ROUNDTABLE: Finance finds the right direction: now to reach the right speed
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ROUNDTABLE: Finance finds the right direction: now to reach the right speed

Direction speed from Alamy 12Jul21 575x375

In the past two years, environmental, social and governance matters, especially climate change, have gone from a fringe issue in capital markets to — almost — the main issue. Banks, investors, companies and governments have shouldered the responsibility of helping move the economy to net zero emissions in 30 years. That duty has joined the fiduciary obligation to make money for customers and shareholders that have been the markets’ main motivation in the past.

The destination is agreed — what remain to be decided are the route and the pace.

GlobalCapital and Morgan Stanley gathered together three leading sustainable finance issuers and four prominent investors in early June to discuss how capital can best be engaged to drive the transition.

They pointed out the urgency of the transition to net zero, but also the need to build robust strategies based on evidence. Standards are needed for how fast industries are decarbonising. Taxonomies such as that from the EU can help, by giving market participants a common language, but are not the whole answer.

Meanwhile, investors themselves are being regulated, in ways that are likely to steer and deepen their engagement with ESG issues, such as the Sustainable Finance Disclosure Regulation.

Along the way, much use will be made of sustainable finance instruments — the speakers discussed the relative merits of green and social use of proceeds bonds and sustainability-linked structures.


Participants in the roundtable were:

Alban de Faÿ, credit portfolio manager and head of fixed income SRI processes, Amundi

Bernard Descreux, group treasurer, Electricité de France

Joshua Kendall, head of responsible investment research and stewardship, Insight Investment

Cristina Lacaci, head of ESG structuring, global capital markets, Morgan Stanley

Samuel Mary, senior vice-president and ESG research analyst, Pimco

Aldo Romani, head of sustainability funding, European Investment Bank

Laure Villepelet, head of ESG and CSR, Tikehau Capital

Bodo Winkler-Viti, head of funding and investor relations, Berlin Hyp

Moderator: Jon Hay, GlobalCapital

GlobalCapital: The Paris Agreement commits the financial sector to striving to limit global warming to 1.5°C. Is the financial industry doing enough?


Alban de Faÿ, Amundi: It is a hot topic for us. As an asset manager, we have a responsibility to follow the various agreements, meaning that we make sure financial flows are going in the right direction and build strategies with attractive financial returns to ensure that investors will be interested in investing.

We may be asked by a regulator to push companies to move forward and sometimes it is quite complicated when companies do not publish key data — for example, on carbon intensity. The most carbon-intensive sectors do it, but for other sectors it is not the case. We do not always have the information we need to track companies’ environmental commitment, which is why engagement is a core component of this trajectory.


Joshua Kendall, Insight Investment: My interpretation of the Paris Agreement is that it is for governments to meet the 1.5°C target. What has followed is separate initiatives for asset owners and asset managers to get behind those overarching goals, which the financial community is clearly supportive of.

Ultimately, our role in society as a financial industry is to service our clients and broader society to align with their financial needs for retirement many years into the future. So clearly we have a broader responsibility than just making financial returns.

Do we have the right information to distinguish between leaders and laggards and guide us towards the most appropriate investment decision? We are well short of that.

Fortunately, the European Union has recognised that and launched initiatives for greater transparency. That information can guide portfolio construction, engagement with issuers and help investors make better informed decisions.

We know what our responsibility should be, what our clients are expecting, but there is a big gap between what is realistic and possible and what clients or regulators might be looking to achieve in five, 20, 30 years’ time.


Samuel Mary, Pimco: There is a very strong momentum in investors’ commitments and engagement on climate change. So the direction of travel is clear.

The questions are more about the pace, the coverage, the real world impact and challenges of implementation. 

If we look at the pace and the coverage, in the past two years there has been particular interest and signs of acceleration — illustrated by the momentum for net zero pledges. 

At Pimco, we have been focused on helping our clients and developing a range of proprietary tools to help align portfolios with the net zero pathway. We have also been working with emerging industry standards such as the Net Zero Investment Framework.

This effort can always be broadened and accelerated. In fixed income, we want to cover all the asset classes, not only corporates and sovereign.

What is interesting is that the discussion has partly shifted from the commitments to their actual impact — evaluating what measures are most effective and can amplify the positive impact of the finance industry.


