Six Impact Investing Developments to Watch in 2023

As the year gets underway, I wanted to share some developments and predictions to keep an eye on. I’m excited to see what we’ll accomplish together in 2023.

1. ESG backlash prompts fundamental questions about what sustainability means for markets

The growing backlash against Environmental, Social, and Governance (ESG) practices is raising important questions about what we expect markets to deliver for society. On the one hand, some view ESG analysis as a source of additional data for financial optimization, using information to better understand financial materiality, risk and opportunity. Others argue that ESG is in service of broader sustainability goals and that the fundamental purpose of markets is to support a thriving society and planet. While not necessarily in disagreement with the financial materiality approach, they see it as a starting point, not an endgame.

In 2023, these differing perspectives will lead to loud debates about what we want markets to deliver and how we define sustainability, but we must remember to keep our vision for the future front and center.

2. Regulators aim to clarify the sustainable investment market

Regulators have entered the sustainable investment scene in jurisdictions including the EU, UK, and US. These efforts aim to provide clarity to the market and address the issue of greenwashing. Initial proposals are a good start, but regulators must refine them to meet governments’ goal of steering more investment towards positive outcomes for society and the environment.

The big question remains: will these regulations drive more capital toward sustainable development and innovation? Only time will tell, but regulators have picked up their red pens and are set on making a change in the sustainable investment market. Let’s capitalize on this tremendous opportunity to work with governments and increase the capital flowing into impact investing with integrity.

3. From commitments to results: stakeholders and clients hold investors accountable for impact

In recent years, we have seen a surge in commitments to sustainability, net-zero emissions, climate solutions, SDGs, racial equity, regenerative agriculture, and more. While these commitments are encouraging signs of progress, people want to see results, not just hear about pledges. The urgency of climate change, social inequity, and nature loss is top of mind, and the time value of impact is material .

I expect to see a doubling of efforts to hold investors and companies to their commitments. It will be those who “put their money where their mouth is” and deliver actual, measurable results for people and the planet that will lead the market.

4. From decarbonization to climate solutions

Data and research from experts around the world have led to broad recognition of the need to reduce and sequester carbon emissions. This is critical, and we need to move faster. However, addressing the climate crisis is bigger than just reducing our collective carbon footprint.

This year, I believe we’ll see more investment activity directed towards climate solutions that will underpin a sustainable economy, not just large-scale clean energy projects but also clean energy access, new technologies, and nature-based solutions. Let’s not forget that innovation is intimately tied to impact investing. To rectify the climate crisis, we will need to develop and scale the solutions that will define a sustainable future economy.

5. Nature gains ground

The climate crisis isn’t the only environmental crisis the world is facing—we are also experiencing an unprecedented loss of nature and biodiversity. It’s a great sign that the UN Biodiversity Conference in 2022 (COP 15) resulted in a landmark global biodiversity framework. I’m looking forward to seeing what comes out of the Taskforce on Nature-related Financial Disclosures (TNFD) , which will release its first framework later in the year.

Though capital flows have been very limited to date, TNFD and a global framework for biodiversity will set the stage for investors and companies to step up for nature as they think about environmental issues more broadly.

6. Investor attention turns to the "S" in ESG

Climate has dominated investor energy for environmental and social issues around the world. However, it’s clear that the "S" in ESG is garnering more attention from investors. The trend is likely to accelerate in 2023 as factors including the pandemic, economic turmoil, war, high-interest rates, and recessions in some markets adversely affect vulnerable populations.

Looking ahead

2023 is a year that will be marked by market disruptions. Amidst those changes, there will be outsized opportunities for progress. We’ll be watching these developments and others (like how artificial intelligence will affect impact investing) to look for those opportunities. My hope is that impact investors will collaborate to ensure that investment plays a central role in supporting a sustainable economy that improves the well-being of all people and the planet.