ESG Trends and Opportunities For 2025

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Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject matter experts themselves. 

Aaron White, vice president, sustainable investments at CIBC Asset Management.  

ESG investing has been undertaking a rapid maturation process. The combination of regulatory oversight and politicization has created a more cautious environment for both investors and companies in their approach to ESG and their communication around their activities. This has created a double-edged sword in that the competing pressures between risk and transparency have become more difficult for companies and investors to balance. 

A hallmark of effective management of ESG risks and opportunities has been transparency to stakeholders of a company’s exposure and how they’re managing those factors in their strategy. 

Equally, investment managers have been increasingly recognizing the need to develop robust processes to incorporate these considerations into projections for company cash flows and performance.  

With the added scrutiny we have seen throughout 2024, increased standardization will be critical moving forward to continue the advancement of ESG practices.  

Despite these headwinds, we’ve not seen a pullback from institutional investors in their focus on ESG factors. Asset owners are continuing to recognize that long-term systemic risks and non-financial risks are an important part of assessing an investment opportunity, and that exercising active ownership over the long term adds values for their beneficiaries.  

We’re expecting several key trends to continue throughout 2025. First governments and regulatory bodies are expected to implement stricter ESG reporting standards and compliance requirements.  

A coalescence around S1 and S2 guidance from the International Sustainability Standards Board, including expected recommendations from the Canadian Sustainability Standards board, will help with standardization and to encourage and improve disclosures from companies.  

We expect this will settle some of the concerns that we’re seeing in the market from both companies and investors around some of these disclosure risks.  

This leads into our second trend to watch, which is the outcome of the consultation on Bill C-59. The bill was passed in June this year and aims to protect consumers against greenwashing.  

There was significant concerns across the market that were raised about the bill, in particular on two issues: the reverse-onus provision, which places the burden on the company to prove their claims; and that claims undergo adequate and proper substantiation in accordance with internationally recognized methodology. 

The uncertainty and what would qualify as internationally recognized methodology and the penalty being as high as 3% of global revenues, led to a number of organizations pulling back public disclosures and claims. Guidance on how enforcement will be performed will be critical to ensure that the market continues to disclose important ESG risks and metrics, while also balancing liability and risk.  

The third thing to watch in 2024 will be the outcome of COP-30, and this is possibly the most important trend. The Conference of Parties process is what resulted in the formation of the Paris Agreement in 2015. And ultimately future commitments at COP-25 in Glasgow set the nationally determined contributions for how countries would approach climate change. This COP is particularly important, given that will be the 10-year anniversary of the Paris Agreement, and will task the parties of the agreement to submit their new second NDCs. This will come at a time where the world is behind on their commitments to meet net zero by 2050 and a crucial juncture if we’re going to keep warming below two degrees.  

We’ll have a much clearer picture of how the global transition will play out following the COP 30 meeting in Brazil. 

The final trend to watch is the obvious elephant in the room, how the U.S. election will impact the ESG landscape south of the border. It’s important to note that we are not clear on what policies the new administration will implement, but we can take some direction from the action they took in their first term and what they’ve said on the campaign trail. I think three things are particularly likely, regulatory rollbacks, reduced focus on climate change and energy policy shifts. 

We’ll likely see the rollback of various environmental regulations and policies aimed at reducing carbon emissions and promoting sustainability. This may result in less stringent reporting requirements for companies, potentially impacting the overall transparency and accountability in ESG practices.  

The new administration may place a decreased emphasis on addressing climate change at the federal level. This could slow down the progress of initiatives aimed at achieving carbon neutrality and mitigating climate risks affecting companies’ climate action plans and investor priorities. We may even see the U.S. pull out of the Paris Agreement, which would make achieving its objectives difficult without U.S. participation, particularly given we’re in a vital decade for action.  

The Trump administration will likely prioritize traditional energy sources such as coal, oil and natural gas over renewable energy. This shift could impact investments in renewable energy projects and technologies, potentially slowing the transition to a more sustainable energy landscape.  

However, the Inflation Reduction Act (IRA) has had wildly successful [impacts] and has benefited traditional energy producing states. It would be very difficult for the administration to dismantle the IRA completely, and it’s much more likely that changes will be made around the margin.  

The campaign made nuclear an important part of the energy mix discussion, and therefore it’s likely that we’ll see moves to reduce the regulatory challenges with the development of new nuclear energy and a push to increase its importance in the electrification of the U.S. economy.  

With that being said, we view an environment of deregulation in the U.S. to be a positive for ESG more broadly. Investors will be increasingly less able to rely on regulation to ensure companies are managing risks appropriately. ESG integration therefore will present greater opportunity to understand how companies are implementing internal risk controls and ensure that effective governance is in place to manage these risks. 

The most exciting opportunity we’re seeing is in the development of the carbon dioxide removal market.  

We’re seeing significant advancements in both technology and infrastructure to sequester carbon. This is extremely exciting as it’s a critical part of achieving net zero commitments by removing residual emissions from hard-to-abate sectors and industries. This market is maturing at a pace that presents significant opportunities for investors and will also help support companies in ambitious decarbonization strategies, as well as investors at the portfolio level. 

While this space is limited predominantly to private markets today, due to the maturation we’re seeing in this market, we anticipate there’ll be increasingly available public securities to support the investment in the new CDR market that’s emerging rapidly across the globe. 

We’ve seen continued investor interest in ESG integration as well, and we expect that there’ll be continued development in both the availability of data and tools to support these activities. 

We’re also seeing many investors build out more robust active ownership platforms as we recognize the value that engagement and proxy voting presents to long-term returns for markets.  

Both of these activities enable investors to gain deeper understanding of the companies and systems that we invest in, and we believe is supporting better investment decisions over the long term.  

Ultimately, the most important takeaway I would like for advisors is to understand the distinction between products and process. The bulk of the maturation and development in our industry that has taken place over the last five years has been a focus on the development of process, while most of the media attention has been focused on product. This has continued to contribute to the confusion and polarization around ESG in the market, as the narrative has shifted away from ESG integration’s true intent, which is to deliver better investment outcomes for clients.  

We are approaching a new phase where we likely will see an increasing number of investors drop the ESG moniker altogether. ESG integration is simply good investing. And a robust investment approach must consider all relevant risks — financial and non-financial.  

We will also likely see the same trend in product where investment managers will be more specific about labeling their solutions to outcomes, rather than catch-all terms like ESG. 

Advisors should embrace the benefits of ESG integration and should work within the planning process to understand the non-financial objectives of their clients. This holistic planning approach adds value to client relationships and outcomes and, ultimately, to an advisor’s practice.