Laure Villepelet, Tikehau Capital: The finance industry is clearly not doing enough yet and now there is an urgency. We are very optimistic at Tikehau Capital because recently we have been getting more reports supporting us to drive investments towards where change is needed — increasing renewable capacity, energy efficiency and low carbon mobility.

There are a number of pathways and frameworks, on top of the International Energy Agency’s Net Zero by 2050 report. The EU Taxonomy is also a great tool that we are already using and applying to investment.

So we have the means to develop strategies based on robust evidence. As investors we need to be pragmatic and not wait until we get the perfect data but start now.

We launched a private equity fund dedicated to the energy transition in late 2018. It was a success, with more than €1bn raised, so we want to really pursue this, developing funds that will help decarbonise our economic environment.

We need to partner with mid-cap companies which are offering products and services that may not only contribute directly but help them focus on where they have a positive impact, so that at some point we can contribute to reaching this net zero target.

For example, we have been investing in a company which does building renovation, maintenance and repairs including insulation and efficient boilers. We support them in structuring their energy efficiency offer so they can benefit from the market and maximise their impact. 


GlobalCapital: Cristina, do you think the investment banking industry is doing enough yet?


Cristina Lacaci, Morgan Stanley: In the last few months, we’ve all taken quite significant measures. One of the key steps has been the establishment of net zero financed emissions targets by 2050.

The next step for the industry is to agree on the standards. What will be the methodology? Can all activities be included? The second is to establish interim targets that will help us meet those longer-term objectives. 

The final ingredient is to make sure we support our clients in this transition. A lot of steps have been taken in the last few months but it is just the starting point of a journey to help our clients meet these targets.


GlobalCapital: Bernard, do you feel the financial industry is helping you on your journey to sustainability? Are you dragging it with you, or is it pulling you from in front?


Bernard Descreux, EDF: It’s not pulling us too much — it gives us an incentive to do so. EDF is well advanced in its path towards carbon neutrality in 2050, but the pathway to go there gives the opportunity of exchanges with investors.

We are not very fond of sustainability-linked bonds, but on our credit lines we like to have commitments that we share with the banks. 

What is disappointing is that we would welcome bilateral commitments, step-ups and step-downs, in the commission or in the yield on swaps, that would affect the company as well as the bank, given their relative ESG performance.

When we talk with investors, they want transparency on the use of proceeds. That is why we prefer to issue use of proceeds bonds. They have a fiduciary duty to display what they are doing on financing the energy transition, so it’s important for them to see how their money is deployed and how it serves the transition, and the just transition also.


Bodo Winkler-Viti, Berlin Hyp: Hardly a day passes when one bank or another does not issue a green bond, a sustainability-linked bond, a social bond. Especially in the financial industry, it was not always like this — in some of these segments we banks have been slower than others.

The direction is the right one. The question is whether we should speed up a little bit more. Cristina mentioned the net zero emission commitments of banks for 2050. These commitments are a very good sign and lead in the right direction.

However, you really have to be aware of how to get there as a bank, how to assess your business. For us, only doing one business — commercial real estate lending — that is much easier than for more complex banks which operate in many different sectors.

We have defined our own journey with interim targets, how to get to carbon neutrality, but for the wider financial industry this is a more difficult question. But we all need to develop faster in that direction because the number of years until 2050 gets shorter every year by one year. There are not so many left.


GlobalCapital: Aldo, everybody in the financial sector has their eyes now focused on net zero in 2050, but as Cristina and Bodo have mentioned, setting interim targets is very important. Is it possible to align the interim targets of issuers and investors, or is everybody still confused about that?


Aldo Romani, European Investment Bank: A lot of confusion still exists. Much more could be done if there were more clarity as to what needs to be pursued. 

All the steps by the Commission in the past few years have led to a clarification of certain core principles that in my view need to be reiterated.

First of all, what counts is not the financial instrument you use but the sustainability of the economic activities you finance. 

Second, you must establish a shared set of definitions that permit fair competition among market participants across jurisdictions — national regulators should not be able to determine by themselves what is green or sustainable. 

Most importantly, also, this should apply vertically along the investment chain, because investors must speak the same language as intermediaries that funnel investor funds. 

