Against a backdrop of widespread ecological and social awareness awareness, lhe establishment of reliable and universal standards is becoming crucial to the transparent and fair evaluation of responsible investment.of responsible investment.
In the 1970s, finance experienced an important "moment". The frustrating absence of a unified indicator for assessing performance led to the emergence and widespread adoption of universally accepted, standardized financial measures enabling easy comparison between companies regardless of industry or geography - return on investment (ROI), earnings per share (EPS) or economic value added (EVA). This was the catalyst for a meteoric expansion of the market, promoting a more efficient allocation of capital.
50 years on, a new "moment" is upon us. Against a backdrop of heightened awareness of the environmental and social impacts of corporate activities, and under pressure from regulators and public opinion, companies are rapidly moving towards integrating ecological and societal performance indicators into their reporting. This development has given rise to new, specialized investment vehicles, and has led to the establishment of welcome but often complex and sometimes even divergent standards.
This transition to more responsible finance has logically led to the emergence of a new wave of players, some of whom are behind investments that are "green" in name only. For example, Deutsche Bank's subsidiary DWS was challenged by regulators over its environmental, social and governance (ESG) criteria, resulting in a police search, the resignation of the CEO and a plunge in the share price.
Of course, companies are profit-driven and not philanthropic entities. They may perceive ESG as an additional cost with no immediate financial return, in an environment that always favours the short term. Whether they will get value for money, and whether their customers, employees and markets will recognize and value a virtuous choice, is a legitimate question. Nor do the lives of major international groups stop at the boundaries of the national economy, either in terms of their commercial or industrial footprint, or in terms of the origins of their investors, whose atavisms are varied and not always "green". How will a pension fund from Iowa or Texas deal with the news that a listed French group is consuming its earnings to make itself more "sustainable"?
If we want truly responsible finance that does more than just manage reputational risk, then it is essential to develop standards and mechanisms for universal, reliable measurement and evaluation, including the synthesis of financial and extra-financial indicators, so as to create a single concept with which investors can make reliable comparisons. This evolution is underway, but it will take time, and will entail reputational and financial risks that we will need to know how to manage.
Mathieu Pontecaille, Consulting Manager
