LuxFLAG (Luxembourg Finance Labelling Agency) raised awareness to market challenges faced in the impact investing space at a side event held on Monday at the EIB Benelux Pavillion at COP27 which is being held in Sharm el-Sheikh, Egypt. The event featured speakers familiar with the challenges of making investments with real impact and of the best way to move forward with sustainable finance.
Britta Bochert, Head of Product Development at global impact asset manager Finance in Motion (FiM), discussed her firm’s activities, which are focussed on emerging markets and involve nine blended funds, with investors from the public sector, multilateral development banks (MDCs) and private sector investors. She said the FiM funds have about 3 billion assets under management. “This translates roughly into six billion in investments being made today under the funds, said Bochert, all of which have a green or social scheme.
Bochert highlighted the 13-year-old Green for Growth Fund (GGF), which is a 750 million vehicle today. “That translates into 1.3 billion in investments made so far,” she said, gracefully acknowledging congratulations in the pavilion.
The GGF is “very much a vehicle to deliver on the EU climate finance agenda, the EU Green Deal,” she said.
Measuring and identifying
Bochert called attention to the importance of measuring and identifying the impact and access to impact data. “In an ideal world, we would have an end to end ESG solution where we can just aggregate the data from all the various sources, including from the investee companies that we are investing in and then put this through to our regulator,” she said. “But unfortunately, we’re far from that.”
Speaking as the European Investment Bank’s chief sustainable finance advisor, Eila Kreivi admitted she was being somewhat flippant when she claimed that impact investing was “invented or started” by multilateral institutions. “What we do is always meant to be serving some public policy objectives,” she said.
Discussing the EIB’s progress towards reaching its goal of being able to have half of its lending be for environmental lending, she mentioned that it is committed to following the EU Taxonomy. “These criteria, everyone says oh but they are so demanding,” she said. “Well they are and they are mean to be because we don’t have that much time any more.”
Investing for biggest impact
She explained that the taxonomy serves to show where you have to invest to make the biggest impact with your money. “It gives you some guidance that this is what you should be doing if you want to call yourself or your activity green or sustainable.»
Kreivi, along with other participants, raised the importance and challenge of data availability. The European Commission and the regulators had set the bar high in demanding very high quality data. “This is already very challenging in Europe, where you have in many cases the data available,” she said. “But when you go outside Europe, we don’t have similar systems even for reporting or for the data”. She pointed out that outside Europe there it isn’t easy to get energy efficient buildings or emissions information certified.
Kreivi made a point of emphasising the importance of technical assistance and technical capacity-building in the emerging market countries, and that this should be done by local providers, “not just to pay international consultants”, she said. “That money is gone when the consultants leave the country.”
University of Luxembourg professor Dr Dirk Andreas Zetzsche discussed the crucial role of regulation in moving Europe towards the green transition.
Financial inclusion key to sustainable finance
He emphasised the importance of financial inclusion. “When we know that more than 1.5 billion people on the planet have no access to finance and they need support, as well as a lot of kids and elderly people, we can believe that financial inclusion is a precondition for the whole sustainable finance agenda.” Speaking of the United Nation Sustainable Development Goals, he explain that “there is not a single one of them not indirectly furthered by financial inclusion.
Much of the focus in emerging and developing countries on sustainability is actually about containing the fallout of environmental damage caused decades ago, he pointed out.
Zetzsche cautioned against using balance sheet logic as exemplified by the Basel capital requirements in the sustainable area. “When you apply the traditional on balance sheet logic, that you have those out of the system that you need in the system for the transformation.”
The most important issue for sustainability, he said, is that “it only matters that if we have a change that we can show – only then will the market follow.”
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