This is the sense of the EU Taxonomy Regulation that came into force in July last year.

If you take the EIB as an example, as part of our climate bank roadmap, we will increase to at least 50% the share of green finance in our new lending by 2025. We will measure this using the Taxonomy.

We will be able to reflect this in capital markets by issuing climate and sustainability awareness bonds, which we plan to align with the EU Green Bond Standard.

The conditions are there for markets to become more than just providers of capital. They can really become an instrument of strategic knowledge for society by finding out where capital should be best deployed for the sustainable development of the real economy.


GlobalCapital: That is a lofty aim! I would like to ask the investors: the financial world is now striving to limit climate change, which is obviously a focus on impact rather than risk and return. Does that mean the traditional concept of an investor’s fiduciary duty has changed? 


Kendall, Insight: I might dispute the idea that managing climate change issues is about impact. I would see it as being central to risk management. 

In 2017 we built a climate risk model to identify issuers that are going to be more vulnerable to that transition, because we believe climate issues that are not managed are a credit risk at their heart. 

But clearly, the movement of green bonds is creating great opportunities for impact to sit alongside risk management.

There doesn’t appear to be a fundamental disconnect between managing climate risk issues and fiduciary responsibility, neither do I believe that the concept has changed.

What we are starting to see from legal experts is more clarity that this is compatible with your fiduciary responsibilities. By considering climate risk issues you are aligning with your responsibilities to manage the issues associated with climate change.

Where I think there is going to be more need for debate is the question of whether impact creating positive change is compatible with fiduciary responsibility.

What we need over the next few years is more academic research and more regulatory input into how much of a positive change you can incorporate into your portfolio management and asset allocation, given issues such as the availability of impact opportunities. The green bond market is still significantly smaller than it needs to be for most institutional investors. 

The other issue is how do you define impact? We’ve seen some more direction from the EU but there are still huge amounts of disagreement on that.

So we are well short of being in a position where we can say impact is aligned with fiduciary responsibility, but wide agreement that climate change is a necessary component of fiduciary responsibility.


Lacaci, Morgan Stanley: I have a question for the investors: are there any situations when you need to make a decision between impact and risk-returns, and what do you do in those cases?


Kendall, Insight: We are getting more clarity from clients where impact is a core part of their objectives, but that is the exception. For most clients it is about maximising the financial returns in an active portfolio, or in a more stable long-term portfolio.

With an oil and gas bond, you have got to be thinking ‘in 10 years I will have strong visibility, in 100 years I will have less visibility’. For a long-term portfolio the climate risks are going to be real and therefore it is not the sort of instrument you would want to be holding; but for more active positions, it is much less relevant to think about them.

If you have a sustainability mandate, or if a mandate aligns with the Article 8 or Article 9 guidelines from the EU Sustainable Finance Disclosure Regulation, that changes the very nature of what issues are important to you. You should be looking at sustainability metrics. That is going to be relatively new for many portfolio managers because it is not a natural part of how portfolios are constructed.

Once we create a system to align with Article 8 and Article 9, these issues have to be routinely considered. Then I think we will start to see a greater change in how the market considers these factors on a consistent basis.

GlobalCapital: There can be a distinction between impact and risk and return and they can occasionally be in competition or in conflict.

We ought to think about the idea of the ‘universal owner’, as well. You can have a portfolio where you think about the climate risk to the assets in that portfolio and decide they are safe, but this could have bad effects on the wider world and economy which would be felt in your other assets. 


De Faÿ, Amundi: Our fiduciary duty is still the same. We have to buy bonds at fair value and that’s about credit risk. Clearly credit risk is also moving, taking into account more and more long-term risks, and it is the role of a regular credit agency to monitor that.

We have a dedicated strategy of impact investing, in which we manage both financial and environmental impact, where impact could be seen as a return. 

If you want to improve your returns, your impact, you have to take some risk. So, do you want to finance a wind farm in the Netherlands or an emerging market?

Clearly, if you finance a wind farm in an emerging market, you will have a higher environmental impact but you may have also a higher credit risk — though sometimes you can do it through bonds issued by a European bank.

From time to time, you have to make choices. Evidently, our first responsibility is our fiduciary duty, but today it is not enough. You also have to be a responsible investor and be sure that in the activities you finance you take full responsibility and consider the impact of your investment on society for the long term.

