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Policymakers respond to growing urgency of sustainability issues

“We need to accelerate the rate of change... move to radical change, and fundamentally revisit the way we think about risks and opportunities” - PRI in Person conference attendee

  • Governments are focusing on ‘real economy outcomes’ as policymakers better articulate their vision for sustainable finance
  • Policymakers increasingly are supported by investors and facilitated (though perhaps not quickly enough) by regulators
  • Sustainable finance strategies take into account not just risks to the financial system, but the role the financial system has to play in financing the real economy.

Real economy outcomes was one of the five main themes of the first Sustainable Finance Policy Conference, hosted by the Principles for Responsible Investment (PRI) at its PRI in Person gathering in Paris, 10-12 September, and sponsored by BNP Paribas Asset Management.

The high-level conference, attended by more than 200 policymakers and investors, heard a keynote speech from SEC Commissioner, Rob Jackson, as well as contributions from senior figures at the French Treasury, the UK’s Financial Services Authority, the EU’s Directorate General for Financial Services and asset owners including BNP Paribas Asset Management.

Summing up the themes that were covered, Will Martindale, the PRI’s Director of Policy and Research, said: “That sustainable finance policy matters may seem self-evident, but it hasn’t always been the case. The PRI has identified more than 730 hard and soft-law policies across some 500 policy instruments, 97% of which have been introduced since 2000. It means policymakers are responding to the growing urgency of sustainability issues.”

Substantive policy reforms

Mr Martindale reported that, after a sporadic start, there are now numerous comprehensive national sustainable finance strategies being adopted, for example in France, the UK, the EU, Canada and China. Similar work is also well under way in Germany, Hong Kong, Australia and elsewhere.

“These strategies are important not only because they contain substantive policy reforms, but because they require policymakers to clarify how they understand the relationship between sustainability and finance. This can help overcome the misconception that sustainability is a niche issue and give investors clear direction,” said Mr Martindale.

Increasing investor engagement with policymakers

Another takeaway from the conference was that investors are increasingly involved in public policy. Over the past three years, the proportion of PRI signatories engaging policymakers on sustainability topics rose from 44% out of 1 500 to 61% out of 2 500 signatories.

Regulators, too, are playing an increasingly influential role in helping ensure there is adequate focus on the technical issues and implementation groundwork required to deliver sustainable finance policy strategies. That said, there were some feelings expressed that while regulators do have environmental, social and governance (ESG) issues on their radar, some are not moving at the pace required if policy implementation is to respond sufficiently to climate change.

From voluntary to mandatory; from principles to actually doing it

In his conference summation, Mr Martindale said: “We are seeing governments moving away from ‘comply or explain’ to ‘comply and explain’; from voluntary to mandatory; and from high-level principles to regulatory implementation. Increasing numbers of regulators now explicitly incorporate sustainability in their mandate.”

We need a fundamental rethink about risk and opportunities

All in all, the conference shared a sense of urgency to establish solid, workable sustainable finance policies that would address the challenges the world faces. Mr Martindale cited the PRI’s full agreement with the comments of one of the delegates, the founder of a US-based investment management firm: “We are running out of time and we need to accelerate the rate of change. We need to move from incremental to radical change, to move beyond the conventional business case and fundamentally revisit the way we think about risks and opportunities.”

A PRI signatory since 2006, BNPP AM has implemented its own responsible investment policy since 2012 and applies ESG criteria to almost all of its mutual funds, in addition to its dedicated SRI funds. For several years in a row, BNPP AM has been awarded the top score of A+ by the PRI for its global approach to responsible investing, winning praise for the level of excellence of its research, transparency and the integration of ESG criteria.

This article appeared in The Intelligence Report – 1 October 2019

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