Entering the policy-driven era for sustainable finance

Last week a quite interesting event on sustainable finance took place in Milan, organized by NN IP (NN Investment Partners).

Jeroen Derwall, professor of Finance at Maastricht University, co-founder of Ecce (European Centre for Corporate Engagement, a renowned research centre NN IP partners with) and Moskowitz Prize winner in 2005, presented the first results of an innovative study focused on the integration of Esg factors in the fixed-income space. Simona Merzagora, Managing Director at NN IP, also presented some noteworhty slides on the evolution and rise in importance of Esg factors – also referred to as intangibles or extra-financial factors – when it comes to the assessment of a listed company’s market value: she showed that while in 1975 intangibles assets represented less than 20% of a company’s market value, fourty years later that figure increased more than four fold to 87%. To some extent, you can call it the intangibles tyranny, although that shifting has been no doubt welcome.

Francesco Bicciato, Secretary General at the Italian SIF (FFS-Forum per la Finanza Sostenibile), then said that over the last two years and a half FFS’ members doubled, from 40 to roughly 80. Lorenzo Saa, Director Networks and Global Outreach at Un Pri, also reminded the audience of the astonishing increase in Un Pri’s signatories over a little more than a decade: from 2006, when Un Pri was launched, until today, the signatories passed from a few dozen to more than 2,000, with a total AUM of about US$ 80 trillions. He added that Southern Europe, especially Italy and Spain, is one of the fastest-growing markets in the world with regard to new signatories.

All these voices heard in Milan seemed to me just one voice saying: Esg days have come; Esg finance is now mainstream; you can’t help but go through Esg factors, analysis, integration if you’re an (institutional) investor.

That said, the question is: which are the main reasons or drivers behind the spectacular and unstoppable growth of sustainable finance over the last decade and mainly, I would specify, over the last two-three years? I know that’s the million dollar question. But on that point, it was Lorenzo Saa who helped connect the dots. In his view, the drivers I was wondering about are: first, the increased awareness that sustainable finance has been proved not to penalise returns, in other words that the integration of Esg factors in the investment process doesn’t affect performances, quite the opposite; second, the big growth in demand, both from institutional and from retail investors; third, the fact that Esg integration and being sustainable at large have become increasingly a matter of reputation for investors, mainly for the institutional ones; fourth, the growing impact of public policies and regulatory initiatives related to sustainable finance throughout the world.

Let’s focus for a while on the last point. As the final report of the UN Environment Inquiry into the Design of a Sustainable Financial System recently revealed, policy measures regarding sustainable finance have accelerated considerably over the last few years, passing from 139 measures in place at the end of 2013 to 300 at the end of 2017. Similar figures emerged from a previous study published by Un Pri in late 2016: more than 300 policy instruments were identified in the largest 50 world’s economies, with more than half of which being created between 2013 and 2016. Moreover, consider the recent well-known huge moves in this space made by the European Commission and the European Parliament, which put Europe at the forefront of sustainable finance globally even more than it was.

To say it in brief, it seems that sustainable finance has definitely entered the policy-driven era, policy initiatives and regulatory instruments having become the most important driver for the growth of sustainable finance.

About that, tomorrow in Italy – to be more precise, on Twitter, since it’s a Twitter Chat – a debate (in Italian) is going to take place, which everybody working in the sustainable finance field might be interested in at least a bit, and not only in Italy, around the following question: what about introducing sustainable finance principles into the Constitution of the Italian Republic, the Supreme Law? Is it something to consider as possible, proper, necessary, desirable, achievable? What could it mean in symbolic terms? And in practical terms which could be the consequences? Could it help Italy achieve the SDGs?

Tomorrow morning, June 6th, from 11:30 am to 12:30 pm, a group of ten distinguished guest speakers will debate the issue, starting from the definition of sustainable finance provided by the Italian Sif some years ago. Tomorrow’s Twitter Chat is listed in the official Events Calendar of the 2nd Sustainable Development Festival underway in Italy, promoted by the Italian Alliance for Sustainable Development (Asvis).

As far as I know, no one country in the world has introduced sustainable finance principles into its own Constitution. I can’t say if my country will be the first. But, in case, I think that it would represent a (big!) change likely to be much appreciated by future generations.

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