That’s why, at Amundi, we have a 100% ESG integrated strategy. We want to take into account the impact of our investment on society, but we are also working to better understand how a company is moving around climate. So we integrate new impact indicators like temperature ratings, carbon reduction targets, Science-Based Targets and so on.

We try to combine all the dimensions. Bernard mentioned the just transition — clearly, when we are financing the energy transition we want to be sure that it is socially acceptable.

We do not want to focus on one theme. Behind some pure dedicated themes like the environment, you may also have social issues which could be very important.


GlobalCapital: Green and social bonds have developed very well over 14 years, but what is their future, as the whole economy starts to become much greener?

And how do they interact with sustainability-linked bonds? Is one better than the other?


Descreux, EDF: Both markets will co-exist because they are complementary. All sectors and all companies are not at the same level in their pathways towards carbon neutrality. It can come from history; very often it comes from physical constraints on certain industry processes.

In the case of electricity, EDF has the possibility to be in advance in that transition, but that means we have very large investment to make in low carbon assets. So it is useful for us to issue use of proceeds bonds. Investors like to target their investments and make sure they are going in the right boxes.

Companies that are changing their business models, that are in transition, cannot give today very high performance indicators, but they may have a strategy and can give objectives that show their commitment to change. 

For them, the sustainability-linked bond market is the perfect tool to tell investors their commitments. My guess is that, progressively, they will be able to change their issuance from these SL bonds towards use of proceeds bonds.

I think the strategy of the European Commission will favour use of proceeds bonds, as they will create scarcity for these bonds and this will help issuers to lower their cost of funding.


GlobalCapital: Berlin Hyp has been an enthusiastic green bond issuer for some time and has recently introduced a sustainability-linked bond. So, Bodo, I’m guessing you don’t think the order of transition is necessarily from SLB to use of proceeds?


Winkler-Viti, Berlin Hyp: No, I don’t agree with Bernard there. It is definitely not like this in our case. 

We issued 13 benchmark green bonds before we issued our first sustainability-linked bond.

Both instruments follow totally different concepts. I use my green bonds to refinance a very specific portfolio at Berlin Hyp. I use the sustainability-linked bond to demonstrate to investors and other market participants what the bank’s ambitious goals are as a whole, and I share our way to get there.

I think that is something totally different from a use of proceeds bond. It is not better and not worse than a use of proceeds bond. The functioning is simply different.

As a fully capital market-funded bank, we are not able today to issue every debenture as a green use of proceeds bond. There is other business that needs to be done as well.

The point of transition has already been mentioned. If we finance the acquisition of a non-green building today, that is not bad per se if the bank gives, after that advice, the financial means to do a proper renovation of that building. But, for that reason, it is not possible to have only a green portfolio.


GlobalCapital: Aldo, you mentioned that the EIB is going to move towards 50% green lending, so that will mean a lot more green bonds, I expect, but what do you think of Bodo’s point that for the other assets you can also use the capital markets to demonstrate your sustainability commitments. Could the EIB do sustainability-linked bonds for its ordinary bonds?


Romani, EIB: I am convinced that the transparency use of proceeds bonds provide on the underlying assets is of paramount importance in the overall design of transforming the economy on to a sustainable path.

Sustainability-linked bonds can be meaningful in an issuer’s communications strategy, as they clarify the attention it dedicates to specific objectives.

We have a focus on environmental protection, a whole set of objectives, and we finance our activities also via general purpose bonds.

I agree that there should not be an opposition or a contrast between the instruments. They serve different purposes and as long as these purposes are clear, it is perfectly fine to use them. It is up to investors to decide whether they make sense or they don’t.

It seems that investors also give these instruments a role in their dialogue with issuers. From our point of view, in terms of the strategy the bank has adopted, use of proceeds bonds are a priority.


GlobalCapital: Laure, as an investor, how do you evaluate these two structures? If you’re forming portfolios, can you use the two together?


Villepelet, Tikehau: On top of being an investor, we are also an issuer. Tikehau Capital recently issued its first sustainable bond. It is a use of proceeds bond, but we are also considering sustainability-linked loans at our level.

At portfolio company level we have a pretty big private debt activity. In our 2021 direct lending deals, more than two-thirds have had SLB features.

