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The world of sustainable (or impact) finance is constantly evolving, but one reality persists: almost 70% of financial institutions admit to being behind schedule in their quest to comply with current regulations. The reasons for this delay are multiple and nuanced, but two major factors stand out.
On one hand, the limited time between the publication of regulations and the date by which institutions must comply is proving to be a major source of concern. Tight deadlines often leave little time for proper implementation, highlighting the need for an early and thorough understanding of the requirements.
On the other hand, the complexity, fluidity and grey areas inherent in regulations also contribute to the compliance challenge. Evolving rules and aspects subject to interpretation or debate add a further layer of complexity for financial institutions, who must not only follow regulations, but also navigate sometimes murky waters.
In this article, we'll explore the 8 key learnings that were highlighted during our roundtable discussion on sustainable finance. These points not only shed light on the current challenges facing financial institutions, but also offer insights into best practices and opportunities to be seized in the ever-changing landscape of sustainable finance.
How to implement sustainable finance effectively?
As regulatory expectations tighten and public scrutiny increases, financial institutions must take a structured approach to sustainability. But how to implement sustainable finance successfully remains a pressing question for many firms. It begins with embedding sustainability at the core of governance and decision-making processes.
Institutions must start by defining clear internal policies, assigning sustainability roles across departments, and ensuring leadership buy-in. Equally important is the alignment of financial products with transparent sustainability objectives. This includes regular training for advisors and asset managers, the integration of sustainability metrics into portfolio management, and open communication with clients.
Implementation is about transformation. Those who act decisively today will be better equipped to meet tomorrow’s regulatory, client, and stakeholder expectations.
1. Data is key
The end customer needs robust data to assess the contribution of each company to the planet and to society. And, the best measure is not the one proposed by a single player according to a proprietary methodology, but the one decided collectively by civil society. In fact, this aims for greater acceptability in terms of what end customers will find in their portfolios, because they will have contributed to it themselves.
2. ESG was not intended as a sustainability measure
In reality, it's a measure of whether a company is at risk of financial underperformance for environmental, social or governance reasons. For a very long time, the financial industry created ESG funds by presenting them to end clients as sustainable funds, which is obviously considered a form of greenwashing.
Clarifying ESG investment strategies
Misunderstandings around ESG have contributed to confusion and scepticism in the market. To clarify, ESG investment strategies evaluate environmental, social, and governance risks as part of an investment's financial assessment and not as a direct measure of its positive impact on the world.
That said, these strategies still play a vital role in sustainable finance. By identifying ESG risks early, institutions can make more resilient, forward-looking investment decisions.
3. Private investors are less interested in sustainable products than institutional investors
This is not fake news and is mainly the result of a lack of education on the part of most financial advisors regarding the products on offer.
4. Non-compliance with regulations is not an option...
and can be costly for financial institutions. We're not just talking about legal and financial risks, but also reputational ones.
5. Employer branding plays a major role
At the moment, there is a real war for talent between financial institutions in Europe, at all levels and for all professions. Financial institutions are no longer capable of attracting talent if they can't answer their existential questions about climate, corporate responsibility,...
6. Sustainable investments = business opportunities
There are a number of products and services to be developed around sustainability, ranging from sustainability consulting services to portfolio impact assessments and many others, which represent additional sources of revenue for the financial industries. Sustainability must therefore be seen as a real lever for performance and also for product innovation.
7. "The future of sustainable finance is finance itself."
Financial institutions must integrate sustainability into their core business in order to move towards an impact economy. According to our experts, the tension between financial performance and impact on society and the planet is bound to diminish. In the future, a negative impact will be more closely correlated with higher investment risk or lower performance.
8. Anticipate regulatory changes!
Our experts recommend participating in and working with financial associations, exchanging views with players active in other markets, and taking note of interim reports that foreshadow the main pillars of a new regulation, or UN reports (as national regulations derive from European ones, which in turn are influenced by decisions taken by the UN).
Final thoughts: Embedding key learnings in sustainable finance
As this roundtable revealed, the challenges of sustainable finance are many, but so are the opportunities. These key learnings in sustainable finance offer a valuable roadmap for institutions willing to take the lead.
The path calls for a mindset shift. By embedding sustainability in their DNA, financial institutions not only mitigate risk but also unlock new avenues for value creation.
👉 To watch the full replay of our webinar on sustainable finance (in French only), click here:
