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INVESTMENT OUTLOOK FOR 2023 - 16 - SUSTAINABILITY JANE AMBACHTSHEER ALEXANDER BERNHARDT Global head of sustainability Global head of sustainability research The evolution of sustainable finance In early 2005, United Nations Secretary-General Kofi Annan invited a group of the world’s largest institutional investors to help develop the Principles for Responsible Investment (PRI). Only a few years later, the excesses of a lightly regulated financial system would spark a global economic crisis while undermining many of the financial models used till then. In retrospect, this was an appropriate time for finance to begin to wake up to some of the excesses of corporate behaviour it was enabling. Since then, we have seen a ten-fold increase in sustainable investment related regulations. Here, we explore this evolution and the path that lies ahead. The great financial crisis raised important questions about the role of finance. The industry has long interpreted its fiduciary duty to clients as a requirement to ‘maximise’ financial returns for ‘beneficiaries’, most often on a horizon of quarters or years. Since 2005, the industry has rigorously debated the impact of integrating environmental, social and governance (ESG) criteria into this duty. The discussion has been buffeted by parallel debates over the timeframe across which return maximisation should be sought and for which beneficiaries. In 2005, the research basis for understanding the financial impact of ESG considerations was relatively thin. Since then, our understanding of this topic has grown massively.

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