We think it is really a great instrument because it helps us to put ESG considerations at the heart of the deal. 

The next frontier is impact. If we want to progress on impact, we need to really tackle the topic. Investment teams need to think and negotiate these ESG ratchets with issuers.

In high yield over the past months we have seen many sustainability-linked bonds, as well as some higher rated issuers issuing green bonds. The two can co-exist in one portfolio, it makes sense. 

We are maybe today more interested in the sustainability-linked bonds because we have this transition approach. On top of financing companies, we want to try to engage with the smaller players.

Typically companies that issue green bonds are a bit more mature, so they may need less support from investors. On the other hand, we also see high yield issuers in the developing markets, such as Greenko, a leading Indian renewable energy company. Their reporting is not as robust as what we see in Europe. So here we also have a means to engage.


GlobalCapital: Samuel, Laure referred to SLBs as having impact — do you agree?


Mary, Pimco: We see both instruments as complementary. We have been a strong supporter of both approaches.

When we evaluate green bonds, we systematically evaluate their alignment with the strategy of the issuer. Green bonds are important if they help advance the issuer’s broader commitment and performance.

The SLB enables us to take a more holistic perspective from the start, emphasising the entire issuer performance, not a limited number of projects.

A KPI can be linked to reducing ESG risk, as well as to mitigating negative environmental or social impact or amplifying positive impact. So SLBs can address both risk and impact, and that is connected to your previous question about fiduciary duty and impact.

The other important element of SLBs is that they are forward-looking. They emphasise the issuer’s future ESG performance and connect this with recognised benchmarks.

We have seen it in relation to climate change and the Paris Agreement, and increasingly a broader range of factors, such as the Sustainable Development Goals.

SLBs also allow a broader range of sectors to participate. The future of the sustainable bond market will encompass more and more sectors and issuers.

We had this week the first SLB from an oil major. Since the beginning of the year we have had strategic sectors in the energy transition such as steel, cement and shipping issuing SLBs.

Our climate bond strategy, launched over two years ago, highlighted that it was key to not only include high quality green bonds but also ‘climate leaders’ — they may not yet be perfect and low carbon but are showing leading practices in their industries and have the highest ambition in decarbonising and environmental strategies. 

KPIs that could be connected to SLBs include zero net deforestation, circular economy commitments or science-based water goals.

The bottom line is that we see SLBs as a very appealing opportunity to amplify the positive impact of bond markets.


Lacaci, Morgan Stanley: One of the key questions we get from issuers is what happens if they miss the target? Does it mean investors need to sell the bond? We also get questions around the step-ups. Currently, step-up payments tend to be made to investors. Could they actually go to a charity or third party, so that investors wouldn’t profit from the ESG underperformance of a company?


Mary, Pimco: For both green bonds and SLBs, what is key is the level of transparency and disclosure.

We encourage issuers to align with emerging standards such as the Sustainability-Linked Bond Principles, which encourage them to disclose from the start what factors could influence the achievement of the target.

The issuer might fail, but what is important is that investors have the relevant information in a timely fashion, to evaluate the consequences.

Could it mean a deterioration of the issuer’s ESG score? Or does the issuer have a clear remediation plan? Is the failure maybe associated with factors that are not in its direct control, and the issuer may still be showing leading practice and commitment?

On step-ups, so far, we have encouraged simplicity, to ensure scalability and make this issuance mainstream. So we have encouraged coupon step-ups, instead of an alternative approach that relies on philanthropy or CSR‑related measures. 

That might not be scalable or understood by broader market participants, or might not send the right signal regarding the issuer’s level of ambition and the incorporation of the SLB target into its broad sustainability and business strategy.


Kendall, Insight: Every company needs to transition and has to be thinking about raising the necessary capital. Therefore, it is warranted to think about whether SLBs are suitable for helping a broader set of industries get there. 

We would encourage companies to set the appropriate transition targets and use the financial community to help them get there. We recognise it isn’t enough for us to simply analyse ESG risk metrics and build that into our appraisal. There has to be a point at which we say ‘let’s do more’, and I think we’ve reached that point. Therefore, it is very encouraging to see any company making those first steps.

