RAOGlobal Newsletter: 18th - 25th July

31 Jul

The Responsible Investment Compass: Navigating Dynamic Developments in 2025

A Newsletter for Global Financial Leaders

Issue Date: July 25, 2025

As we navigate the third quarter of 2025, the landscape of responsible investing continues its rapid evolution, moving beyond nascent trends to embed itself as a fundamental pillar of modern finance. The past week alone, since July 17th, has brought forth significant developments across regulatory fronts, market innovations, and shifts in strategic focus. This newsletter aims to distill these key updates, offering you a concise yet comprehensive overview to inform your forward-looking strategies.

The narrative around ESG is no longer one of debate, but of strategic imperative. From the boardroom to the trading floor, the integration of environmental, social, and governance factors is proving to be a critical driver of both risk mitigation and alpha generation. This is particularly evident as global leaders grapple with geopolitical fragmentation, the escalating climate crisis, and the ethical frontiers of technological advancement.

Geopolitics & Portfolio Resilience: Navigating a Fragmented World

The past week has further underscored the profound impact of geopolitical shifts on investment outcomes. BlackRock's latest Geopolitical Risk Dashboard (July 2025) highlights mounting geopolitical competition, increasing cyber attacks, and the continued trend of trade protectionism as key forces accelerating fragmentation. Savills' recent analysis also pointed to a slowdown in Foreign Direct Investment (FDI) as investors adopt a "wait-and-see" approach amidst heightened uncertainty, leading to a reshaping of global supply chains.

For financial leaders, this translates into a heightened need for portfolio resilience. Investors are actively seeking strategies that can withstand shocks from economic sanctions, supply chain disruptions, and escalating regional conflicts. This includes a growing emphasis on:

Diversification beyond traditional metrics: Considering geopolitical exposure as a fundamental risk factor in asset allocation.
Near-shoring and re-shoring: A growing trend among companies to bring supply chains closer to end markets, albeit with the acknowledgement that this can decrease overall global economic efficiency.
Scenario planning and stress testing: Developing robust frameworks to assess portfolio vulnerabilities to various geopolitical outcomes.

The message is clear: geopolitical risk is no longer a peripheral concern but a central determinant of financial performance, demanding proactive and adaptive investment strategies.

Climate & Capital: Accelerating Decarbonization in a Volatile Economy

The climate agenda continues its relentless march forward, with a strong focus on practical decarbonization pathways. While the broader market grapples with economic volatility, the imperative to transition to a low-carbon economy remains undimmed, driven by both policy and market forces.

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

Beyond carbon, the financial implications of biodiversity loss are rapidly coming into sharper focus. This past week saw direct calls for action:

UK Biodiversity Net Gain (BNG): Environment and business leaders in the UK have urged the government to get Biodiversity Net Gain back on track, emphasizing its critical role in reversing nature loss by 2030. This highlights growing pressure from stakeholders for tangible nature-positive outcomes.
Corporate Commitments: Balfour Beatty's updated Sustainability Strategy, launched July 23, 2025, includes new measurable targets for halting UK nature loss by 2030, aligning with broader initiatives to reverse biodiversity decline.

These developments underscore the urgent need for investors to integrate natural capital into their strategies, driven by emerging regulations like TNFD and EUDR, and the increasing recognition of nature as a material financial risk and opportunity. The "nature-positive" movement is gaining significant traction, evolving from a niche concept to a core element of responsible investment.

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

The intersection of technology and responsible investment is proving to be one of the most dynamic areas. The rapid advancements in AI, in particular, are dual-edged swords – offering immense potential for ESG data analysis but also posing significant ethical questions.

