2024 was not a good year for sustainable investments. Regulatory frustration and an ESG counter reaction went hand in hand with increasing geopolitical tensions. Ophélie Mortier, Chief Sustainable Investment Officer from DPAM, draws conclusions for the current year:
2024 – frustration and counter reaction
In the first year of the sustainability reporting of companies (according to CSRD) there were first hurdles. An EU simplification package should help; Germany even calls for a two -year shift in reporting and a reduction in circumference. As a reminder: The CSRD should provide the information that is requested by the disclosure regulation for sustainable financing (SFDR). The constant shaking of the limits of the CSRD complicates investors to meet their own SFDR report.
In general, transparency regulation suffers from excessive complexity, lack of clarity for investors, difficulties comparing products and approaches and inconsistency with other regulations. There is a comprehensive revision here.
The comprehensive regulation of sustainable financing in Europe, which was previously considered a model, has shown the weaknesses of the approach. This should explain many ESG counter-reaction, not least in the United States. In the record election year 2024, in which almost half of the world population was called for election, ecological and social issues were not always treated with the same weight as short -term concerns as inflation, affordability of living space and border protection.
2025 – Environmental policy priorities
In view of the ever stricter regulation of the funds according to Article 8 and Article 9, the revision of SFDR regulations in 2025 will be a central topic. Initiatives such as the Glasgow Financial Alliance for Net Zero, the Institutional Investors Group on Climate Change and the Transition Plan Taskforce have lost many supporters. Some actors therefore advocate more discretion for common obligations. Further withdrawals from important initiatives such as Climate Action 100+ or the Principles of Responsible Investment (PRI) can be expected. However, the withdrawal from Climate Action 100+ was more than balanced by new members and the PRI still finds volunteers from active participants.
Environmental data is becoming more and more accurate, more available and recurring, and companies are getting better and better in dealing with transitional problems. The challenge is to integrate entrepreneurial transition plans into the company reviews. In view of the global warming, the efforts are still inadequate, even if the investments in clean energies have now doubled compared to fossil fuels (especially solar photovoltaic technologies) and the number of measures against climate change within the G20 has tripled since 2020 has.
When it comes to nature and biodiversity, there was great progress through the availability of location data, which enable the dependency on companies to estimate on their natural capital. However, these key information must complement the business models of the companies and do not dictate rigid limits for investments in the name of transparency and the fight against Greenwashing.
Social priorities
In the social field, human rights issues around the Uighurities in China as well as social risks through automation in a digital economy will focus. We expect interesting developments on both sides of the Atlantic, with Europe continuing to simplify regulations on mandatory disclosures in all efforts to simplify regulations. The United States is much more reserved.
In view of the contradictory economic signals, it is difficult to predict the development of sustainable funds. In Europe we expect a turning point in environmental and social policy, in which competition, simplification and green growth will have priority. Meanwhile, the United States returns to climate skepticism and more oil production. However, the sustainability agenda remains important for the emerging countries. In this particularly uncertain and volatile environment, it will be more important than ever to concentrate on the essentials of ESG issues and continue to strive for sustainable performance.
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