I am agnostic on the benefits of setting coupon steps. It is such a new asset class that it is not appropriate to say a 25bp step-up is enough, or it should be 50bp or 100bp. It is also very difficult to know when they should be. If you’re setting a 10 year target, should step-ups be after five years or seven or two? 

For me, this is a bit of sideshow. Much more important is the level of accountability and scrutiny a company will agree to. It could mean compensation for executives. I haven’t seen that yet but I certainly would encourage a broader way of thinking than simply step-ups.

Villepelet, Tikehau: I agree with Joshua regarding the direction of travel. We would not divest from a company missing its SLB target but we would divest from one not responding to our enquiries and requests, if we thought they lacked transparency.

Actually we will not divest, we will stop investing for the next bond issue. We try not to penalise the investor, coming back to fiduciary duty, but still show that there are some consequences if issuers fail to respond to requests.

On coupon steps, we launched a corporate direct lending fund. Here we decided that if companies miss their targets, we will set the money aside to hire an energy consultant to help them to correct it, accelerate and hopefully meet their target next year. 

The idea is to have a progressive approach and be aligned with the issuers and with our investors.


Winkler-Viti, Berlin Hyp: I found Cristina’s question very interesting — whether you should give the step-up to a special project, and maybe the investors should not benefit if the issuer fails to meet its target.

First of all, the investor does not benefit, because what happens when an issuer misses its target, which comes directly from its corporate strategy? It is very likely that its credit deteriorates because of that. For that reason, it says to the investor: ‘I will compensate you if that happens.’

I would not be a fan of giving this step-up somewhere else because it is a compensation for the investor and not a penalty for me as an issuer. I think there is a very good rationale behind this instrument of a step-up or higher repayment amount, which should not be put in question.


Villepelet, Tikehau: I agree with you on the risk profile of the company. If they miss their targets we also think the risk increases, so the return should be slightly higher. On the other hand, when we lend in private markets we can be more engaged and try to support the portfolio company to improve.


De Faÿ, Amundi: I’m fully in line with Bodo’s view. The step-up is a kind of compensation because the KPI is supported by the top management of the company and if the company does not reach this KPI, the market will have less confidence in the company and all its curve will suffer. So it is an opportunity for the investor to sell the bond without a penalty.

However, on the other side, there is some room to think about other ideas, which we have done at Amundi with private placements. Clearly, when you are in direct dialogue with a company for a private placement, you can envisage compensation. But for the bond market, I really push for standardisation, a clear definition and, as Aldo mentioned, we need to have a common language.

I recommend an issuer to come to the bond market with very simple ideas, simple KPIs, with a simple step-up. Nevertheless, there is a smaller market for private placements where we can imagine another way because the compensation and engagement could be very important to think about.


GlobalCapital: Bernard, you’re not particularly enthusiastic about SLBs, but you’ve also issued your first social bond recently. It is very much the sort of thing somebody might do an SLB about. It’s linked to a target — you want to procure from SMEs in the regions where you’re building power plants. I’m interested why you didn’t go that way. What benefit do you feel you’ve got with the social bond?


Descreux, EDF: What we value in the use of proceeds bond, especially a social bond, is the reporting we will provide to investors, and I think investors will value it. 

For the recent issue we did a quick roadshow to present our new social bond framework and we received a lot of remarks that will help us build our reporting, taking into account what kind of indicators investors would appreciate.

More and more, investors have to report to their clients. It’s very important for them to have very precise figures of the impacts of their investment. The reporting, which is the fourth pillar of a use of proceeds bond, is what they will value in this approach.

SLBs are a more tick-the-box approach. It would be less burden for me to do an SL bond using a KPI that we already publish. We think investors want to have in-depth information and it’s an occasion to highlight some activity we hadn’t entered in our Green Bond Framework. In our Social Bond Framework, we will see works in nuclear power, and new nuclear activity is not today admitted as a green activity in the new Taxonomy.


Lacaci, Morgan Stanley: You raise two very important points: on the social side and the Taxonomy. How do we think the Taxonomy is going to evolve? There are a lot of discussions around this. From a structuring perspective we now follow all the key thresholds wherever possible for the activities that are covered by the Taxonomy, especially electricity generation and clean transportation.

But there are limitations, because a lot of activities are not yet covered in the delegated act. How do you see this evolving? There’s so much speculation in the press at the moment around a possible social and/or brown taxonomy.


