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Responsible investing: 2023 recap and what to watch in 2024

ESG factors are still important when measuring how companies and industries perform.

Nick Ciaravella Jan. 04, 2024 3-minute read

The financial industry continues to recognize the importance of environmental, social and governance (ESG) factors in the assessment of company and industry performance. While 2023 introduced some opposition and polarization on the subject, it was mostly just noise. Over the last year, we saw significant developments across several key areas of responsible investing.

Climate continues to gain importance for market participants

Asset managers are increasingly integrating climate considerations into their investment processes, and a broad subset of investors are now looking to deliver on their net zero ambitions with climate-aligned investment strategies. Asset flows into net-zero aligned strategies totaled $450 billion as of June 2023, compared to just $50 billion in 2018, according to recent data Opens in a new window.. We expect the demand for these strategies to reman strong amid favourable policy environments and long-term structural tailwinds.

Government policy is reshaping industries

With the introduction of the Inflation Reduction Act (IRA) in the United States, the economics of many clean industries and technology have structurally changed, spurring investment at never-before-seen levels. In one year since its inception, the IRA has driven over $282 billion in investment, with the announced projects expected to create almost 175,000 jobs, according to Goldman Sachs Opens in a new window..

In Canada, the 2023 federal budget and the National Adaptation Strategy (NAS) provided similar tailwinds to industries with key roles to play in shaping a future clean energy economy. We expect policy action to continue in the coming years, as countries continue progressing towards their net zero commitments.

Regulations and standards emerge

Corporate sustainability disclosures are set to become more consistent with the International Sustainability Standards Board (ISSB) unveiling their first set of disclosure standards for corporations, set to begin in Q1 2024.

Financial regulators are also striving for consistency around definitions for common ESG terms, and setting requirements around what type of investment vehicles qualify for an ESG label. With concerns around greenwashing continuing to be top of mind in the market, these are welcome developments.

The past year has been one of maturity rather than rapid growth for responsible investing. Looking ahead to 2024, we expect continued policy maturation along with greater transparency around ESG factors, and increased focus on emerging investor issues around human rights and biodiversity. We expect the climate transition to remain at the forefront as one of the largest economic transitions in history. As these factors continue to garner attention, it’s critical for asset managers to develop the capabilities necessary for including these risks and opportunities throughout the investment process to help make the most informed investment decisions for clients.

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Written by

Nick Ciaravella, CFA
Associate, Sustainable Investments, CIBC Asset Management

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Responsible investing: 2023 recap and what to watch in 2024

Climate continues to gain importance for market participants

Government policy is reshaping industries

Regulations and standards emerge

Connect with us

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