From Challenge to Potential: Looking ahead to 2023

It’s been another interesting year, one filled with challenge, caution and uncertainty. Though the pandemic has lost its initial sting, it continues to leave its mark on our lives, both personal and professional, testing our capacity for resilience and hope. Much like the war. When Russia invaded Ukraine last year, many expected it would be a short-lived incursion. But, as the months drag on, we realize the naivety in that assumption.

Due to the incessant conflict and other intractable factors, many are suffering, and we’re facing high interest rates, inflation, and a looming recession. No question, those challenges have impacted our sector. It’s noteworthy that the value of responsible investment portfolios have dropped by $200 billion, according to the 2022 Canadian Responsible Investment Trends Report. To be sure, the prevalence of green washing and negative media coverage of ESG-focused portfolios have given investors some serious pause, only adding to the already-cautionary approach borne of economic factors.

But there is some hope to be had as we look to 2023. For one thing, the current size of the impact investing market is estimated to be between US$500 billion and US$2.3 trillion. And let’s not forget that assets in impact investments in Canada have increased significantly over the last decade. Even with a stumble, those numbers are worthy of reflection.

For another, positive activity in the sustainable bonds category has given this difficult year a particular boost, with banks, telcos and others making environmental, social and economic sustainability an important part of their offerings. To wit: Telus Corporation closed its offering of US$900 million in senior unsecured sustainability-linked notes focused on decreasing GHG emissions. Support by the public sector has not gone unnoticed too. The Government of Canada, for example, issued a $5-billion green bond, which will be used to finance investments designed to protect the environment. All these activities give us reason to believe that social finance and impact investing are inching closer to mainstream (if they’re not there already in the UK and Europe).

And, yes, while a recession is certainly a-coming next year, the pandemic may really be in our rear-view mirror this time, easing economic volatility. Impact investors who have become more risk averse due to that volatility may start to feel more at ease, especially as interest rates begin to descend from its ominous peak.

As for concerns about greenwashing, those may abate too as the sector starts implementing better regulations, skills training and standards. In an article published in the Impact Investor Guide 2023, Cliff Prior is particularly excited by the work of Social Value International and the International Sustainability Standards Board in moving the sector toward greater transparency and professionalism. If Canada and the U.S. follow suit, that will be good news all around.

Besides, as one expert argues, reduced valuations can lead to a much-needed market correction, which, in turn, may bring some other fearful investors out from hiding. So there’s that to look forward to as well.

Finally, something else to give us hope for the future: an estimated $1 trillion will be changing hands from the Baby Boomers to succeeding generations. With those generations known for infusing personal values into their investment decisions, that wealth transfer can prove a much-welcome boost to the social finance sector overall. Bring on 2023, I say.

 

Until then, wishing you a healthy and warm holiday season,

Elisa Birnbaum, Editor

 


 

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