Romani, EIB: The whole Taxonomy framework is going to grow in an incremental process, as a result of various forces interacting with each other.

The Taxonomy Regulation foresees, by the end of this year, a report on whether the Taxonomy could be extended, including to cover social objectives.

I am absolutely convinced that the delegated act for the climate parts of the Taxonomy that has just been formally adopted by the Commission proves that it is possible to establish a consensus among different interests that can be carried forward by the whole market.

It has put the EIB in a position to apply the logic of the Taxonomy to all the relevant activities beyond climate change mitigation — the other areas of environmental protection or social sustainability that are not yet covered by the Taxonomy — and we are gradually doing so.

Even in the areas where no taxonomy exists, it is possible for issuers to put in black and white, in a transparent manner, what they are doing and why, using the logic of the Taxonomy. Then it will be up to investors to judge whether what they are doing is appropriate. 

This will also provide food for thought to the working groups that are elaborating the Taxonomy. Any issuer can thereby participate in the process by way of its own experience.

I have noted in the past year a remarkable improvement in the quality of dialogue with investors, who are asking questions that are really to the point, and urging us even more than before to take action rather than stay inert.


Villepelet, Tikehau: A question for you Aldo: we asked a number of issuers whether they will start reporting on their mix of revenues according to the Taxonomy, but they said they would do so only when the technical standards were available.

Does that mean we should also push, for example, a plant-based food or sustainable packaging business to publish a theoretical mix of green revenues, so they can start a discussion regarding their activity?


Romani, EIB: Why not? I think investors have a crucial role to play here in promoting action. 

The Taxonomy regulation is an enabling framework for issuers and investors to unleash the healthy dimension of market forces. If every issuer realises that sustainability matters are becoming increasingly relevant for investors, they will consider with much more attention what their strategic options are and where they should be if they want to live up to the requirements of the world to come.

This is something strategic investors can take on board as a responsibility now.

We have to be realistic about things and we have to work with what is available, i.e. the logic of the Taxonomy, also because there can be delays in its implementation — we have seen what happened with the Taxonomy for climate — even if the direction is clear.


GlobalCapital: Bodo, commercial property is one of the areas where the Taxonomy in its final stages went through considerable revision. There are other areas too where what Aldo describes as competing forces influenced the Taxonomy and changed it in its last phases, and there are certainly controversies that still persist around it, including biofuels and forestry.

So, Bodo, is the Taxonomy helpful? Do you think investors are going to follow it? Is there a danger that perhaps they follow it too literally, instead of doing what Aldo, I think, would like to see? He said it is up to investors to judge.


Winkler-Viti, Berlin Hyp: Of course it is helpful because we need a common language and that is basically what this Taxonomy provides.

There might be parts that one party or another feels unhappy about because they are too strict or not strict enough. But it is the beginning of a common language that should help all of us to distinguish business that is a beneficiary of meeting our climate change goals from what creates a danger to achieving these goals. Therefore, I think it is a very good thing.

On real estate, if you sum up all the changes to the articles, in the end we were back almost at what the Technical Expert Group first recommended. 

Otherwise, it would have simply been misleading, asking for real estate that has an Energy Performance Certificate label ‘A’ and then you look at how many European countries do not have label ‘A’ on the scale — that simply made no sense. Therefore I think these changes were necessary and they led to quite a good outcome.


GlobalCapital: Bernard raised the point that at the moment nuclear power isn’t included in the Taxonomy. Samuel, I don’t know what your view personally or as a firm is about nuclear power, but what I want to ask is: as an investor, should your view of whether nuclear power is sustainable be influenced by whether it is in the EU Taxonomy or not?


Mary, Pimco: We have developed our own ESG scoring methodology, evaluation and database. We use it for our ESG integration process firm-wide and also for ESG-focused strategies and mandates. These could include in due course the Taxonomy as a consideration.

We leverage a broad range of frameworks and indices. The Taxonomy is one of them, but ultimately we have our own view regarding a particular security, issuer or project’s greenness or ESG profile. The Taxonomy can help, it can be a source, but it will not be necessarily applicable and relevant for all cases.