AI's ESG Impact: A UN warning issued this month highlighted a 150% surge in indirect emissions at major tech firms driven by the AI boom, underscoring the energy consumption challenge. Conversely, Google's release of an AI Policy Roadmap to help the EU achieve climate neutrality by 2050 and its partnership with Dow to use AI sorting tech for recycling hard-to-process plastics demonstrate AI's potential for sustainable solutions.
Responsible AI in Finance: Companies like Clarity AI are unveiling AI-driven solutions to revolutionize sustainability research for investors, enhancing ESG insights. The broader discussion around ethical AI deployment in finance is intensifying, with an emphasis on transparency, fairness, and avoiding biased decision-making, as noted in ESGmark's 2025 trends report.
Defense Tech and ESG: The EU Commission has issued a notice clarifying the application of sustainable finance legislation to defense investments, along with clarifications around controversial weapons, highlighting the complex ethical considerations for investors in emerging areas like defense tech.

The challenge for financial leaders is to harness AI's power for enhanced ESG decision-making while ensuring its ethical governance and mitigating its own environmental footprint.

Financing Nature: Bridging the Funding Gap for Ecological Solutions

The immense funding gap in nature conservation and restoration remains a pressing concern, but innovative financing models are gaining traction.

Blended Finance Momentum: The Rockefeller Foundation's Zero Gap Fund, in partnership with the MacArthur Foundation, released its 2024 State of the Portfolio report on July 24, 2025, highlighting the critical role of catalytic capital in mobilizing over $1.05 billion in private finance for high-impact investments aimed at advancing the UN Sustainable Development Goals (SDGs). This is a prime example of blended finance in action.
Carbon Markets and Nature: Chestnut Carbon's planting of 17 million trees across 30,000 acres in the largest U.S. afforestation project, and Carbon Alpha partnering to digitally track Canada's first large-scale carbon removal project, demonstrate the growing link between nature-based solutions and carbon markets, attracting private capital for ecological solutions.

These initiatives are crucial for scaling investments in natural capital, leveraging innovative financial instruments and public-private partnerships.

Impact Investing: Measuring Real-World Outcomes Beyond Financial Returns

Impact investing continues to mature, with a heightened focus on rigorous measurement and management of real-world outcomes.

Catalytic Capital's Role: The Rockefeller Foundation's Zero Gap Fund report, released just yesterday, underscores how patient, risk-tolerant, and flexible capital is driving impact across diverse sectors. This fund actively seeks to increase large-scale private investment to advance the SDGs, proving the power of catalytic capital.
Scaling Impact: Discussions are ongoing about best practices in robust impact measurement and management (IMM) to demonstrate genuine social and environmental outcomes. This includes initiatives in affordable housing, urban regeneration, and other areas where capital can directly address societal challenges.
Beyond Financial Metrics: The emphasis is firmly on moving beyond traditional financial returns to truly quantify the positive social and environmental changes brought about by investments.

EU Sustainable Finance Regulation: Navigating the Latest Compliance Frontier

The EU continues to lead the charge in sustainable finance regulation, demanding vigilance and adaptation from financial institutions. The past week has seen significant clarifications and proposed simplifications:

CSRD & ESRS Simplification: On July 1, 2025, the European Commission sent a letter to EFRAG, extending the deadline for technical advice on revising and simplifying the ESRS to November 30, 2025. This aims to reduce the reporting burden under the Corporate Sustainability Reporting Directive (CSRD), with EFRAG aiming for a "50+% reduction" in mandatory data points while preserving integrity. The Council also proposed a net turnover threshold of over €450 million to remove further entities from CSRD scope.
EU Taxonomy Updates: On July 4, 2025, the European Commission adopted a Delegated Act to specifically simplify the application of the EU Taxonomy, aiming to reduce administrative burdens while retaining core objectives.
Green Claims Directive on Hold: The Commission clarified on June 30, 2025, that it intends to withdraw its proposed directive on substantiation and certification requirements for environmental claims if micro-enterprises are not removed from scope, signaling a push for proportionality in greenwashing rules. Meanwhile, ESMA published thematic notes on July 1, 2025, for market participants on clear, fair, and not misleading sustainability-related claims.
Defense Investment Clarity: The European Commission issued a notice clarifying the application of sustainable finance legislation to defense investments, providing much-needed guidance in a complex area.

