A Mid-Year Briefing on the Latest Developments in Responsible Investing

6 Aug

RAOGlobal events.

August 1st 2025

As we head into the second half of 2025, the landscape of responsible investing is in a state of rapid and complex evolution. While some headlines suggest a retreat from sustainable principles, the reality on the ground—driven by regulatory mandates, real-world climate impacts, and investor demand for tangible results—tells a story of acceleration and deepening sophistication.

This newsletter is designed to provide you with a concise summary of the key developments since mid-July 2025, offering actionable insights that align with the core agenda topics for the upcoming RAOEurope25 conference. This is a crucial time for the industry, and we believe that staying ahead of these trends is the key to both mitigating risk and unlocking long-term value.

1. Geopolitics & Portfolio Resilience: Navigating a Fragmented World

The interplay between geopolitics and finance has never been more pronounced. Recent analysis from the European Banking Authority (EBA) and think tanks highlights how this fragmentation is a top concern for financial stability.

Cyber Threats: The EBA's June 2025 risk assessment underscored a rise in operational risks, particularly from cyber threats and fraudulent activities, which are often linked to state-backed geopolitical tensions. This reinforces the need for investors to integrate robust cybersecurity and data resilience into their due diligence processes. (Source: EBA, "The banking sector in the EU continues to show resilience," June 27, 2025, available here
Regulatory Simplification: A report from the Centre for Economic Policy Research (CEPR) in mid-July argued that Europe's recent pivot towards "regulatory simplification" in banking, while welcome, must be broadened to properly address the risks posed by geopolitical turmoil. The report emphasizes that a fragmented world requires a more unified and resilient European financial system to boost competitiveness. Source: CEPR
2. Climate & Capital: Accelerating Decarbonization in a Volatile Economy

The push for decarbonization continues at pace, with a notable focus on transition finance and policy support.

UK Transition Plans: The UK Government, led by Energy Secretary Ed Miliband, announced in late June a series of new consultations on climate-related transition plan requirements for banks and large companies. The goal is to "help unlock billions in clean energy investment" by providing a framework that gives investors confidence. These consultations are open until September 17, 2025. (Source: GOV.UK, "Plans for UK to become sustainable finance capital of the world," June 25, 2025, available here:
NatWest's New Target: UK-based NatWest Group has set an ambitious new target to provide £200 billion in climate and transition finance by the end of 2030, doubling its previous goal. This commitment is explicitly aimed at supporting net-zero ambitions across "hard-to-abate" sectors like iron & steel and aviation, demonstrating a clear focus on the most difficult parts of the transition. Source: ESG Today, "NatWest Unveils Target to Provide £200 Billion in Climate, Transition Finance by 2030," July 28, 2025, available here:

3. Nature-Positive Finance: Investing in Biodiversity, Deforestation & Ecosystems

The financial industry is increasingly recognizing that nature risk is financially material, moving beyond climate as the sole environmental focus.

TNFD Concerns: The Taskforce on Nature-related Financial Disclosures (TNFD) has raised concerns that delays in EU reporting requirements are leaving nature risk "invisible" in corporate disclosures. A new TNFD report, released in mid-July, directly linked nature risks like water scarcity and changes in land use to corporate financial health, citing instances of disrupted production and increased operating costs. This underscores the urgency for investors to act, regardless of regulatory pace. Source: Environmental Finance, "TNFD ‘concerned’ about EU reporting delays," July 15, 2025, available here:
Biodiversity Net Gain: In the UK, the push to get the Biodiversity Net Gain (BNG) framework back on track continues, with a consultation on implementation principles ending on July 10, 2025. This aims to create a revenue stream from developers to fund nature restoration, highlighting the increasing financialization of nature-positive projects. Source: Parliament UK, "The role of natural capital in the UK's green economy," May 7, 2025, available here:

4. Tech Transition & Responsible AI: Investing in the Future (Ethically & Sustainably)

The ethical and environmental implications of AI are becoming a key concern for investors, alongside its potential to drive a sustainable transition.

AGM Activism: A new report on the 2025 US proxy season by Man Group reveals that while anti-ESG shareholder proposals have risen, they are seeing minimal support. Instead, a new trend has emerged: shareholder questions and proposals on AI risks and oversight. Investors are flagging concerns about AI's growing energy consumption, data privacy breaches, and ethical governance as key material risks. Source: Man Group, "AGMs: AI Concerns Amplify as Anti-ESG Noise Falls on Deaf Ears," July 29, 2025, available here:
The AI Act: This focus on AI governance is particularly relevant in Europe, where the AI Act is set to come into force next year, imposing strict requirements on companies deploying AI and raising the stakes for non-compliance.

5. Financing Nature: Bridging the Funding Gap for Ecological Solutions

Innovative financial mechanisms and public-private partnerships are being deployed to address the nature funding gap.

