What is sustainable investing?
When making a sustainable investment, the investor takes into consideration not only financial aspects such as return and risk, but also opts to invest in companies that make a positive contribution in terms the environment, social topics and good governance.
These three topics are often grouped under the acronym ESG, which stands for Environment, Social and Governance.
How does it work?
Sustainable investing means investing in economic activities and projects that focus on ESG factors.
Environmental factors refer to mitigation of and adaptation to climate change. But it also involves the environment in a broader sense, such as preservation of biodiversity, preventing pollution, promoting the circular economy and the sustainable use and water conservation.
Social factors have to do with inequality, inclusion, labour relations, relations with employees, investments in human capital and communities, as well as respect for human rights.
Good governance, including management structures, corporate culture and executive compensation, plays a fundamental role in including social and environmental considerations in the decision-making process.
What rules apply?
A set of European rules offers investors guidelines for taking decisions about sustainable investing.
A number of rules seeks to achieve greater transparency by requiring certain companies to disclose relevant, comparable and reliable sustainability information and to publish a sustainability report.
Other rules require companies to manage the sustainability risks to which they are exposed.
There are specific transparency rules for financial products that promote environmental or social characteristics or whose objective is sustainable investment.
Certain legal frameworks apply on a voluntary basis. This is the case with the standards on the issuance of European green bonds.
Rules of conduct require companies that provide certain kinds of financial services to take account, in their conflict of interest policy, their product approval process and the suitability test, of sustainability factors.
What does the FSMA do?
The FSMA plays a leading role at both national and international levels in the development of regulations governing sustainable finance and, in particular, in the prevention of greenwashing. The latter is the term for the practice in which the sustainable character of a product or service would appear to be no more than a marketing claim that may mislead the consumer.
Where can you find more information?