The era of meteoric growth in environmental, social and corporate governance (ESG) investing has ended, but the retrenchment from ESG portfolios may actually create a more sustainable marketplace, McGuireWoods London partner Marc Naidoo wrote in a recent article in Finance Derivative.
In the Dec. 21 article, titled "Riding the ESG Wave, after the Crest," Naidoo noted that in the last few years financiers have competed to "out-ESG" one another, plucking clean all of the low-hanging fruit in the process. He predicted that 2023 will see investors shifting more capital back into non-ESG assets, but with a view toward including ESG components.
Naidoo described several reasons why this shift away from pure ESG assets may well prove to be salutary. Incorporating ESG principles into more conventional forms of finance would offer financiers greater flexibility, which would increase the volume of transactions while alleviating the burden of unrealistic expectations that have led to accusations of greenwashing.
"2023 will see the return of conventional financing, albeit with hybrid elements to ensure that there is still accountability in the market, which is why ESG was important in the first place," Naidoo wrote.
Naidoo is a member of the five-person executive committee leading McGuireWoods' ESG task force.
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