The green transition and the digital transformation are inalienable objectives but they require massive investments, both public and private. Private investors are increasingly targeting sustainable investing, that is to say investments that create value, offer positive returns and have a long-term impact on society, environment and the performance of the business. Inequality, at the macro level, is an obstacle to economic growth, it reduces resilience to shocks, and it is a good measure of socio-political instability that can end up affecting the financial system as well. At the micro level, a potential threat to investment performance originates from a company’s reputational and regulatory risks due to, among other things, infringements of labour rights and/or equal pay.
Sustainable investing is at the crossroads of policymaking. Investors affect the supply and demand of securities when they act on their views, but governments can gear financial 6 outcomes by regulating the ESG1 -related fields. An example is the USA’s withdrawal from the Paris Climate Agreement and negatively influencing regional asset pricing on the Environmental pillar. Against this, also thanks to public policy frameworks, 2014 was a turning point for ESG investments, the returns of which outperformed non-ESG investments. Since 2018, social-featured (the so-called S factor) investments have outperformed financial market indexes).
Another aspect is the growing complexity in ESG investing, with investors adopting a more dynamic approach and betting on future ESG “winners” by engaging with the companies (to influence the improvement of their ESG rate) instead of just cutting off the worst performers.
However, there remain obstacles to social, green and inclusive finance. In order to be effective, investment methodologies require consensus and must be implemented in the right manner, and increasingly, with the right data. Most of the issues at hand (climate change and social inclusiveness for example) are not yet fully mature. The environment is probably the most advanced issue: there is scientific consensus on its impact and increasingly there are methodologies to take it into account, and although data are often lacking, things are improving. Social issues however, are still lacking full consensus from an investor’s point of view, while from a worker’s standpoint it is more an issue of acceptance of current social standards.
Investing in ESG funds could be a winning strategy in the post-COVID-19 economy.
Firstly, ESG funds have been extremely resistant: cumulative flows have continued to increase throughout the crisis period. Possible reasons:
• Investors view ESG funds as “pandemic-proof”, since they are usually overweight sectors that have weathered the crisis better (healthcare, technologies)
• ESG investors have a longer-term perspective, or are more “loyal” to ESG funds
In the environmental sphere, there is growing momentum for a green recovery, which will require massive financing. Some financial innovations are necessary to accompany such a large-scale programme, such as green securitisation in Europe. In the social sphere, COVID-19 will exercise a huge pressure on social systems. Calls for a “new social contract” across the world are making the “consensus” issue less difficult than before. Inequality and the need for inclusiveness are increasing everywhere. Global frameworks such as the SDGs, OECD standards and the ILO Conventions determine the reference framework for creating consensus and developing methodologies for investors.
It is necessary to develop legal frameworks that encourage investors to engage with companies to steer them towards sustainability patterns. Investors must engage with businesses to drive them towards a sustainability pattern. Business governance must be open to shareholder activism and worker participation. Acceptance of national, European and international rules and frameworks, such as the SDGs, the OECD standards and the ILO rules, is a crucial step in developing a sound methodology for sustainable investments. Social dialogue can achieve a great deal, especially when it comes to creating consensus on the notion of fair transition, including the definition of tangible indicators in support of new patterns for sustainable investments.
Business Solutions and Innovation
Théophile works in Amundi’s Paris office on structuring investment solutions for Amundi’s institutional clients, with a double focus: on public institutions (supranational entities such as EIB, national entities such as Central Banks, sovereign wealth funds etc.), and on green and social solutions. Most of his projects currently involve green bonds and the development of this market, as well as incorporate inequality and the “Just Transition” in investment frameworks. He has also worked on ESG advisory for institutional clients. He has a background in finance, management and economic history.
Founder Strategic Advisor
Founder and President of Business & Society Advisers – Strategic Advisor of the One Planet Sovereign Wealth Funds initiative. Guillaume Cravero graduated from the London School of Economics and Grenoble Ecole de Management. He was Diplomatic Advisor to Labour Minister Muriel Pénicaud (2018-2019), Senior Social Affairs Adviser at BusinessEurope (2011-2018) and Political Assistant at the CFDT (2008-2010). Guillaume also served as Online Project Manager for the magazine Le Moniteur du Commerce International (BusinessFrance) and was Trade Attaché with the French Trade Commission in the United States (French-American Chamber of Commerce, Seattle). He is co-author of the business & leadership book Creative Attitude – A new management philosophy to inspire, motivate, collaborate and innovate in companies (Editions Dunod).
Director of Research Office
Standard Ethics AEI
Graduated in Political Sciences, Strategic Studies (MSc), Ph.D. in Corporate Finance, Doctoral School of Finance, University of Trieste. He started his professional career working for HSBC in London (1992), covering all major derivatives markets: LIFFE (UK); CBOT (US); MATIF (France); DTB (German); CME (US). He also worked for other banks (like IMI Bank in London, owned by the Italian Ministry of Finance) before joining AEI in 2001 as CEO. Then, he began to focus intensely on such issues as corporate governance, corporate social responsibility and sustainable development. He became Directeur Exécutif of Standard Ethics AEI GEIE (Brussels) in 2004.
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