In the shadow theater, stories are told with puppets behind a white curtain against the light. The audience throbs, intrigued by the almost representation of reality. Invented about 2,000 years ago, art has been gaining new dimensions. The last one is called sustainable finance.
The publication has grown and the shows have swelled over the years, but we still don’t know what’s behind the white cloth.
Almost every week there is new research on the regional or global market for sustainable finance. But the statistics are not comparable or credible.
The problem is that there is no standardized and universally accepted definition of what sustainable finance is, nor of the various categories of investments that use environmental, social and governance (ESG) policies, practices or data. The meaning of “sustainable investments”, “responsible investments” or “impact investments” is subject to broad individual subjectivity or regional tones.
This week the British regulator, the Financial Conduct Authority (FCA) finally announced the Guiding Principles, which establish good practices for ESG integration in investment funds. The long-awaited Global Sustainable Investment Review was also launched, a kind of biannual world map of the industry. There is no consensus between the two regarding definitions.
The FCA even postulates that “impact investments”, which have a considerable dimension in Brazil, are investments that do not aim at financial returns, only positive social or environmental impacts. Looking at a galloping shadow, some see a horse, others a zebra.
If we trust the Global Sustainable Investment Review, the ESG angle investment market reached US$35 trillion (R$183.7 trillion), a timid growth of 15% in two years. In Latin America, the report highlights good practices in Colombia, Chile and Mexico — Brazil was left off the radar.
The study also indicates that there has been an astonishing decrease in the ESG market in Europe (-13%) “due to significant changes in the way sustainable investment is defined in this region under EU legislation, making comparisons with previous versions of this report very difficult” (free translation).
The same study also indicates that impact investments fell from US$ 444 billion (R$ 2.3 trillion) to US$ 352 billion (R$ 1.8 trillion) between 2018 and 2020, while the association responsible for this type of investments, the Global Impact Investing Network (GIIN), points out that the total volume is US$ 715 billion (R$ 3.7 trillion), that is, more than double.
We will live in an enactment of shadows and silhouettes for a few more years. But at least four global initiatives, under development, should offer the guarantees and standardization that the market is looking for.
The IFRS Foundation, responsible for international corporate accounting standards, is expected to launch a new ESG data accounting system next year. Currently, there are around 30 (contrasting) methodologies for companies to report their sustainability work.
Also next year, ISO, BSI and the British government, together with a significant number of representatives from the financial industry, will launch the first standard with prerequisites for investment funds to be considered “responsible” or “sustainable”.
In order to know exactly what an economic activity that contributes to environmental or social objectives means, the European Union will continue to advance in the development of a taxonomy. The environmental version of this catalog will (partially) enter into force in January 2022, while the social taxonomy is currently under public consultation (until 27 August).
In the Brazilian context, Anbima (Brazilian Association of Financial and Capital Markets), attentive to these global movements, should soon launch a new fund classification system to achieve self-regulation in the national market for sustainability-related products.
It is only in the coming years that we will begin to get a true perspective on the size and profile of the global sustainable finance market. The same is true in Brazil. Only then can a financial practice be finally built on solid foundations.
When the curtain falls and the music ends, will we hear the neigh of a mare or the bray of a donkey?
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