FTA: The financial sector is good at focusing on tackling climate change but neglects much else. What could be the consequence of that?
VS & MB: The financial sector's predominant focus on addressing the climate crisis, while important, has led to a neglect of other critical environmental and social issues.
This narrow focus on climate change overlooks the interconnectedness of environmental and social matters, which are pivotal for overall financial stability.
After all, the reason why we care so much about climate change is to protect human beings – or because it has such significant consequences on banks’ balance sheets.
But social issues are more and more being understood as posing a financial risk as well.
The consequence of this neglect could be a failure to comprehensively address environmental and social risks, hindering progress toward achieving SDGs.
Financial institutions should avoid isolating their importance as this could distract them from fostering positive change and identifying profitable investment opportunities.
FTA: What can investors do to entice companies to do more?
VS & MB: The current emerging consensus on investors' contribution to impact identifies the following strategies:
- Capital allocation/investment and divestment: investor’s thesis is driven by evidenced positive social and environmental outcomes at investee level and chooses to allocate its capital accordingly.
- Non-financial engagement: engaging the company to meet certain standards of impact.
- Internal firm management: investor takes a more prominent role in the management to improve practices.
FTA: What do you say to those who say investments will only ever have a very limited impact on shaping the world in real terms?
VS & MB: As explained above, equity investors can have a significant contribution and affect companies’ behaviour, which in turn affects the real world.
There is some debate about divestment strategies, but proxy voting and engagement is proving to be much more impactful.
While strategies differ a bit, the same can be said for fixed income investors, which can provide incentives for companies to meet certain sustainability goals for example.
carmen.reichman@ft.com