These developments highlight a concerted effort to refine and simplify the EU's regulatory framework, addressing implementation challenges while maintaining the ambition of preventing greenwashing and driving genuine sustainability.

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

The social dimension of ESG is gaining critical momentum, recognizing that a sustainable economy must also be a just and equitable one.

Human Rights Due Diligence: The adoption of the EU's Corporate Sustainability Due Diligence Directive (CSDDD) last year marked a turning point, strengthening the link between social and environmental sustainability.
DEI and Fair Labor: Financial leaders are increasingly integrating human rights due diligence, fair labor practices, and diversity, equity, and inclusion (DEI) into their investment strategies. While specific news since July 17th is sparse, the ongoing discussions reflect a deepening understanding that investing in employees pays off, as highlighted by CPP Investments' recent news (July 24, 2025) on integrating AI and human capital.
Just Transition: The concept of a "just transition" – ensuring that the shift to a low-carbon economy is fair and inclusive for workers and communities – is becoming a key consideration for investors, particularly in sectors undergoing significant transformation.

Data & AI Revolution: Enhancing ESG Insights & Investment Decisions

AI's transformative potential for ESG data analysis is rapidly unfolding, though challenges remain.

AI for ESG Data: Datamaran has launched a suite to power "Always-On ESG Strategy," while Clarity AI unveiled an AI-driven solution to revolutionize sustainability research. These tools aim to improve data quality, integrate disparate datasets, and enhance due diligence.
Addressing Data Gaps: ESGmark's 2025 trends report notes that "AI is transforming ESG data management by increasing efficiency, accuracy, and transparency," with many organizations planning to increase budgets for data acquisition and analysis, and invest more in AI software.
Ethical Considerations: The UN's recent warning about AI's indirect emissions highlights the imperative for responsible AI use, including expert oversight and clear governance frameworks to mitigate risks like energy consumption and biased decision-making.

The revolution in ESG data is enabling more sophisticated analysis and decision-making, but it necessitates careful management of the technology itself.

Stewardship & Influence: Driving Systemic Change Through Active Ownership

Active ownership continues to be a powerful lever for driving systemic change beyond simple proxy voting.

UK Stewardship Code: USS (Universities Superannuation Scheme) recently published its 2025 Stewardship Report, outlining its approach to meeting the UK Stewardship Code principles – widely recognized as a leading framework globally. This report emphasizes active ownership, engagement, and collaboration to protect and enhance long-term value.
Climate Impact Pledge: Legal & General Investment Management (LGIM) released its 2025 Climate Impact Pledge report, detailing its ambitious engagement program aimed at achieving net-zero carbon emissions, encompassing not just climate but also nature, people, health, governance, and digitization.
Engagement and Collaboration: The focus is on effective shareholder engagement strategies, collective action initiatives, and how asset owners can exercise their influence to drive corporate accountability and systemic change on critical ESG issues.

The message is clear: responsible investors are leveraging their influence as owners to drive tangible improvements in corporate behavior and contribute to broader systemic change.

Conclusion

The period since July 17, 2025, vividly illustrates that responsible investing is not a static concept but a dynamic and ever-evolving field. Financial leaders must remain agile, integrating new geopolitical realities, accelerating decarbonization efforts, embracing nature-positive strategies, and harnessing the power of AI ethically. The regulatory landscape continues to mature, demanding heightened compliance while also striving for simplification. Crucially, the focus on social equity and proactive stewardship underscores that responsible investing is as much about people and planet as it is about profit.

By staying abreast of these developments and proactively integrating them into your strategies, you can not only mitigate risks but also unlock significant opportunities for long-term value creation and positive societal impact. Which leads nicely onto leaders taking part in #RAOEurope25 on Oct 21st, see the first 20 here.

Adrienne Lawler