We’ve picked out seven themes we think will be be high up the agenda in ESG and sustainable finance in 2024. We’ve also highlighted some of the top scoops and long-reads we published in 2023.

As always, we’re keen to hear what you think we should focus our coverage on – please email us here for your thoughts as we near the end of another busy year in the responsible investment space.

Transition at the centre

This year has seen calls from all corners of the market for transition finance to be put firmly at the centre of the sustainable finance push, and regulators are taking notice.

The EU sustainable finance agenda in particular is often criticised for focusing on what is already green, and not setting goals and creating definitions around activities that can shift to become green.

The European Commission issued transition finance guidance in June to “show how companies can use the various tools” of the existing EU sustainable finance framework “on a voluntary basis to channel investments into the transition”.

The ongoing review of the SFDR is considering how to better capture products with a transition focus, and the EU platform is consulting until March 2024 on proposals for two new benchmarks.

The platform’s chair, Helena Viñes Fiestas, said the benchmarks had the potential to boost the “relevance of capex-alignment with the taxonomy to drive corporates’ transitions, and the role these can play in capital markets through transition-oriented financial products”.

In other jurisdictions, Japan revealed at PRI in Person this year its plans to create an Asian transition finance coalition, and just this week the UK kicked off a Transition Finance market review looking at “how to support companies in the UK and abroad to continue to access the capital they need to decarbonise and deliver our net zero ambitions”.

The hope is that transition plans will help guide finance flows towards decarbonisation, and 2023 was somewhat famously dubbed the year of the transition plan.

We think 2024 will be a more likely contender for this title. Some important groundwork was laid in this year, such as the launch of the UK Transition Plan Taskforce final framework. But in 2024, we’ll likely see more adoption and reflections around the usefulness and comparability of the reports.

Responsible Investor is planning to run an op-ed series in Q1 2024 on transition plans. If you have views on the expected role and importance (or lack thereof) of transition plans, or what a credible plan should entail, please email us here.

More asset owner pressure on managers

Asset owners have increasingly voiced concerns around their managers’ actions on ESG – and no wonder, given the collapse in support by some of the largest US managers in the 2023 proxy season for E&S resolutions, and further misalignment on companies’ climate plans.

A key example of the expanding gap between pension funds and their managers was the high-profile Shell AGM in May, where some of the UK’s largest funds – including NEST, USS and London CIV – voted against the chair, and CofE Pensions Board opposed every director, yet chair Andrew Mackenzie still received 93 percent support.

Clearer evidence of asset owner perceptions that they were increasingly misaligned with managers emerged towards the end of the year, when an academic study commissioned by the UK Asset Owner Roundtable found that, indeed, average asset manager alignment with asset owners has dropped since 2015.

We expect this pressure on managers to ramp up in 2024 and for asset owners to be vocal about what they expect from their managers, particularly on climate but also on broader ESG issues. Pensions giant Scottish Widows has given asset managers until 2024 to sign up to the UK’s Stewardship Code or local equivalents, warning that it will end its relationships with managers that do not comply.

Crunch time for net-zero promises

The ongoing implementation of investor net zero targets has been a theme since the targets were set, but 2024 is going to be different. As one investor put it, as the last year before many institutions’ interim targets must be met, it will be “a real pinch point”.

We will be watching this closely and expect announcements on big allocations to new sustainability strategies and, most likely, more divestments.

Meanwhile, a lot has been said on net zero this year which makes us think that 2024 could shed light on some sobering reflections around investor net zero efforts, and bigger challenges than anticipated for some in hitting their targets.

The PRI’s Nathan Fabian told RI earlier this year: “It’s really important that we actually start to look more at the work of the initiatives and alliances that sit below GFANZ. They are different groups of actors and they are working to get quite specific about what their roles are, what their potential contribution is and the flexibility needed around it.”

Others were more critical. DBS Bank’s Yulanda Chung suggested in July that some of the promotion around redirecting capital flows at the launch of net zero initiative GFANZ “would now be considered greenwashing”.

RI is running an anonymous net zero stocktake survey for institutional investors – please respond here. We will publish the results in January to kick off our 2024 coverage of the next steps for net zero.

