ESG continued to gather momentum in the investment world in 2023, and we believe that ESG issues will continue to permeate areas of the investment, regulatory and corporate landscapes for the foreseeable future, often in surprising ways.
In our ESG report, we discuss the step change in financial conditions for companies that occurred in 2023. The sharp rise in interest rates drove up decarbonisation project costs in almost every sector, and the year reinforced the notion that it is not enough for companies to be simplistically aligned with decarbonisation thematics; financial and balance sheet resilience is now required.
The banking sector also came under intense scrutiny in 2023, and we look at how the year was demonstrative of the importance of good governance and regulatory environments.
We also discuss how ESG analysis is integrated into our process, and ultimately into our investment decision making. In our view, short-termism and a belief that ESG is a separate assessment criterion are both market weaknesses. We believe that ESG criteria should be considered in the same way as traditional financial criteria, in terms of their capacity to affect shareholder value and therefore long-term investment performance.
Looking ahead, 2024 is the year of the election, with more voters than ever in history heading to the polls globally. Europe is no outlier, with at least nine parliamentary elections as well as various presidential ones, and the European Parliament elections at the beginning of June. We look at voters’ concerns across the region and how proposed solutions by different political parties will shape the results.
Another topic is AI, which has been front and centre of late. While it is exciting to see if developments in AI could provide efficiency gains in society and the management of our carbon footprint, it is important to remember that it doesn’t come without risks. It will be important for governments and businesses to manage these risks, in order for society as a whole to benefit from this emerging technology.
Engagement continues to be a key part of our investment process, and we also provide some highlights of our activities as active managers over the course of the year.
It has always been our view that investing in the best companies that pay attention to the fundamentals of ESG in the way that they run their businesses will continue to provide robust returns for investors. As always, we continue to assess and evolve our views and processes to ensure that we can be as ahead of the curve as possible on behalf of our clients.
In our full report below, we provide further insight on these topics, as well as our portfolio themes and events in 2023, portfolio ESG analysis and a summary of our recent ESG-related articles and podcasts.