Wednesday 13 January 2021
Tribune - Impact investing: 2030 begins today - Valérie Baudson
AFTER GOVERNANCE AND THE ENVIRONMENT, INVESTING IN THE ‘S’ OF ESG
Five years after the first Climate Finance Day in 2015, a prelude to the signing of the Paris Agreement at COP 21, investors are increasingly pricing in the risk that climate change poses to growth and asset valuations. Central banks, which are the financial market trend-setters these days, have put climate change on the agenda via the Network for Greening the Financial System, in recognition that this risk threatens financial stability. The Bank for International Settlements and the Bank of France have even called it a “Green Swan”, meaning a clear risk involving a number of interconnected and non-linear factors that pose a threat to human life. I am delighted that environmental issues are now anchored in investor behaviour. But let me take a moment to stress that the “S” in ESG is just as important. In its role as an active promotor and pioneer of sustainable finance, the Paris financial market must take a leading role on this point, just as it has with climate change.
Climate change has undermined prosperity, destabilised our model, and threatened the health of the most underprivileged persons. Likewise, inequalities have widened so much over the past decades that they have slowed growth; reduced access to education, employment and basic materials for wide swaths of the population; and stirred up social unrest and radical political movements that could disrupt the proper functioning of democracy and the economy. Here again, I see that a central bank is addressing the issue. And not just any central bank – the US Federal Reserve. Chairman Jerome Powell announced this summer that reducing inequalities was one of the Fed’s true challenges, via inclusive full employment and, hence, greater attention paid to education.
That’s why I feel that now’s the time to move into the social realm. In laying bare existing inequalities, the pandemic has merely reinforced my conviction. Just take the closing of the schools, which has exacerbated the digital divide for underprivileged families and highlighted the importance of access to education. Or take the special ordeal that lockdowns are imposing on our elders, an issue that has brought to the fore the challenges of the ageing of the population. We are now able to see fully the importance of protecting workers’ health and well-being and providing unemployment benefits, particularly when these are lacking in certain companies, sectors or countries. I believe that, to be sustainable, the recovery must be inclusive; the environmental transition must be fair to be accepted.
AS WITH THE CLIMATE, AFFIRMING THE LEADERSHIP OF FRANCE AND EUROPE IN SOCIAL ISSUES THROUGH CONCRETE PROPOSALS
The Investors Division of the Paris Europlace, which I have the honour of chairing, recently identified several levels of action in promoting social and societal investment.
The first of these is in datamining, which requires standardised indicators. That’s why we are calling for: 1/ devising a social and societal taxonomy based on the model of the environmental taxonomy, and a single reporting standard; and 2/ making these data freely available to investors and the general public, in order to accelerate the mobilisation of all civil society. Second, we must act at the product level, designing them in accordance with investors’ social and societal requirements and in positioning Europe as the top market in this field.
And third, at the company level, we propose to deepen shareholder dialogue in order to map out the right practices, but also to establish mechanisms of compensation that encourage long-term investment. Initiatives at the level of companies also include a more even allocation of wealth between employees and shareholders, and, with this in mind, the Paris financial market can promote the French employee shareholder model.
ENVIRONMENT AND SOCIAL ISSUES: COMPANIES’ ROLE FROM THE IMPACT INVESTING VIEWPOINT
In reaction to social disruptions induced by the pandemic, the widening of inequalities, and climate disruption, companies are revisiting their organisational set-up, their objectives and their activities. Impact investment will therefore play a crucial role in sustainable finance : extra-financial criteria will no longer be enough to analyse company management policies; in addition, criteria that have a positive (or negative) impact on society as a whole will have to be identified.
Sustainable finance must now project measurable outcomes. In the social realm, we already have extra- financial criteria and impact indicators. The former deal with areas such as compensation gaps, diversity and tax-avoidance practices. The latter cover mainly job creation, the ability to feed people while caring for natural resources, and access to education.
In terms of impact, I am proud of what CPR AM has accomplished. It has developed a wide range of products offering our clients robust financial returns that can be translated into positive outcomes for the environment and society.
Three of our funds – Climate Action fund (companies that are most committed to combating climate change), Food for Generations (the global food chain and reducing water consumption) and Future Cities (sustainable urbanisation) – help identify those companies that are the best positioned in the major environmental challenges. We have formed innovative partnerships, particularly with CDP, the leading provider of climate data, in order to combine the best talents.
In the social realm, we use our Education fund to measure indicators such as the number of pupils in schools and the number of hours of education provided, or the number of meals served in school canteens and student dormitory beds funded. Meanwhile, the Social Impact fund is the first fund on the global asset management market to place the reduction of inequalities at the heart of its investment process in assessing companies on the basis of the five pillars of income, taxation, diversity, education & healthcare, and basic freedoms.
And, lastly, our latest fund, Ambition France, focuses on restarting the French economy on the basis of three components – supporting French companies that have been hit especially hard by the Covid, assisting the restoration of national sovereignty in certain key sectors, and promoting a post-Covid economy aligned on society’s new aspirations, which the pandemic has reinforced. We use this fund to measure our impact via tangible social indicators, such as job creations in France. That’s why CPR AM has made impact investing a part of its culture and its actions as an asset manager, in the interest of its investors and society
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CEO of CPR AM – Member of Amundi General Management Committee