At first glance, one would almost think that all is well: the flow of capital to responsible financing is huge; normative documents aimed at promoting the transformation of our economies are about to come into force; Europe, the United States and international organizations are working to create more legible and comprehensive non-financial accounting. However, this would mean quickly forgetting the ultimate goal of these efforts: to create a more responsible, socially just and ecological world. Do the transformations really meet the ambitions? Who has the power today to accelerate change?
Investors and asset managers have reason to rejoice. According to a report by Esma (European Securities and Markets Authorities) on April 5, ESG funds outperformed other traditional investment instruments during the 2010-2020 decade. Even better, the higher the criteria and requirements of the fund, the better the results. Thus, the net asset value of impact funds over the ten years increased by 4% compared to 2% for other ESG strategies and 1.7% for those who are satisfied with the exclusion of sectors. Coefficient that can shift the balance in favor of the most demanding funds, those with an impact strategy classified in Article 9 in accordance with the European SFDR Regulation.
These results have undoubtedly played a key role in the flow of capital, which is full of responsible investments. According to Bloomberg Intelligence, released last year, ESG’s global assets under management exceeded $ 35 trillion in 2020 and are expected to exceed $ 50 trillion by 2025. The ESG ETF is then expected to weigh $ 1 trillion and the ESG debt $ 11 trillion, demonstrating the extent to which these investments are no longer limited to equities. The weight of Europe in this rise of power is also noticeable. In 2020, the symbolic threshold of 10% of the total ESG funds was exceeded. Prosperity, which is associated not only with the creation of new products, but also with high demand from investors.
Put the numbers in perspective
There is reason to rejoice in the huge flows of capital in favor of ESG management – in all that it can cover in terms of diversity of requirements. At least until we listen to the IPCC. In her latest report, she warns that without massive and immediate reductions in greenhouse gas emissions, limiting global warming to 1.5 ° C will be impossible. Between 2010 and 2020, average global emissions reached their highest peak in human history. The IPCC has diagnosed that investment in climate change is extremely scarce. “Financial flows are three to six times lower than what is needed by 2030 to limit global warming to less than 2 ° C. At the same time, we must not forget that climate change is only one part of the ESG, the Orpea scandal reminds us of the scale of the shortcomings of social and managerial pillars.
Where will the “pure signal” expected by the IPCC come from?
So what is missing to accelerate the transition to a more sustainable world? Funding, of course. With the entry into force of the MiFID 2 rules this year, we can hope that individual savings will be more willing to focus on ESG support. However, there is currently no consensus on how to identify available support and direct this capital. This is evidenced by the call to review existing labels, including the French SRI label, and create new ones.
In his report to Bruno Le Mer, Yves Perrier, President of Amundi and Vice-President of Paris Europlace, thus favored the Climate Transition label. This is also evidenced by discussions on the rating agencies’ rating and rating methodology. A debate that reminds us that data management is really about data management. Without knowledge of the transitional efforts that need to be made, without identification, evaluation and comparison, effective investment is impossible.
This topic is expected to accelerate significantly in the coming months, as the structure of non-financial accounting is currently under discussion in Europe, the United States and international accounting bodies. Over time, diametrically opposed views, whether between Europeans and Americans, or between companies and financiers. The path chosen will be very significant in terms of involving the various stakeholders and may, if the least ambitious wins, finally deviate from the trajectory set out in the Paris Agreements.
Tensions around non-financial accounting
However, tensions over non-financial accounting do not hamper initiatives aimed at increasing the attention of the ESG to all economic stakeholders. Among the latter today is the Bank of France. It becomes the first central bank to join CDP, a non-profit organization that manages the environmental data of nearly 10,400 registered companies worldwide, worth $ 106 trillion. The ambitions of the French central bank are twofold. It intends to use CDP ratings to make its own investments towards carbon neutrality by 2030.
The agency also intends to integrate this data into its own work to integrate climate change into account by companies in its credit rating system. An example that once again demonstrates that access to data and the creation of a shared repository is an important basis for the transformation of finance and business.