EU Nature Credit Programme: In a significant move, the EU Commission launched a new nature credit programme in early July to help scale private finance for nature restoration projects. This initiative is designed to create a market for nature credits that would be used by businesses and investors to demonstrate their positive impact on ecosystems. Source: Environmental Finance, "EU Commission launches nature credit programme to scale private finance," July 7, 2025, available here:
Blended Finance Case Study: Insights from the Nature Finance Forum 2025 highlighted the success of blended finance models, where concessional capital from governments and philanthropies is used to de-risk investments for private investors. This model is proving crucial for mobilizing capital for nature-based solutions, especially in emerging markets. Source: Convergence News, "Insights from the Nature Finance Forum 2025," May 28, 2025, available here:

6. Impact Investing: Measuring Real-World Outcomes Beyond Financial Returns

The impact investing sector is maturing, with a greater focus on robust and standardized measurement.

UK Place-Based Investing: An evaluation by the UK government on the Impact Investing Institute’s work in place-based impact investing has found that securing investments for specific local areas is "likely to take much longer than originally intended." The report, published in late July, found "no evidence of additional capital being allocated" to pilot areas, underscoring the challenges in translating good intent into real capital flows and the long-term nature of such projects. Source: Pioneers Post, "The Impact World this Week," July 24, 2025, available here:
The Power of Catalytic Capital: Conversely, the Rockefeller Foundation's Zero Gap Fund, in its latest report from July 24th, highlighted how its patient, risk-tolerant capital has successfully mobilized over $1.05 billion in private finance to advance the UN Sustainable Development Goals (SDGs), proving the power of blended finance and impact-driven investment solutions. Source: The Rockefeller Foundation, "Zero Gap Fund Mobilizes $1.05B," July 24, 2025, available here:

7. EU Sustainable Finance Regulation: Navigating the Latest Compliance Frontier

The EU regulatory landscape remains a key driver for sustainable finance, with ongoing efforts to simplify and refine the frameworks.

SFDR Scrutiny and Reform: A recent analysis highlights that the European Commission’s May 2025 Call for Evidence signals a potential reform of the Sustainable Finance Disclosure Regulation (SFDR). The critiques center on the vagueness of key concepts and the misapplication of the Article 6, 8, and 9 classifications as de facto labels. The potential changes would seek to replace the Articles with clearer product categories to combat greenwashing and improve consistency. (Source: Sodali, "SFDR: What the EU's Latest Moves Mean," July 24, 2025, available here:
ESG Ratings Regulation: The UK's ESG ratings regulatory regime is progressing. With the government aiming to lay secondary legislation in early 2025, the FCA will soon consult on specific requirements. This is a crucial development for data providers and asset managers, as it seeks to promote good governance and transparency in the ESG data market. Source: AREF, "ESG Ratings and Data Providers," June 16, 2025, available here:

8. The "S" Factor: Human Capital, Social Equity & Just Transition Investing

Social factors, often overlooked in the past, are gaining prominence as critical components of a resilient and sustainable economy.

"Build It In Britain": The UK government's new Clean Energy Industries Sector Plan, launched in late June, focuses on creating "good, skilled jobs" and driving investment in the UK's clean energy economy. This explicitly links climate action to social equity and the just transition for workers in industrial heartlands and coastal communities. Source: GOV.UK, "Clean energy future to be 'built in Britain'," June 23, 2025, available here:
Corporate Accountability: As a core component of "S" factor investing, a report from the Principles for Responsible Investment (PRI) highlights the importance of shareholder resolutions as a tool to hold corporate boards accountable for sustainability, including social and human capital issues. Source: PRI, "Active Ownership 2.0," January 23, 2025, available here:

9. Data & AI Revolution: Enhancing ESG Insights & Investment Decisions

The convergence of AI and ESG is creating new opportunities for efficiency and insight, but also new challenges.

AI vs. Human Judgement: A recent insight from Clarity AI, written in June 2025, argued that while AI is a "valuable tool" for ESG analysis, it cannot replace human judgement, especially for qualitative factors like corporate culture and leadership intent. This underscores the need for a balanced approach that combines technological speed with deep domain expertise. Source: Clarity AI, "The ESG Backlash Changed Sustainable Investing," June 12, 2025, available here:
AI's ESG Footprint: A report by KPMG from late 2024 highlighted the environmental impact of AI (large data centers consuming electricity and water), noting that effective governance of AI must also consider its own ESG footprint. Source: KPMG, "ESG in the Age of AI," August 2024, available here:
10. Stewardship & Influence: Driving Systemic Change Through Active Ownership

Active ownership and engagement are proving to be powerful tools for investors to drive change in companies and markets.

ESG Shareholder Resolutions: PRI research highlights that shareholder resolutions on sustainability are a valuable tool, with corporate boards increasingly held accountable for responding to successful proposals.
Active Ownership 2.0: The PRI's "Active Ownership 2.0" programme provides guidance and resources for investors to move beyond proxy voting to more effective engagement, including using due diligence questionnaires (DDQs) to evaluate managers' stewardship practices for sustainability outcomes. Source: PRI, "Active Ownership 2.0," September 21, 2023, available here:

Conclusion

The developments of the first half of this year demonstrate that responsible investing is not a passing trend but a dynamic and resilient market force. While political debates and regulatory complexities create challenges, they are also spurring innovation and demanding a higher level of rigor and transparency from the financial sector.

Leaders who proactively engage with these trends, rather than simply reacting, will be best positioned to drive long-term value and ensure a sustainable and prosperous future for their portfolios and for the wider society.

We look forward to exploring these topics in depth with you and your peers at #RAOEurope25

Adrienne Lawler