Efficiency and sustainability will be key value drivers in this turbulent market
With 2023 well underway, we expect the current environment of expensive money – or recalibration to a new normal – to bring a different set of risks and opportunities.
As stakeholder capitalism gains momentum with increased focus on sustainability, there are five trends which will impact asset valuation and be high on the agenda of boards in 2023:
1. Increasing focus on efficiency
Highly leveraged/overbought assets will be under pressure in this time of dearer money. Supply chain constraints, rising labour costs and higher material prices will add operational challenges increasing the likelihood of default. Operational efficiency via increased digitalization and innovation will be a key focus area for asset managers.
2. Green financing as differentiator
With higher interest rates, green/sustainability-linked financing can be a differentiator. Meeting the sustainability requirements as laid out in the EU Taxonomy or other regulations/standards can unlock access to such finance. Good quality and reliable data will be required to evidence those requirements and to prevent greenwashing.
3. Mandating corporate transition plans
As ESG becomes a de facto requirement, expect more focus on transition plans with corporates and investors alike coming under increasing pressure to clearly demonstrate credible pathways to net zero for their Scope 1 and Scope 2 emissions as a minimum with Scope 3 emissions mitigated as far as currently practicable. The technical, economic, and operational viability of the transition needs to be clearly detailed and included in business plans.
4. Adapting to climate risks
Climate change is already causing operational risks with disruption to supply chains and physical infrastructure. There will be increased scrutiny on operational resilience and adaptation strategies for corporates. Mapping and understanding the implications of physical climate risks on operations in the short-term and medium to longer term needs to be on agenda of boards.
5. Biodiversity accounting
As biodiversity rises on the investor agenda, assessments and disclosures around nature-related impact will become a standard requirement in the not-too-distant future. Corporates need to prepare and understand the requirements around nature-related disclosures particularly the impact of infrastructure projects on objectives, such as biodiversity net gain.
Each of these five trends have their own complexities, so please do let me know if you have any questions or reach out if you would like support to address your operational and sustainability challenges.
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