Predictions for ESG in 2023: Stronger regulations will fail to end sustainable investing boom

The predictions: The rise of environmental, social, and governance (ESG) investing has continued in 2022 due to surging consumer demand which is helping to accelerate uptake among banks and money managers.

We take a look at what the next year could hold for sustainable finance and ESG.

The ESG investing boom will accelerate, but the sustainable fund market could shrink. As investors, asset managers, and banks recognize the value in ESG, more will prioritize it.

Financial institutions recognize that much of the labor force want to work for firms with strong ESG policies and that consumers also care: One in four said they’d leave their bank over poor environmental and social track records, per Kearney data.

For asset managers, swelling client demand for ESG products will keep sustainable investing as a priority and drive growth through 2025. And green investing is likely to gradually mature in the coming years as a “generational shift” in wealth management occurs.

However, stronger scrutiny of ESG will force some asset managers to reevaluate funds’ labels, causing the overall market to contract. And fears of being accused of greenwashing will force banks and FIs to exercise caution around how they market new funds—meaning total ESG products could decrease despite rising demand.

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