2023 Sustainable Investment Outlook

As the world continues to emerge from Covid-19 lockdowns, the cracks in economies and societies, as well as the flaws in environmental ambitions, are starting to present themselves. This year, the debt legacy from the pandemic continues to limit governments’ capacities to support societies through difficult times. As such, we are more likely to see an increase in interventions, along with private businesses are also expected to play a bigger role in tackling critical issues from the various climate challenges, biodiversity threats, and rising living costs. 

Investors are also increasingly being asked to have a view on how Environmental, Social, and Governance (ESG) align with their investment values. As such, some themes that we at Kimin Tanoto are paying particular attention to in 2023 include: 

1. Climate Change and Biodiversity Loss

Climate change is an unavoidable question. All investors are exposed to the impact, not just of global warming and environmental damage, but also of political and economic action to tackle their causes. Hence, investors must ensure that any exposures to these risks are carefully considered and managed alongside securing opportunities in solutions to the climate challenge. 

While a loss and damage fund was established, the COP27 climate summit in Egypt did little to cement the global commitments to action. Instead, more attention will turn to COP28 in the UAE later this year. 

At Kimin Tanoto, we are committed to transitioning toward net-zero emissions for all the industrial and manufacturing businesses under us. However, setting a target is the easy part. Decarbonising and embarking on a net-zero journey is critically important to the value we will create for our clients. As such, our focus has been on using our voice and influence to engage companies and push them to lay out transition plans. Hence, we will be intensifying these efforts in the year ahead. 

Biodiversity is the rich tapestry of life on Earth, depicting the complex ways living and non-living entities such as soil and rocks interact to create the natural environment. With global warming, nature is now in a crisis as a direct consequence of our human activity. We expect biodiversity loss to emerge as the second most important sustainability issue after climate change. There is rising investor awareness that biodiversity loss poses a financial material risk, particularly for sectors like food and agriculture and healthcare. Thus, we expect increased client pressure on asset management managers to act upon biodiversity loss. Simply put, many investors would make biodiversity a core strategy in the upcoming years. This would include using biodiversity metrics and targets in company analysis, engaging with companies to tackle biodiversity risks, and even voting on nature-related resolutions wherever possible. 

2. More Conversations Around Social Issues

Social issues have been a part of dialogues with companies and investors the majority of the time, with big brands such as Shein and Zara facing a backlash regarding the social issues that have come forth. Today, reporting on social issues and their management of them varies globally. For instance, data from the World Benchmarking Alliance in 2022 has shown that 99% of the 1,000 companies surveyed worldwide failed to demonstrate the fundamentals of socially responsible business conduct. 

Human rights is also another crucial topic. The European Union (EU) also introduced new legislation that would put additional pressure on investors to implement due diligence, however, this is still limited by data availability. This significant market turmoil could lead many companies to issue shares to enable their workforces to receive compensation for expected reduced cash awards. 

3. Proper Definition of ESG Investments

In 2023, we also expect to see greater consolidation of standards regarding sustainable investments. For example, the UK Financial Conduct Authority (FCA) has issued its own guidelines for ESG labels that they will follow strictly into the new year. Similarly, the Canadian regulator has set out its stall on ESG. Within Asia, Hong Kong and Singapore regulators have released and consistently updated ESG fund disclosure circulars in the past two years.  

Thus, as a way for global firms to navigate these different frameworks across various countries is to have a proprietary internal standard that would sit across the geographies. 

Potential of ESG in 2023

Contrary to popular belief, ESG has become rather mainstream in the investment scene, with the market moving faster than we thought it would. For instance, many investors investing in Southeast Asian countries have started incorporating the risks and opportunities of the changing climate into their investment decision-making. In addition, ESG has potential because it engages people with their money, leading to better outcomes for investors when they get close to retirement.

S'pore's Gunung Capital to invest $500m to decarbonise asset
credits to https://www.straitstimes.com/business/companies-markets/singapores-gunung-capital-to-invest-500-million-to-decarbonise-assets-invest-in-transformation-services