Nature everywhere

A raft of big nature and biodiversity initiatives were completed or progressed this year. Effectively, everything climate has, nature now has or is about to get as well, from disclosure frameworks and engagement initiatives, to transition plans and scenario analysis recommendations.

The biggest step arguably came in September, with the final launch of the Taskforce on Nature-related Financial Disclosures (TNFD) framework. An update is expected in January on who has signed up as “early adopters”.

There is also cautious optimism that nature will increasingly feature in next year’s AGM season, and that collective engagement through Nature Action 100 – which has more than 190 investor signatories – will ramp up in 2024 after kicking off this year.

And there could be new major announcements. Observers will be closely watching whether the ISSB decides that nature will be its next area of focus, which a significant number of respondents called for in the standard setter’s consultation on future agenda priorities.

Election bonanza

Next year is a huge election year, and the results could certainly impact sustainable finance.

In the US, a shift to Republican rule in November would certainly not be in ESG’s favour. Among other things, a potential Donald Trump administration would reportedly consider scrapping the hugely popular Inflation Reduction Act – which the PRI’s Fabian dubbed the “US taxonomy” in a panel discussion in November.

The European Parliament elections in June are largely expected to result in a swing to the right and the Green group losing almost half its seats, according to a late November projection. In 2023, there were various pushbacks on sustainable finance regulations from conservative and right-wing MEPs, and one observer told RI of a “gloomy mood” in sustainable finance circles in Brussels.

A spring or autumn election in the UK is also expected. It comes after some notable regulatory progress on ESG and sustainable finance on investment labels and disclosure rules and transition plans, but also a widely criticised net zero U-turn and another delay in publishing the UK’s taxonomy.

A government change could be on the cards with Labour – which has come out against Rishi Sunak’s climate roll-back – well ahead in the polls.

Further action on human and labour rights

At points throughout 2023, the future of the Corporate Sustainability Due Diligence Directive (CSDDD) – the key regulatory effort to mandate human rights due diligence – looked very bleak.

But December trilogues resulted in an informal agreement on the directive. This disappointed some by largely excluding the financial sector – although its upstream activities are covered – but it was still a better outcome than expected in many ways, and a key hurdle to overcome.

The directive is expected to get the final go-ahead in the first half of next year – and despite its weakening, it is seen as a groundbreaking legislative push, which will also capture non-EU companies with significant activities in the bloc.

Investors have continued to put companies under the microscope on their human and workers’ rights issues this year through collective engagement efforts and shareholder proposals.

Shareholder advocates of workers’ rights at US firms received a boost at the start of this year’s proxy season, after a freedom of association audit proposal gained majority support at Starbucks.

In some instances, we saw examples of escalation, such as Danish pension fund PBU’s decision to divest Amazon because its patience had run out after years of engagement with the e-commerce giants on labour rights.

We have also seen other examples of quieter exclusion moves, such as Aviva flagging in its responsible investment review that it had dropped an unnamed telecoms company over human rights concerns.

We anticipate more of the same in 2024 as the issue continues to rise up the agenda of investors.

Interoperability to infinity and beyond

There has been no end in sight to the announcements this year of “interoperability achieved” between various sustainability standards and frameworks, often accompanied by charts and maps explaining their alignment.

Notably, the ISSB, in its quest to develop a global baseline, this year announced “high level alignment” with the EU’s ESRS on climate.

But there are still big question marks around what interoperability will actually mean in practice and, of course, to what extent investors will be getting what they’ve been promised: reliable and comparable data.

As 2024 is the first reporting cycle for those in scope of the ESRS, and more countries are set to adopt standards based on the ISSB, the interoperability push and what it can actually achieve will be more topical than ever before.

Tied to this is the materiality debate – although not if you believe the standard setters themselves.

Within the space of a few weeks, the GRI’s Eelco van der Enden has said it is “boring”, the ISSB’s Emmanuel Faber has said “it’s not one or the other”, and EFRAG’s Patrick de Cambourg that “the EU will not succeed in isolation”.

We believe, however, that the materiality debate will continue through 2024 (and beyond).

2023 through our coverage

Top 10 Scoops

Top 10 Big Reads