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Since 2015, the market has seen a ten-fold increase in flows to environmental, social and governance (ESG) funds; an eight-fold increase in sustainable debt issue; a doubling of private equity and venture capital deal flow in areas of sustainability ; and a one-and-a-half increase in energy transition investment.

Governments that represent three quarters of global gross domestic product (GDP) now have national-level commitments to net zero, but a recent report finds many governments and companies lacking when it comes to interim commitments and short-term action plans. In effect many are talking the talk to keep stakeholders happy, but failing to walk the walk.

The last year has presented enormous opportunities for sustainable investing, but a failure to tackle greenwashing poses a serious risk to the sustainable transition. There is growing unease at the low quality of some net zero commitments, the gap between goals and actions and the absence of guardrails for those utilising natural solutions, including as offsets. Consumers are faced with confusing and often misleading claims about sustainability benefits.

Sustainable Trends Report highlights key tipping points

Generation Investment Management, a sustainable investment management firm, has released its fifth annual assessment of the global state of sustainability. Drawing on more than 200 sources, the Sustainability Trends Report highlights key tipping points in the shift to sustainability – from the mainstreaming of net zero to action on diversity, equity & inclusion, and the rise of clean technologies and natural solutions.

However, the report also highlights the mounting threat of greenwashing that poses a significant and increasing risk to the success of a sustainable economic transition.

Al Gore, Chairman of Generation Investment Management, said: “In the most crucial decade of climate action in our lives, this report points to strong progress in many areas. Our challenge, however, remains vast and urgent. As the world works to contain and recover from the pandemic, we must harness the momentum of the global sustainability revolution to ensure that we do not fall back into our old patterns, but instead usher in a just and sustainable future.”

Gore said that there remains a yawning gap between long-term climate goals and near-term action plans. “Large emitters must increase their climate ambitions with renewed credibility and urgency,” he said. “Likewise, developing countries urgently need substantial support on vaccine access, climate finance and debt relief.

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Gore reckons a lack of progress on these fronts risks undermining progress in tackling the climate crisis and in facilitating a just and equitable recovery. He urged vigilance in the face of the rising threat of greenwashing “or risk derailing hard-won progress.”

Sustainability-related financial volumes are soaring

Sustainability-related financial volumes are soaring as businesses and investors come to terms with the global imperative to cut greenhouse gas emissions in half by 2030. The Sustainability Trends Report estimates that sustainability-related financial volumes have tripled since 2015, with over six percent of global market capitalisation volume now projected to come from the green economy, up from two percent in 2015.

The report says that the time for celebrating vague, distant goals on net zero or ‘nature positive’ has long passed. Investors need clarity over how companies will turn goals to actions in the next few years.

Social issues broke through to the boardroom for investors and companies this year. A renewed focus on the social aspect of ESG considerations is driving investment, as investors accept that social equity and justice must be in lockstep with action on climate and nature. This is what “building back better” really means, according to the report. The report details the exceptional amount of work that still must be done to solve deeply entrenched problems, and also highlights some reasons for optimism.

Nature has never been under greater threat

This year’s report shows nature has never been under greater threat, but natural solutions are taking off. Venture capital funding of natural solutions has soared five-fold since 2016, reinforcing their importance for sustainable investing. However, guardrails and standards must keep pace with investment and innovation if natural solutions are to meaningfully address the serious risks to the planet.

The report shows the sustainable economy is taking shape, but urgent attention to greenwash and rapid acceleration is needed to keep sustainability goals within reach.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Graeme Andrew

Graeme Coles-Andrew

Graeme is Head of Technology at the Armchair Trader. He has worked in online financial investment publishing since 2000 as a website developer, advertising operations manager, data scientist and all-round go-to guy for online technical solutions.

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