ESG Trends for 2023

2022 ended with the Environmental, Social, and Governance (ESG) framework coming under intense criticism over its usefulness. In some parts of the world, the ESG framework has been tied to one or the other ideological stance. Firstly, the ESG framework is not about moralizing capital. It is about improving how capital is allocated by revealing the broader universe of business risk, and any unobvious opportunities within the ESG issues material to the business.

For investors, ESG helps improve investment decision-making by providing additional information about how the target makes money, where it makes money, and with whom it makes money. ESG won’t save the world, but it can help those who can save the world engage with finance in a way that helps us all work together to avoid environmental, social, political, and economic collapse.

“ESG factors provide insights into how companies consider and respond to issues that can impact their short and long-term success”. - David Atkin (CEO, UN PRI)

ESG issues have become increasingly important in recent years, with more and more people and organizations recognizing the need to take a holistic approach to sustainability. Here are some of the most exciting ESG trends to look out for in 2023:

1. Increased focus on renewable energy: As concerns about climate change continue to grow, there is a renewed push to transition to renewable energy sources such as solar and wind. In 2023, we can expect to see more companies and governments making significant investments in renewable energy infrastructure, with the goal of reducing their carbon footprint and increasing energy independence.

2. Greater emphasis on diversity and inclusion: The events of the past year have highlighted the importance of diversity and inclusion in all aspects of society, and this trend is expected to continue in 2023. Companies will increasingly focus on building diverse and inclusive cultures, while investors will prioritize companies that demonstrate a commitment to diversity and inclusion in their hiring practices and leadership.

3. Rise of the circular economy: The traditional linear model of production, where raw materials are extracted, used to create a product, and then disposed of, is not sustainable in the long term. In 2023, we can expect to see a shift towards the circular economy, in which resources are used and reused in a closed loop system. This approach reduces waste and helps to conserve natural resources.

4. Increased transparency: As ESG becomes increasingly important to investors and consumers, companies will be under increasing pressure to be transparent about their environmental and social impact. In 2023, we can expect to see more companies disclosing information about their ESG performance, as well as the measures they are taking to improve it.

5. Growth of sustainable finance: The demand for sustainable investments is on the rise, and in 2023 we can expect to see the growth of sustainable finance continue. This includes the development of new financial products and instruments that take into account environmental and social factors, as well as the integration of sustainability considerations into traditional financial decision-making.

   “Increasingly, investors understand that their duty to fulfil their obligations to clients can be impacted in fundamental and lasting ways by ESG trends – and the sustainability outcomes that result from them.” - UN PRI (2022)

Overall, these trends represent a shift towards a more sustainable and responsible approach to business and investment. By prioritizing ESG issues, companies and investors can help to create a more equitable and sustainable future for all.