Over the last decade, stewardship and sustainability have evolved rapidly, driven by a mixture of growing investor demand (asset owners), increased sophistication to manage risk (asset managers), improved reporting (companies) and enhanced regulation (policymakers). As we look into 2023, we expect further evolution in these areas with an increased focus on real-world impact.
Impact investing has become significantly more prominent as investors focus on the intentionality of their investments and seek to generate positive impact alongside financial returns. We expect that investors will look at the role of public equites in generating impact as a key focus for 2023.
Climate will remain a key issue next year with an increased sense of urgency for action as the window for limiting climate change rapidly closes. We see an enhanced focus from regulators (e.g., emissions reporting and, in some cases, mandatory reporting through the Task Force on Climate-Related Financial Disclosures) and investors through the potential expansion of collaborative engagements (e.g., Climate Action 100+). Biodiversity is a related, but separate, issue supported by the emergence of new reporting frameworks, and we expect to see progress in this area over the course of 2023.
Human rights, social issues and inequality will have increased prominence as stewardship topics, and we are also seeing the emergence of regulation in this space. In December 2022, the Principles for Responsible Investment launched a collaborative engagement on human rights and social issues called Advance, which is backed by more than $30 trillion in AUM.
In 2023, asset managers will be asked to demonstrate their authenticity in managing sustainability and stewardship risks on behalf of investors. In the United Kingdom, we will see the emergence of the Sustainability Disclosure Regulation (SDR), which aims to tackle greenwashing and will set a very high bar for products to be called sustainable. In Europe, we expect continued tightening of regulation around how funds are categorized. Finally, in the United States, we should see the next stage of the emerging naming and disclosures regime on environmental, social and governance-labeled products. These developments will be critical for asset managers to effectively deliver the products and the outcomes that investors seek.