Business Innovation 4 Sustainable Finance: ESG-investing & sustainable finance: challenges and opportunities

EMF - Executive Master in Finance C-Suite Forum

Finance can do a lot for sustainability, whether it's by allowing resources to be directed to the most virtuous companies, by putting pressure on less virtuous companies to give them an incentive to change course at the right time, or even by helping clients acquire the culture and information to be able to discern investment options. Panel 1 of the EMF C-Suite, on ESG-investing & sustainable finance: challenges and opportunities, discussed these issues by bringing together Andrea Ghidoni General Manager Intesa Sanpaolo Private Banking, Giuliano Giannessi Chief Financial Officer D&G, Loredana La Pace Managing Director and Country Head Italy Goldman Sachs Asset Management, Luca Manzoni Head of Banco BPM - CIB, Andrea Mignanelli CEO Cerved, Emilia Trudu Chief Financial Officer Inwit.


In the United States, the acronym ESG is mainly being discussed with regard to the social element, to the point that some large players prefer to speak of "decarbonization," thus limiting the pursuit of sustainability to environmental efforts, particularly in the fight against climate change. In contrast, the Chiefs present at the Panel take a much more "European" standpoint, even if we may refer to it as "sustainability 2.0”. It consists of a pragmatic view that takes into account short-term costs and difficulties, without giving up the effort to reconcile economic value creation with environmental and even social aspects; this osmosis that can be called one of the great mega-trends of our time. In a response to an quick survey, more than half of respondents said that sustainability can only be pursued by companies that are economically sound. Moreover, in a response to another question, participants believe that the first element that makes environmental and social sustainability compatible with economic sustainability is the cost of capital leverage, followed closely by the involvement of the people who work in the company and the willingness of customers to favor goods and services produced by companies that place sustainability at the top of the corporate mission.


Moreover, the debate prevailing in the United States is also useful for Europe. This is because it invites regulators and policy-makers to be pragmatic about achieving sustainability goals also, and perhaps most importantly, from the point of view of the time frame required. The time frames must be suitable considering the magnitude of the challenges for the manufacturing world. In addition, European consumers remain convinced about the validity of the model that places environmental and social sustainability in the overall challenge of value creation, maintaining focus on the final selling price, however, which cannot rise any higher to reflect any increased costs of sustainability. This consideration is even more relevant for countries such as Italy, where the productive backbone is composed of small and medium-sized enterprises that have lower economies of scale and fewer opportunities to use resources to create positive externality. Corporate and financial institutions must also be honest, however, as greenwashing is severely punished by regulators, financial markets and consumers themselves. It is better to be prudent and communicate only what has actually been done instead of goals that can only be achieved in the long run. Moreover, finance increasingly holds the tools to assist corporations in all of their endeavors, having now proven products such as green bonds and green loans that are applicable to those companies that, even by sectoral vocation, are able to offer financing for investment projects fully dedicated to sustainability. There are also sustainable bonds and loans, which are suitable for companies that intend to achieve more general and generically defined sustainability goals over longer time horizons necessary in the pursuit of a "sustainable transition." The C-Suite agrees on the increasing relevance of measurement, which needs to be more homogeneous than is the case today: we are still in the early stages of measuring sustainability, as was the case decades ago for credit risk, and in the early stages it is normal to find more disparity in judgment and low correlation between ratings from various agencies. Such disparity, however, does not serve the market, confuses investors and lenders, and it has entered the radar of European regulators, who want to induce the private sector to make more homogeneous judgments. This is vital to give companies real incentives, including in terms of measuring KPIs and linking incentives to achievement, which are essential for truly accelerating the transition to sustainability.   

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