ESG – Where are we today?
For a long time, the European Commission (EC) has intended to increase sustainable finance growth, by encouraging investments considering specific Environmental, Social and Governance (ESG) criteria. In 2018, three legislative proposals were published, aiming at creating a European Union (EU) sustainable finance taxonomy, enhancing transparency on sustainable investments and risks, and finally, establishing low-carbon benchmarks.
On the one hand, asset managers have been forced to undertake a strong shift towards investments that incorporate ESG factors and to comply with a new regulatory investment framework. On the other hand, EU regulation offers new business opportunities and solutions for investors who are increasingly giving due consideration to ‘green’ investments.
To answer investors’ growing expectations, several things were done to enhance ESG investment strategies.
One of the first steps was the creation of labels contributing to channel investment towards funds following sustainable objectives. After that, numerous studies by the Global Sustainable Investment Alliance showed a huge increase in the number of financial products claiming to be sustainable. But there was still a long way to go.
In 2019, the European Commission published its main ESG regulation applicable to financial market participants: the Sustainable Finance Disclosures Regulation (SFDR). In 2020, another regulation was introduced: the EU Taxonomy, which lists economic activities eligible to EU green sector.
ESG concern on standardisation and true green assets
In the reality, the ESG scope remains saturated with terminologies and different types of strategies, creating lots of possible interpretations for both sustainability and ESG factors.
As far as we are concerned, we see several points of attention: a lack of precision in regulations that prevents harmonisation between products; a need to be inclusive with strategies on ESG transitions without focussing only on dark green consideration; and finally, sustainable finance should also be present on secondary market and not limited to primary market.
At the end, we are now observing several institutions among the major asset managers deciding to move from Art. 9 of SFDR (dark green) to Art. 8 of SFDR (green or light green).
In this situation, one can wonder whether all those regulations reached their goals. That is the question we asked to major observers of the market trends. You will find their views and suggestions to relaunch the dynamic in the first chapter of this magazine.
Nevertheless, truly green assets exist.
Despite the challenges to comply with the regulatory framework, more and more companies are transforming their organisation, their offerings and their commercial practices to comply with their investors’ expectations. It is also the purpose of this magazine to allow investment players to explain how they managed to meet their clients’ sustainable objectives and align their strategies with the growing demand for a new criterion: the fund’s performance, both financial and on sustainability.
Final steps in 2023 on green transparency?
How can the finance industry step up about producing and achieving this ‘’green transparency’’ expected since many years by investors, consumers and financial producers interested in green economy, environment, and preservation of the planet?
How can regulation be more supportive of those initiatives and be complemented accordingly?
Those are some of the questions that should be addressed in 2023 knowing that we will be seeing the first periodic ESG reporting this year and consequently rely on a global view of the European market in its ESG transformation.
Our ESG magazine gives the floor to ESG stakeholders to take a picture on green matters from regulation to practical ESG requirements, sharing experience and vision of the future.
We hope that you will enjoy those high-level contributions to this exciting debate!