In principle, it might seem that the sustainable finance are a subject too advanced for a financial education plan designed to train a person with emerging knowledge and poor practice of saving.
However, if we frame the sustainable finance within a clear tendency of the european regulator and the development of the demand for products of sustainable financial, it may make more sense that this subject is not only interesting to a public which is very advanced -and therefore rare-but that it will be useful for a saver means to take investment decisions with responsibility.
The argument of this statement is based on two vectors that are going to make their usefulness for the small saver. On the one hand, the obligation of the investment advisor to comply with the requirement of subjecting the investor to a suitability test to determine your risk profilebecause as of 2021 has to specifically ask about the environmental perspective and social saver.
And, on the other, the growth of financial products that we are developing many investment managers and that is going to provide you for the different perspectives of the sustainability of savers and investors.
Spainsif, the forum of Investment in Sustainable and Responsible (SRI), which started its journey in 2009, had no principles easy. The option of investing with criteria that were not stringent of maximum profitability with a measured risk was view with incomprehension their financial logic and mistrust of the actions of the companies in these fields.
It looked like an action commendable, yes, but I assumed some costs, loss of profitability. For this reason it was associated to a kind of ‘donation’ indirectissue the saver solved another way with their contributions to NGOS.
A reason very used to criticize his financial logic was that the company undertake projects with limited environmental or social actions that were more demanding than the legal standards, incurred costs that made it less competitive than its rivals. The distrust of the sustainable practices it he saw reflected in the speed with which they were accused of greenwashing.
Subsequently, the permeability existing at the financial trends of the countries of our environment, and greater available information published by the issuers on the environmental and social issues –outside its origin to a desire of companies to improve their reputation or an obligation of the regulator– along with the social perspective and long-term pension funds and insurance companies, made in Spain, approximately after 2016, there is a relevant growth of the capital invested in sustainable products.
While it is necessary to distinguish between the different investment strategies in order to reach a judgment more informed to generate the confidence necessary to make an investment decision.
The social perspective and the long term of the pension funds made in Spain to produce a relevant growth in sustainable products
Due to the strong development of the sustainable finance, especially in the european environment, there is an ongoing review of the usual classification of the strategies of sustainable investment, looking for a greater rigor in its definition.
The strategy called exclusion, that is the one that initially marked the ISR and that percentage has a greater value of capital under management of joint ISR, is to exclude some sectors that, in principle, it is generally considered bad, such as tobacco and armaments.
However, its recent growth is lower losing percentage points compared to strategies more mature as are the integration of criteria ASG (environmental, social and governance) in the analysis of the universe on which to build an investment portfolio.
The business schools are including aspects ASG in the whole of their subjects, not only in the specifically financial, for managers of companies to integrate these factors from different perspectives when making decisions competitive in the long term.
The rigorous process that has been initiated by the European Union with the so-called ‘taxonomy’ green will give trust to the small saver
In the crisis of 2008, business schools were criticised for their role of promoting risk behaviours in managersdefending the rising indebtedness of firms. The financial logic was based on the lower cost of debt to the company, against the alternative of expansion of capital to undertake projects. The strong growth of the previous years and the large volume of liquidity at very low costs reduced the assessment of risk, one of the reasons of the financial crisis of 2008.
Before this change of perspective regarding good corporate governancealong with the growing interest and knowledge on the part of the investor, who has access to better information, and in addition to the imminent publication of ‘green labels’ driven by the European Union, it is presumable that sustainable finance should have a weight in the Financial Education Plan.
The rigorous process of definition of sustainable investments has been initiated by the European Union with the so-called ‘taxonomy’ green will give trust to the small saver and we believe that the sustainable finance will be an aspect that initially they will occupy a relevant interest in the investment decisions of a sparing middle.
While from a longer-term perspective that is desirable is that the factors ESG are integrated into the financial analysis of the vast majority of investment managers, making it nearly disappear the classification of sustainable finance, and not to be then something differential.
***Joaquin Garralda, president of Spainsif.
