Sustainable finance expert: Investment transparency is crucial
A high-level expert group released on Wednesday (31 January) a report to help guide the European Commission in its quest to make the EU’s economy sustainable. One of the members of the group explained some of the detail in an interview.
Flavia Micilotta is the executive director of the European Sustainable Investment Forum (Eurosif) and was a member of the high-level expert group on sustainable finance.
She spoke to EURACTIV’s Sam Morgan.
How big a role does improving transparency play in the report?
A great one. The HLEG group tried to focus on one of the main challenges to the achievement of a sustainable financial system and indeed, we soon agreed that the pervasive lack of transparency across the investment chain. Transparency is very much linked to disclosure of course and to the way this affects long-term investment decisions. The next few years will be critical in terms of bridging the gap around disclosure and transparency and the system has been awakened by article 173. Its impact resonated way beyond France and the rest of Europe still has to come to terms with it.
Much has been done at the global level as well, and the work of the FSB’s Task Force on Climate-related Financial Disclosures [TCFD] has greatly shaped our thinking. Its endorsement from the European Commission is a recommendation that builds on the recognition of its value for investors and for all the players involved in this space. Connecting the TCFD compliant climate-related disclosure requirements into the EU NFRD is a tangible way of intertwining these two complementary pieces of work so crucial for transparency.
By recommending that the Sustainable Development Goals and Paris Agreement goals be hardwired into the financial system, the report is big on transition, be it societal or energy in nature. Do you expect these recommendations to face opposition? “Nobody likes change”, after all.
The SDGs and the Paris Agreement are already strong reference points in the financial sector. Take the SDGs alone, for example. They comprise a global and inclusive agenda to end poverty by 2030 and they tackle the root causes of poverty while looking to foster positive change for both people and planet. Promoting ESG [environmental, social and governance factors] adoption throughout the investment value chain can encourage greater private investment in sustainable development, resulting in greater impact.
ESG integration refers to the explicit inclusion of ESG factors by asset managers into the traditional financial analysis. This investment process has been gaining momentum, not only in Europe but across the globe, becoming the most widely used strategy by SRI investors, whose large majority reportedly has a formal integration policy document. The ESG efforts by the various private actors are consistent with the Sustainable Development Goals (SDGs) but need to be leveraged further to achieve stronger outcomes.
Some players and countries, like the Netherlands for instance, are already leading the way around this discussion and want to be recognised as leaders in this space. Europe needs this positive competition.
