Sustainable investment has become an indispensable term in the world of finance. But behind this name lies a complex reality. How can we distinguish genuine sustainable initiatives from mere marketing operations?
What is sustainable investment?
Sustainable investment aims to reconcile financial return with a positive impact on the environment and society. It’s not just a question of avoiding harmful industries, such as those heavily linked to pollution or deforestation, but of actively investing in projects that promote ecological transition, such as renewable energies, organic farming or clean technologies.
However, the notion of “sustainable” can vary:
- Renewable energies: Investing in companies that produce solar or wind power can be considered sustainable, as they help reduce our dependence on fossil fuels. However, some might argue that the manufacture of solar panels can have negative environmental impacts, making the investment less “sustainable” by certain standards.
- Organic farming: Investing in farming businesses that do not use pesticides can be considered sustainable, as they contribute to the health of the planet and consumers. However, if these farms use excessive amounts of water or have unsustainable soil management practices, they may not be considered fully sustainable.
- Clean technologies: Investing in companies that develop technologies to clean up the oceans or reduce waste can be considered sustainable. However, if the production process for these technologies is polluting or unethical, this could call their sustainability into question.
So it’s hard to talk about sustainable investment, because it’s a variable-geometry concept. That hasn’t stopped some players from declaring themselves “sustainable”.
The “green” funds controversy
The growing popularity of sustainable investment has led to a proliferation of funds claiming to be “green”. But not everyone is as green as they claim. Take BlackRock, for example, whose “sustainable energies” investment is supposed to give priority to financing “clean” and “renewable” energies , while **strictly excluding coal, oil and gas companies, the main contributors to greenhouse gas (GHG) emissions.
However, according to an investigation by Le Monde, the commitment has not been kept: the three largest assets in this €6 billion fund are heavyweights in the fossil fuel sector. The German energy company RWE AG, the American Nextera Energy and Italy’s Enel SPA alone account for 16% of its assets, even though they generate around half their electricity from coal, gas and oil.
BlackRock is not an isolated example. In collaboration with a dozen European media, including Investico and Follow the Money, Le Monde discovered that most of the financial players who promise their investors to put their savings at the service of the climate are in fact still financing polluting companies. Labels and standards make no difference: even “super-green” funds are often at fault. On a European scale, almost half (46%) of those we studied invest in fossil fuel or aviation-related assets.
This “great deception” has sparked debate and concern about the true nature ofsustainable investment.
The European Union’s green taxonomy: a clear answer
In December 2019, the European Union adopted the regulation on the taxonomy of green activities, paving the way for an ambitious European benchmark for sustainable finance. This regulation aims to define what constitutes an environmentally-friendly investment.
Technical discussions are still underway to determine the thresholds and technical criteria for defining “sustainable”, “transition” and “transition-supporting” activities, as the subject is complex. The aim is to ensure that these :
- Are based on long-term decarbonization trajectories that are systemic, robust, transparent and shared by all stakeholders.
- Be aligned with the goal of climate neutrality by 2050 that the EU is preparing to enshrine in its first climate law.
The Financial Services Sustainability Disclosure Directive (FSD) also plays a crucial role in this context. It aims to enhance transparency and provide investors with clear information on the sustainability of investments.
Conclusion: the complexity of sustainable investment and the importance of European taxonomy
Sustainable investment is a complex and constantly evolving subject. While the promises of “green” funds may be seductive, reality shows that not all of them are as environmentally friendly as they claim to be. In this context, the European Union’s green taxonomy appears to be an essential response to clarifying the landscape of sustainable investment. By defining clear and transparent criteria, it aims to provide investors with a reliable benchmark, enabling them to distinguish genuine sustainable opportunities from false ones.
The implementation of this taxonomy will have a significant impact on the investment world. Companies and funds that fail to comply with these criteria risk losing the confidence of environmentally conscious investors and customers. It is therefore crucial for financial players to take a quick look at the European taxonomy and align their strategies accordingly. Ignoring this development could have financial consequences and damage their image.
Sustainable investment is more than just a passing trend. This is necessary to ensure a sustainable future for our planet, and to meet the growing expectations of consumers and investors in terms of environmental responsibility.
