Monday 25/05/2020

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The role of the regulator in sustainable investing: the wrong debate?

Responsible Investment Strategist

There is no need to repeat ourselves: the sustainable and responsible investment industry requires European standards and the harmonisation of concepts and definitions, the objective being to achieve greater transparency. In the end, the goal is to provide end-consumers with an insight into their choices, and to help them compare the products available. Ultimately, we do not want to have to wait for the creation of a label to increase our awareness about the transparency of these products.


So what role does the regulator play in all this? There are two conclusions we can draw:

1. On the one hand, the European regulator has become increasingly involved in all kinds of issues. It needs to carry off a difficult balancing act between the need for more standardisation and harmonisation and the regulations, which are continually increasing administrative requirements and the reporting which we, as investors and companies, all have to deal with in the name of ‘transparency’. The clout of European authorities is on the rise. The latest development here is the European Commission setting up a High Level Working Group dealing with sustainable finances. In its interim report it explains that sustainable financing must finance the real economy. Specifically, its objective is to translate regulatory requirement into recommendations. In that way, the financial industry can take up its role in tomorrow’s economy. Transparency and disclosure are key elements in this regard, because sustainable development will soon be part and parcel of institutional investors’ fiduciary obligations. In turn it will allow the financial industry to play a role in contributing to a low-carbon economy.

2. On the other hand, the OECD continues to publish relevant studies and analyses on common themes such as the environment, the green economy, etc. Here we highlight the remarkable comparison between ecological taxes and labour taxes.


Low-carbon economy: when labour taxes surpass ecological taxes

Here a comparison is being made between the income derived from ecological taxes versus that derived from labour taxes as a percentage of gross domestic product.

We will not go further into the real efficiency of a tax, as the OECD regularly deals with this theme and it is not the topic of this article.

However, the question is whether we are actually engaging in the right debate when we look into the role of the regulator in making the financial industry more sustainable.

It is also interesting to look into the fact that investors exclude companies which are very active in hazardous substances in order to be perceived as sustainable and responsible, while nevertheless the resistance of Nicolas Hulot to reintroducing glyphosate, a hazardous substance, is causing a stir. Excluding hazardous substances, the role of investors to make the world more sustainable; when will subsidies for these same hazardous substances be abolished to create a sustainable and coherent regulatory framework?

When OECD member countries can continue supporting activities that harm the environment