Key points
- The past year has once again underlined the importance of and need for impact investing.
- We continue to see encouraging developments and innovations in impact investing but also a need for increased regulation to help tackle greenwashing.
- We have been extremely humbled by how open companies are to engagement and, at the same time, energized by how much more there is to learn and do.
Matt, it's been one year since the strategy's launch, how has impact investing evolved in 2022?
First and foremost, the need for impact investing has palpably increased. In 2022 alone, we have seen record‑high temperatures in numerous countries, including the UK; increased severity of hurricanes (Ian in Florida); and truly disastrous flooding that has affected almost one‑third of Pakistan, with countries such as Australia also affected. Meanwhile, coal consumption and greenhouse gas emissions have risen.
From a regulatory perspective, awareness, challenges, and scrutiny around greenwashing and maintaining credibility in public impact investing continue to grow. Several asset managers downgraded environmental, social, and governance (ESG) fund classifications, citing uncertainty around more stringent regulatory requirements from the European Union's Sustainable Finance Disclosure Regulation.
In the US, we've seen tremendous advancement of sustainability initiatives, most recently through the Inflation Reduction Act. While on the other hand, a number of US states have actually pulled funds from asset managers that simply integrate ESG into their investment process, on the grounds that this means incorporating unwarranted concerns over climate change and that reducing exposure to oil and gas companies can hurt performance. Florida's chief financial officer attributed one divestment to the investment manager having "other goals than producing returns."
Amid this turbulence, we have evolved and advanced our impact capabilities here at T. Rowe Price. We've sought to enhance our corporate ESG bond evaluation models, as well as introduced new ESG bond models covering the securitised, municipal, and sovereign sectors. Likewise, we added to our impact sub‑pillar taxonomy as new and compelling impact investment themes continue to arise, such as biodiversity and enabling small and medium‑sized enterprises.
While growth in ESG bond issuance decreased in 2022 versus the prior year, the market for ESG and impact investing has continued to expand. ESG‑labelled bonds account for a growing proportion of the overall market: new ESG issuance totalling just over USD 1.5 trillion for 2022, according to Bloomberg data. This has been driven by the ever‑increasing universe of companies mobilising capital toward environmental and social projects. We believe the opportunity set for potential impact investments will continue to grow across new companies and new sectors, potentially allowing us to create a broader, diversified range of impact outcomes for investors.
We believe the opportunity set for potential impact investments will continue to grow across new companies and new sectors, potentially allowing us to create a broader, diversified range of impact outcomes for investors.
This post was funded by T. Rowe Price
Important Information
For professional clients only. Not for further distribution.
This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.
This material is issued and approved by T. Rowe Price International Ltd, 60 Queen Victoria Street, London, EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.
© 2023 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.
