Finance: the right place and the right time
Last week an important piece of Man’s future here on earth undoubtedly played out in Brussels.
So what happened? Was it a Summit of the world’s nuclear superpowers? A convention of biodiversity experts tasked with saving what can still be saved?
Not even close. The day was the launch of the European Commission’s Action Plan on Sustainable Finance, attended by the French president, Emmanuel Macron. Many will find it difficult to understand how such an ‘inconsequential’ event could be linked to “Man’s future on earth” or even, paradoxically, the financial industry.
And yet, ten years after the economic balance shifted, it is no longer rare (and thankfully so) for the term “finance” to be preceded by qualifiers such as “sustainable”, “green” or “responsible.” Without debating the real, transversal and absolute reality of this rediscovered sense of purpose, we are simply thrilled with the progress that has been made. We may not have come far, but ten years ago, we weren’t even going to go this far.
Emmanuel Macron had a ring-side seat for the presentation of the newly proposed framework for sustainable finance in Europe. Tackling global warming is a priority; building a greener, more sustainable economy and achieving the target set by the Paris Climate Agreement. To put it another way: how can we steer more capital towards projects that can see Europe successfully halt global warming? To make it even simpler: how can we steer more capital towards the common good?
It might have taken 10 years of introspection, but the financial industry is finally asking the question. The transformation is only just beginning, and as expected, it is not yet consistent. It is in its infancy in Asia, on the rise in the United States, and prevalent in Europe.
Driven by a growing number of enlightened investors, the mechanisms behind the funding of the economy – and corporations in particular – are in the process of changing, both radically and for a long time to come. Investors already place a premium on “sustainable” projects, long-term visions, and active, altruistic, environmentally-aware companies. They want to be able to assess the impact of their investments. Investment service providers – with asset managers topping the list – are expected to provide them with the tools to do so, and with the solutions to manage their investments in a way that promotes sustainable growth and an inclusive economy. Importantly for the asset management industry, the Action Plan recommends clarifying and codifying the duties of investors. This would include investment vehicles and portfolio managers governed by Ucits thereby furthering the development of a cross-border, European wide minimum standard for ESG.
The European Commission should be congratulated for quickly putting together such an ambitious proposal, one that will fall flat unless it is backed by an economic policy that is equally as determined. The European financial industry has everything to gain in seizing this opportunity and consolidating its lead in sustainable finance. The action plan holds the promise to do just that: by helping to establish Europe as a magnet for sustainable investments and low-carbon technologies, it will secure its legitimacy and technical supremacy for decades to come.
In this day and age, when the world is forced to fundamentally change how it consumes its available resources in order to preserve the earth for future generations, we all need to give more careful consideration to the implications of our actions. Sustainable finance is a platform that has restored a sense of social utility to the financial industry, which is now prepared to fully assume its role in realising this vision.
Naïm Abou-Jaoudé is the chief executive officer of Candriam, one of the leading asset managers in Europe, and the chairman of New York Life Investment Management International