The outlook for sustainable investment in 2024

The landscape of sustainable investment in 2024 is marked by an array of new regulations, heightened environmental consciousness, advancements in data technology, and complex socio-economic and political dynamics. For asset and fund managers, the year is not only about adapting to these changes but also about emphasising the importance of investor engagement and stewardship in driving sustainable practices.

Here are the themes we’ll see impacting environmental and social issues in business and finance:

1. Evolving regulatory frameworks

  • Corporate Sustainability Due Diligence Directive (CSDDD)

Last month, EU officials reached a provisional agreement on the CSDDD, compelling large companies to conduct comprehensive due diligence on their environmental and social impacts. This directive shapes investment decisions, directing focus towards companies that comply and engage proactively in sustainability.

  • Sustainable Finance Disclosure Regulation (SFDR)

The SFDR requires EU financial market participants to disclose the sustainability impacts of their products, fostering transparency and aiding investors in making informed sustainable investment choices.

  • A revived Social Taxonomy?

While the EU’s Social Taxonomy was shelved, there is ongoing speculation about its return, potentially under a new framework. This would complement the existing environmental guidelines and further clarify sustainable investments from a social standpoint.

2. The critical role of investor engagement and stewardship

Investor engagement and stewardship are increasingly recognised as vital tools in promoting sustainable practices. Active engagement by investors can drive significant changes in corporate behaviour, pushing companies towards greater sustainability and accountability. This involves dialogues with company management, voting on shareholder resolutions, and participating in collaborative initiatives to influence corporate strategies on environmental and social issues.

3. Climate change: The impetus for action

The growing frequency of extreme weather events underscores the urgent need for action on climate change. This scenario encourages investors to focus on companies with robust climate mitigation and adaptation strategies, particularly in sectors like renewable energy and infrastructure. This is vitally important when considering Redington’s latest research. According to the investment consultant firm’s Sustainable Investment (SI) 2023 Survey, 95% of strategies said they prioritise climate, yet only 43% provided evidence of doing anything about it. Over-promising and under-delivering is a growing risk.

4. Leveraging data for enhanced risk management

Technological advancements in data capture and analysis are crucial for accurately assessing environmental and social risks. Asset and fund managers utilising big data analytics can gain a more nuanced understanding of these risks, enabling better-informed investment decisions.

5. Economic and political challenges in a pivotal election year

With a record number of elections worldwide in 2024 and prevailing economic and cost of living challenges, the political and economic landscape will significantly impact sustainable investment trends. Investors need to be aware of how these changes can influence environmental policies and investment opportunities, particularly in areas prioritising energy efficiency and affordability.

6. Prioritising key social issues

1. Labour rights: Fair labour practices and conditions are increasingly vital in investment decisions.

2. Community engagement: The impact of businesses on local communities is a growing concern.

3. Diversity and inclusion: Companies demonstrating diverse and inclusive cultures are seen as more adaptable and innovative.

4. Data privacy and security: Robust data management practices are essential for a company’s sustainability profile.

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