Long reads

Top French sustainable finance strategists provide an ESG reporting blueprint

Madhvi Mavadiya

Madhvi Mavadiya

Head of Content , Finextra

At a Bloomberg EU Policy event ahead of International Women’s Day, Banque de France’s Sylvie Goulard and the French government’s Olivia Grégoire discussed how to encourage companies to commit to environmental, social and governance (ESG) disclosure, how to improve the quality of data provided by organisations and whether it is time to reinforce reporting on the ‘S’ in ESG at a Bloomberg EU Policy event.

Goulard shared her thoughts on the role of central banks in the transition to the low carbon economy and how ESG reporting has a role to play in strengthening the resilience of monetary policy. Despite the event being held in celebration of IWD 2021, she stated that “sustainable finance is not a women-only fight. It’s much more than that.”

As Goulard mentioned, while the ECB’s Christine Lagarde or the IMF’s Kristalina Georgieva are active in this space, “it is an important task for all of the next generations.” However, she went on to say that the responsibility of making green finance decisions falls in the hands of elected people in democracies, or governments.

While most financial professionals may be aware of the reporting standards set out by the FSB’s Task Force on Climate-related Financial Disclosures (TCFD), Goulard believes there is need for mandatory rules and carbon pricing, but she reiterates that this is a governmental responsibility. What global central banks have done is to establish a Network of Central Banks and Supervisors for Greening the Financial System (NGFS).

Since the Paris One Planet Summit in 2017, representatives from global central banks and supervisors have attempted to strengthen the global response required to meet the goals of the Paris Agreement.

In addition to this, the NGFS has an aim of enhancing the role of the financial system to manage risks and to mobilise capital for green and low-carbon investments in the broader context of environmentally sustainable development, Goulard explained. Referencing Mark Carney, then Bank of England governor’s 2015 speech on ‘Breaking the tragedy of the horizon – climate change and financial stability,’ Goulard stated: “climate risks are financial risks.”

The coalition use supervised risk analysis to develop scenarios, review portfolios to ensure they are Paris Agreement aligned and “put our money where our mouth is. It’s a great exercise to check out how difficult it is to green portfolios and keep revenues. You have many decisions to take, where each time disclosure plays a big role. Without reliable, comparable information on what the company’s impact on climate is, it is very difficult to take enlightened decisions.”

Commonality is required and Goulard identified progress in this area with Eurosystem agreeing on a common stance for climate change-related sustainable investments in non-monetary policy portfolios. Although incorporating non-monetary portfolios and understanding that prices are impacted by climate change is just the first step; there is an emerging awareness around biodiversity.

As Goulard mentioned, “the market economy has not priced natural capital.” As outlined in the HM Treasury’s Dasgupta report and OECD studies, we are all indebted to nature. While the NGFS has started to examine this, the difficulties are now in the spotlight – temperature could be used as a benchmark for climate change and it is not as simple for biodiversity. “The quality of information and comparability of disclosure is key.”

Returning to this point later, Goulard advised that the more information corporates have at their disposal, the better they can adapt. With the pandemic now a determining factor, the social aspect of ESG has somewhat overtaken the environment’s limelight.

Goulard highlighted that what must be considered is that impact on human health could also affect animal health, and in fact, the destruction of natural habitats and subsequent changes in biodiversity would be dangerous for humans. “There is no single benchmark for biodiversity.”

Agreeing with Winston Churchill’s sentiment that a good crisis should not be wasted, Grégoire outlined how France’s plans align with the EU’s initiatives, after the country was the first to mandate that investors should report on ESG integration and climate.

“Today, more than $40 trillion dollars is globally invested according to environmental, social and governance, ESG, principles. But who defines what constitutes an environmental or social investment, and how far can we trust ESG statements issued by corporations? This is a key question. We definitely need a set of genuinely global ESG standards, and Europe can and should, I hope, play a leading role in formulating, and implementing them,” Grégoire said.

She echoed Goulard and revealed that in conversations with President Macron, they agreed that in order to meet the deadlines set by the European Union, data and free access to quality information must be considered. “Unanimous information and transparency are the cornerstone in our war against global warming. And we need European stakeholders.”

On whether reporting needs to be mandatory at a European level, Grégoire said: “What is missing is the comparability, quality and the digital dissemination of data.” Adding that there are a number of private initiatives and companies are cherry picking the standards they want to meet, she asked for consensus, especially as many corporate reports are unusable today.

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