Sustainable Investing Trends To Watch In 2024

Sustainable investing is a fast-growing and evolving field that aims to align financial returns with positive social and environmental impact. As the world faces growing challenges such as climate change, biodiversity loss, social inequality, and human rights violations, investors are increasingly looking for ways to support the transition to a more sustainable and resilient economy.

Let's dive into six major trends that are shaping the future of sustainable investing and what they mean for investors and businesses.

As sustainable investing becomes more mainstream and popular, it also faces the risk of greenwashing. Greenwashing is the practice of making false or misleading claims about the environmental or social benefits of a product or service. It can be a way for companies or investors to capitalize on the growing demand for sustainability without making meaningful changes to their practices or portfolios.

An example of how greenwashing is being battled in the financial industry is through the SFDR, which requires financial market participants and advisers to disclose information on how they integrate sustainability factors into their investment decisions and advice. It also establishes a classification system for financial products based on their sustainability objectives and impacts.

Such measures will have significant implications for companies and investors that want to communicate their sustainability efforts. Better guidance and more decisive consequences will mean more clarity for consumers — but also greater risk for companies going public with sustainability efforts.

The emergence of new sustainability reporting and disclosure requirements for companies and investors aims to improve the quality, comparability, and reliability of sustainability information. The goal is to enhance transparency and accountability. They also respond to the growing demand from stakeholders, such as regulators, customers, employees, suppliers, communities, and civil society organizations, for more transparent disclosures.

One of the most significant developments in this area is the adoption of the Corporate Sustainability Reporting Directive (CSRD) by the European Union. The CSRD will replace the existing Non-Financial Reporting Directive (NFRD). It will require all large companies (over 500 employees) and all listed companies in the EU to disclose information on their performance, risks, opportunities, and impacts. This will be the first time that a regulation requires companies to conduct a double-materiality assessment while engaging their stakeholders. The CSRD is expected to apply from 2024 onwards.

Another development is the adoption of the Sustainable Finance Disclosure Regulation (SFDR) by the EU. The SFDR is a European regulation introduced to improve transparency in the market for sustainable investment products, to prevent greenwashing, and to increase transparency around sustainability claims made by financial market participants. It imposes comprehensive sustainability disclosure requirements at both entity- and product-level.

These are some of the trends that are shaping the future of sustainable investing in 2024. Sustainable investing is not only a moral imperative but also a strategic opportunity for investors and businesses. By embracing sustainability as a core value proposition, investors and businesses can create long-term value for themselves and for society.