How are you thinking about the EU sustainability regulations?

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So what do we all think about the EU’s massive regulatory push on green/sustainable finance?

As a bit of fun ahead of next week’s RI Europe 2021 conference, we launched a short EU ESG regulation ‘personality test’ to find out if you are an SFDR Star, an Action Plan Fan or get palpitations thinking about the EU’s regulations? (I know, I know…enough of the poor rhymes!)

It’s a one minute test and we’d love you to take part.

I’ll get to the provisional results shortly.

I’ve made no bones in a few articles recently about just how important I think the EU’s work is, or could be…

Here’s my latest overview of the EU regs from a few weeks back. 

As I outlined in that piece, my optimistic rule of thumb on green finance is as follows: Green Taxonomies + Net-Zero Commitments + Clear Timeframes + Verification x Tougher Pricing Signals (ETS, etc) = Genuine Business and Investment Transformation.

But there is a huge amount of work to understand and evaluate the new rules and incentives against their intentions, and to test them against real-world practicality and effect.

On these latter points, I, and the team at RI, change our minds almost daily! This week the RI editorial team has become very worried about the Sustainable Finance Disclosure Regulation (SFDR)… more of which in RI coverage coming soon.

We’ve dedicated our RI Europe 2021 conference, which runs from June 14-18, to the EU regulations because we think the implications could/should be profound. 

A quick plug for our third and final RI Europe 2021 Keynote Interview, which we’ve just added to the agenda! I’ll be speaking to Kwasi Kwarteng, Secretary of State, Department of Business, Energy and Industrial Strategy (BEIS) on the topic: What can companies and investors expect from COP26 and UK green policy? It’s part of the RI Europe 2021 association with this year’s COP26 conference and is especially topical as the UK unveiled its green taxonomy plans today. 

OK, back to the personality test: the results so far are interesting. 

Half of you (50.2%) are ‘cautiously optimistic’ about the EU’s plans. About the same numbers are either clearly positive and negative: a quarter of you (25.3%) are convinced Europe is on the right track on sustainable finance. A fifth (20%) of you are ‘disappointed’ with progress so far, and 4.5% are ‘sceptical’ about its implications.

I am cautiously optimistic too. But that doesn’t mean RI is not conscious of the huge, important debates out there about how much impact we are really having and how that must be rapidly honed, as outlined in Tariq Fancy’s RI op-ed yesterday.

It’s a debate we will be having at RI Europe with a brilliant set of speakers on a panel titled, The State of ESG: can it really deliver change on the big sustainability challenges of our time?

I’ve been clear that I broadly disagree with what Fancy says, even if we at RI believe the debate is an important one: we have always argued that ambition/outcome needs to be real and measurable.

When I try to describe what I am seeing/hearing in the market now in Hugh Wheelanterms of ‘institutional’ change, in part crystallised by the EU regulations among others – and which I think of as the preparation for broader, mainstream financial effect – it is in the following terms:  

Client shift (investment): Asset owners ‘broadly’ are now recognising that they will need to think about themselves in a net-zero trajectory as organisations and investors, and acting upon that. Check out the RI Europe panel on asset owner Net Zero plans with Danica Pension (Denmark), Caisse des Dépôts (France) and the Environment Agency (UK) to see what that means.

Organisational depth shift (investment): the EU regulations are driving thinking about ESG from responsible investment professionals through to asset manager reporting, compliance, change management, RFP/mandate teams, HR & company branding, and, most importantly, the C-suite. This is the real beginning of an important process of mainstreaming the course of investment towards a sustainable strategic imperative. 

Market breadth (investment): We are seeing a rapid acceleration of investment thinking about ESG across asset classes from the traditional equities/bonds space to private markets, real estate, commodities/real assets and hedge fund strategies due to an amalgamation of reporting/transparency (especially at the hard-edge of international accounting), pragmatic taxonomy definitions and price signals (proliferation of emissions trading systems). 

Market breadth (financial): The same is happening across the financial sector in banking, and insurance for the same reasons, and central banking is now taking a lead role in backing up policy makers. 

Corporate strategy change: The recognition of the impact of regulations on reporting and business strategy is enormous: companies are now creating sustainability strategy teams to reflect the sustainability shift in product risk evaluation and evolution (R&D).   

The speed and amplitude of these changes is huge.

We’ll be examining the profound business and investment implications of the EU regs through the panels and we look forward to you joining us for those discussions. Do pass on the link to the conference peers and colleagues to sign up for the event, because this is a revolution we all need to be a part of.