Interview with Flavia Micilotta, Executive Director, Eurosif

Climate Action caught up with Flavia Micilotta, Executive Director, Eurosif, on scaling up low carbon investment and her participation in the first Sustainable Investment Forum Europe.

1. Could you tell us about Eurosif and what the goals of the organisation are?

Eurosif is the leading pan-European sustainable and responsible investment (SRI) membership organisation, whose mission is to promote sustainability through European financial markets. Eurosif works as a partnership of Europe-based national Sustainable Investment Fora (SIFs) with the direct support of their network which spans over 400 Europe-based organisations drawn from the sustainable investment industry value chain. These organisations include institutional investors, asset managers, financial services, index providers and ESG research and analysis firms totalling over €8 trillion in total assets. Eurosif is also a founding member of the Global Sustainable Investment Alliance, the alliance of the largest SIFs around the world. The main activities of Eurosif are public policy, research and creating platforms for nurturing sustainable investing best practices.

Eurosif has been working on and advocating for the promotion of long-term investments and sustainable financial business models. We work with our members across Europe to engage policymakers and stakeholders to enshrine these values in the financial system and in the policy framework. Eurosif is perhaps the only organisation which had already recognised the importance of the policy element to ensure the advancement of the SRI industry 16 years ago. Since our inception, we have taken it upon ourselves to voice the needs of that part of the industry which understands the relevance of investing sustainably, while engaging with policy-makers to make that change possible. The momentum has been building around our movement and the debate around the fight against climate change has helped mobilise beyond the investors’ community. Our call to policy makers has been heard, and today’s efforts from the European Commission to streamline policy-making is tangible evidence of this work.

2. What do you see as the key requirements for an orderly and efficient move to a low carbon economy?

The financing needs we are faced with today are many and they mainly revolve around the environmental and social dynamics of our economy: education, job creation, retirement protection, energy transition, infrastructure provision. All these elements have one thing in common: they all require a long-term financial commitment. In the past and certainly since the 2008 financial crises, there has been one main objective, and that is short-term stabilisation of the system. This has led to a strong push towards increased liquidity, market-to-market pricing and short-term stabilisation. How do we evolve and move towards long-term impact? The financial system and particularly institutional investors can do much to accelerate the shift to a low carbon economy.

 One of the biggest barriers to that is to reconcile the short-term with the long-term investors’ horizon. The tragedy of the horizon, as exemplified by Mark Carney, sums this idea up neatly, signalling how climate change’s catastrophic impacts will only be acknowledged by financial actors only when it’s too late to act. What is needed is a renewed alignment towards fighting climate change. The governance of companies should also align with long-term perspectives and in line with long-term investor’s expectations and moving away from quarterly reporting.

3. What do you see as the leading challenges to financing the necessary action to achieve the aims of the Paris Agreement?

Today, there is no one definition for sustainability which holds true for all. On the contrary, players are working in an environment which is particularly riddled with a lack of consensus on issues such as fiduciary duty and stewardship with respect to Environmental, Social and Governance issues. There is a general lack of clear metrics for what is considered material in sustainability and a lack of alignment on definitions.

The SRI market totalled over €11 trillion in assets under management at the end of 2016 and yet, there is no consensus as to what constitutes clear SRI investment strategies. Though the market has profited from this state of affairs, sustainable and responsible investments now need to go to the next level and become a recognisable tool for all investors (retail as well as institutional) to drive change and meet the Paris Agreement goals. Clear standards for SRI, which give investors guidance on how they may execute investment and risk analysis and conduct investment activities to adequately factor ESG considerations and exercise ownership rights so as to promote sound governance, are called for.

Clear metrics should be part of the way the governing body of an institutional investor can ensure proper risk management is in place and able to link the risks associated with long-term investments, including ESG risks that may affect their portfolios. The risks associated with long-term investments should be carefully assessed, including climate and other environmental risks, and exposure to potential future climate regulation.

4. You will be moderating a panel at the first Sustainable Investment Forum Europe, what do you think can be achieved in terms of outcomes of the Forum?

The event will be rich in content and great value speakers. This will also be a key opportunity to discuss the actions the European Commission will take as a follow-up from the recommendations of the High-Level Expert Group on Sustainable Finance (HLEG).

The European Commission’s Communication on Sustainable Finance, to be published by the end of February 2018 along with its Action Plan, will build on the HLEG’s final recommendations to design an overarching framework for sustainable finance and provide the major steps towards a more comprehensive sustainable finance strategy.

It will also be a good opportunity to find out more about the Commission’s plans to put in place a governance mechanism to oversee the development of a sound EU taxonomy, due to be launched in spring and focusing on climate mitigation but also on wider environmental and sustainable investments.

Flavia Micilotta will be the moderator of the "Environmental Data for Sustainable Development" panel on facilitating sustainable investment decision-making through harmonised environmental and financial data during the Sustainable Investment Forum Europe, taking place this March in Paris. To learn more about the event and how to register click here.