Finance and sustainability, user guide
Can finance change to make the world more sustainable? On the financial sector side, we have been aware of the stakes anyway. Implementation of the incentive framework for socially responsible investments (SRI) continues. While returns are important to clients, investments that create positive change are increasingly sought after. We chat with Estelle Blanc-Paque, SRI expert at BCV. Previously working as a project specialist in energy and materials decarbonisation at the World Economic Forum, he coordinates the implementation of SRI-related activities to meet the expectations of the bank’s private and institutional clients and various stakeholders. . Interview.
Le Temps: Do you see interest in SRI among your customers in general?
Estelle Blanc-Paque: Yes. We have observed that investors’ expectations have been developing in the direction of responsible investments, especially during the last three to four years. Institutional clients such as pension funds often have a more structured approach in this area, with a strategy or even a sustainability charter. This regulation provides, for example, the preferred approaches in the selection of investments that meet social, environmental and economic conditions. governance (ESG). Interest is also growing on the private client side. When building an investor profile, we systematically ask our clients about investment objectives, risk aversion, finances, etc. We see that while performance is often key, sustainability issues are increasingly integrated into their portfolio management thinking.
What about the regulatory framework? How can industry be encouraged to firmly position itself in sustainable segments without legal obligations?
The financial sector assumes its own responsibilities and organizes itself through the initiatives of its professional organizations. Thus, the Swiss Bankers Association, the Swiss Asset Management Association or even Swiss Sustainable Finance have created a number of recommendations and self-regulations aimed at clarifying sustainability concepts and approaches as well as good practices in terms of the integration of non-financial systems. in the analysis of companies to invest. In particular, reflections are beginning to be introduced at the federal level, inspired by the more sophisticated and restrictive European regulatory framework. We are only at the beginning of a long process.
What do these developments actually mean for customers?
Banking players are increasingly introducing investment products and services, enabling it to position itself in these persistent segments. But it is also – and above all – a matter of accompanying him, informing him in a clear, continuous and completely transparent manner about both the investment opportunities and the real effects of his investments. The main thing is that the investor knows what to finance and his expectations in terms of sustainability are known and taken into account in the investment process.
While advocating full transparency, how can we explain that the securities of oil groups can be found in investment funds with the ESG stamp?
These three letters mean that these funds are also built with additional financial analysis, i.e. taking into account companies’ exposure to ESG risks and ways to manage them. This approach is essentially based on ESG ratings assigned by rating agencies in relation to their peers, as well as reports provided by companies. Thus, the ESG rating measures a company’s resilience to long-term ESG risks and is not an overall measure of resilience. However, it also aims to contribute to a virtuous circle that encourages companies to improve their practices and develop their business models towards the transition to a sustainable economy.
The decision about whether a company should be included in the fund is not only based on the analysis of the present, but also takes into account the future. Even if it seems counterintuitive, some of the major groups currently active in hydrocarbon exploitation are among the companies well-equipped to participate in the energy transition. The key for customers is to understand what they are investing in, what it entails and whether it meets their expectations. The available product range allows you to find tools that match your expectations. Some products go further than others.
From a financial perspective, does SRI ultimately reduce risk?
Adding ESG analysis to purely financial analysis helps strengthen the stability of portfolios over the long term. Companies are increasingly monitored and regulated for sustainability. Adapting the investment strategy to these dynamics allows the investor to better estimate and manage risks.
How to ensure the implementation of SRI policy?
Depending on the customer’s sustainability goals, several levers can be activated. First, there are sectoral and normative exclusions, that is, principles such as deciding not to invest in non-virtuous sectors or companies that violate conventions, standards or regulations. It is also possible to apply a positive screening approach consisting of selecting the securities of companies with the best ESG ratings. With active ownership, investors commit to voting at general meetings and opening a dialogue with management on the integration of ESG topics into strategy and processes. Finally, with thematic investing, investments are focused on targeted issues such as climate and renewable energies, or social issues such as equal pay.
Finance is often described as changing the world and making it more sustainable. what do you feel
It is hardly realistic to imagine that finance alone can achieve this. Ultimately, the success of the transition to a more sustainable economy—along economic, social, and environmental lines, to use the basic definition—depends on the ability and willingness of society to finance its implementation at all levels. Finance has a role, but it is not a magic wand because it reflects the organization of our society and the real economy. It is important to give certain impulses from the political authorities. Take for example a major field like real estate. Changing certain environmentally problematic building materials or energy technologies will increase investment in more sustainable sectors. As long as society has not made this choice, it is difficult to expect that finance alone can change the situation.
In conclusion, what is the risk of the bank not taking the SRI turn?
There is a risk of losing market share on the institutional or private client side. But there are also issues of reputation, credibility and legitimacy. On the other hand, we should know that taking the SRI turn is a commitment; the risks associated with greenwashing can quickly backfire with customers or regulators. At BCV, we firmly believe that SRI can and should be conducted rigorously without compromising long-term returns and with transparency in mind.