and ensuring we continue to evolve our approach to ESG integration - we continue to review ESG data sources and develop ESG analytical tools to help our investment teams extract high quality information to best inform investment decisions - this will be a key focus for us in 2023 and beyond.
Regulation is increasingly robust
My second observation for the year ahead is that as RI gains yet more momentum, regulation is ramping up to increase oversight and prevent greenwashing. SFDR (Sustainable Finance Disclosure Regulation) in Europe is being followed by SDR (Sustainability Disclosure Requirements) in the UK, while similar measures could soon come into force in the US under the Securities and Exchange Commission. Coupled with commitments such as the UK Stewardship Code and the Net Zero Asset Managers Initiative, these regulations are increasing reporting demands.
It is a huge task to understand the crossover of different regulations and commitments while staying close to your beliefs as a firm.
While this step-up in regulatory reporting can feel quite onerous, I do believe it will drive our industry in the correct direction and encourage better transparency, ultimately ensuring that clients are matched with the strategies most suited to their needs. Increased regulatory oversight and common standards can drive not only improvements in reporting but enhancements in products and services too, as asset managers look to innovate to stay on top, or even better ahead, of the regulatory environment.
Linked to all this, there is an increasing reliance on ESG data to fulfil regulatory requirements and update clients on the impact of the strategies in which they are invested. While coverage and quality of data is improving, there is still some way to go before it can be accurately relied on. There is no substitute for in-depth real expertise and capabilities.
Claudia Wearmouth is managing director and co-head of responsible investment at Columbia Threadneedle Investments
This post is funded by Columbia Threadneedle Investments
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