We follow very closely the EU Taxonomy developments. In principle, it provides a wealth of data and definitions and criteria that can be useful. But it is still a very early stage to draw conclusions about its applicability.

There are practical challenges around usability and the coverage is limited and may remain so for a period.


GlobalCapital: We are drawing to an end but I’m going to just ask each of you, if you could wish for one thing that would assist the progress of sustainability in finance, what would you wish for?


Villepelet, Tikehau: Given the urgency — we have only a decade, meaning only 3,000 days to act — I wish all the investors would start to think about their intentions on top of generating competitive financial returns. That is what we are trying to start at Tikehau Capital and we see that when we launch impact funds, it actually benefits the wider strategy and helps also to move things faster for all the other investors.

So I really wish that investors feel the sense of urgency and see the opportunity they have because it is the biggest finance opportunity for the next decade.


Lacaci, Morgan Stanley: Laure mentioned a very important point which is this sense of urgency, and I think one way to move forward is to ensure consistency and more integration of ESG. There shouldn’t be such a difference in standards when we think about the ESG and the non-ESG activities of institutions. It has to be integrated to make sure we all meet the goals, and that is what I would like to see more going forward.


Descreux, EDF: For me, it is very simple. I will welcome the re-opening of bars and restaurants so that we can all meet up and discuss these points more efficiently than in a video conference. I think all the events where we network, when we talk about initiatives are sure accelerators of this innovation. So I think this will be good news.


GlobalCapital: That’s a great point and I’m sure we all agree with that. Josh?


Kendall, Insight: For me, there are two critical things. The first is that regulators should be considering the needs of the fixed income community. I don’t think they have done that to date. They’ve got some green bond proposals but that doesn’t really stretch to what is required.

The second point is: don’t overfit and standardise the financial community. There are efforts to create standardisation, which makes sense from a practical perspective, but in reality investors are very different, our clients are very different and forcing us towards standardisation and ubiquitous reporting and metrics is going to really weaken the overall transition.


GlobalCapital: That’s very interesting. Could you explain the first of your points slightly more fully?


Kendall, Insight: If you look at the regulatory technical standards for the Sustainable Finance Disclosure Regulation, for example, they haven’t been designed for global aggregate bond portfolios, for municipal portfolios.

They’ve got very standardised KPIs for corporates and it doesn’t consider the realities you may experience as a fixed income investor — for example, investments in private companies where you don’t have access to the same data.

They don’t think about the needs of the fixed income investor, even though we have a greater amount of capital and a greater influence than a shareholder. To date most of the regulation has been about encouraging shareholders to do more, and I think that needs to change.


De Faÿ, Amundi: My wish is to move forward, to build this common language. 

We know that thanks to engagement between issuers, investors and banks, we have been able to set up a very nice market.

So let’s move forward and be inclusive because the risk is to have a very strict label where we exclude some part of activities. We need to be inclusive. We need to focus not only on environmental but also on social. Let’s move all together and keep an inclusive mind.


Mary, Pimco: The Taskforce on Nature-related Financial Disclosure was launched last Friday and we are one of the founding members, as part of the informal working group.

My wish is for this initiative to be successful because the development of common standards on biodiversity and broader nature-related risk and opportunities is much needed as a complement to the TCFD climate-related disclosure framework.

That could have a broad range of benefits in the green and sustainability-linked bond market, and more broadly for quantifying and mitigating environmental risk in fixed income.


GlobalCapital: Great point. Bodo?


Winkler-Viti, Berlin Hyp: I would wish for more data, better data, data that are publicly available and easily accessible, relevant data. In our case, this would be energy efficiency data on the whole European real estate sector.


GlobalCapital: Thank you. Aldo, you get the final word.


Romani, EIB: I would strongly appeal in favour of more awareness, more engagement, more determination and, above all, more sincerity. 

We first need good-willed people that everywhere, in each organisation, should try and make things work.

It is not a question of just complaining about the imperfections of what is available. We all know reality is complex and very difficult to tackle, but things need to be done and this is only possible with the empowerment of people determined to take action and make things better.

It is also a question of making clear to everybody that reality is not the way it has been described so far. What we need now is clarity. 

We know many more things than just a couple of years back but a lot more needs to be unveiled and this is not possible without the involvement of all. For me, this is the most important thing.   GC

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