How can we improve the definition of a « sustainable investment » ?
The Agence Française de Gestion (AFG) published a note to improve the widely accepted but loosely defined one provided in the Sustainable Finance Disclosure Regulation (SFDR).
The SFDR defines a sustainable economic activity as contributing to an environmental or social objective, doing no significant harm to any other objective and following good governance practices.
These principles leave room for interpretation by finance practitioners. The AFG provides a set of recommendations to clarify this definition.
- Considering an investee entity as "sustainable" entirely to encourage companies to transform. They need to be sustainable as a whole and cannot use sustainable activities to offset unsustainable ones.
- Reference to a widely used common framework such as the SDGs, either before or after the investment, so that other stakeholders can understand the methods and thresholds in a transparent and comparable way.
- Use quantitative accounting elements such as CapEx and OpEX to integrate a forward-looking view of the invested entity.
- Use quantitative non-accounting elements such as the measurable and enforceable commitments defined by the SBTI to assess the positive contribution of the company.
- Frame and foster the dialogue between asset managers and companies, which the authors stress is critical to encourage the adoption of transition plans.
The AFG conducted a survey among French asset managers to determine the companies they consider to be a sustainable investment. On average, 42% of the MSCI World falls into this category.T