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Philippe Zaouati: Why sustainable finance must address the ‘social fracture’

The Managing Director of Mirova discusses the need to fight against inequalities and tax evasion if financial markets are to contribute to society

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After a year like 2020, when the Covid-19 health crisis blindsided the global economy, it is easy to see why sustainable finance is gaining traction.

However, the question remains: with the pre-pandemic focus firmly on the environment and biodiversity preservation, has sustainable finance overshadowed important issues like social divides and fiscal, political and democratic fractures – and the vital role companies must play in addressing them? I am convinced that the process of overcoming these inequalities will be a key driver of effective sustainable finance in the coming years.

The health crisis has shown that a company is not an island, remote from the surrounding pandemic-fuelled tumult. Social issues should be near the top of its agenda – a proactive approach that will thrust it into the heat of the social battle. It is in the actions of companies – as much as those of governments – that the debates are focused: job security, excessive use of self-employed non-employees, widening income gaps, gender inequalities, racial and social discrimination, and tax avoidance or optimisation. 

The increase in inequalities and social and territorial fractures, together with the resulting ruptures in the democratic process, remain, for the moment, insufficiently accounted for

Society increasingly expects companies to take their share of responsibility. Especially in situations where they enjoy more power than ever, and authorities are limited in their capacity to act. This is brought into sharp focus when we consider that growing inequalities in developed countries are directly linked to a concentration of stock market value in the hands of a small number of companies. Let's not forget that at the end of 2020, five US companies represented a quarter of the S&P500's capitalisation.

This social polarisation is an issue sustainable finance can no longer ignore. The ongoing pandemic has raised awareness of issues that have long been championed by the proponents of sustainable investment: the link between the economy and public health, the management of infrastructure and public services, the control of supply chains and associated risks, the rapid degradation of biodiversity, and deforestation. 

The increase in inequalities and social and territorial fractures, together with the resulting ruptures in the democratic process, remain, for the moment, insufficiently accounted for – with the global health crisis heightening an already explosive situation.

While this social divide may seem detached from economic issues, in reality, it is quite the opposite: the downward trend in the taxation of large companies is, I believe, at the heart of the problem. The powerful companies that are having a huge influence on our lifestyles and social cohesion – the number of which is growing rapidly – cannot afford to stray from the general interest by reducing their collective contribution.

This presents a challenge for the concept of sustainable finance – and those that adopt it – which must consider the social issue, the fight against inequalities and tax evasion. To reconnect the creation of financial value and the management of these divides, we must teach the markets that successful companies are those that contribute to the general interest.

Philippe Zaouati is the Managing Director of Mirova, a dedicated sustainable investment house. He is also a lecturer on sustainable finance at The Paris Institute of Political Studies.