By Ophélie Mortier,
Responsible Investment Strategist at DPAM

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This has been an amazing decade for sustainable investments. We have seen the confluence of actions by companies, individuals, and policymakers. These latter have been particularly active over the last 3 years and the increasing power of regulation is a complete game changer for sustainability, and for sustainable data in particular. The famous SFDR (Sustainable Financial Disclosure Regulation) is a rising bar not only for disclosure but also for the discipline and approach regarding sustainable frameworks.

During the last two-three years, the focus has been mainly on one single dimension: Environment and in particular Climate. Nevertheless, the sanitary crisis has demonstrated the key role of the social pillar and how the three dimensions – environment, social & governance – are interconnected are therefore require a global approach. This has always been a conviction at DPAM


Almost all countries have committed to carbon neutrality in the coming decades. This has economic and financial consequences. Firstly, it means a complete exit from fossil fuels by 2050 and an aggressive decarbonization process. Secondly, it is an estimated investment cost of over USD 5 trillion per year until 2030, which requires considerable financing.

The last 5 years have been record-years in terms of so-called green bonds and similar issuances. This is only a start. These instruments should massively be issued in the coming years. They will provide better diversification and deepness to the markets. Whether voluntarily attracted to these instruments or being pushed by regulation, investors are prone to buy “green” assets whose valuations are beginning to show some signs of strong demand.

Indeed, the European taxonomy, among others, pushes investors to buy the securities that will allow them to display the best alignment rates to the first two climate change objectives (mitigation and adaptation) . The next four objectives have been recently drafted1.

As a reminder, the taxonomy aims to bring clarity on what should be considered green and helps to re-allocate capital towards economic activities and companies contributing to taxonomy aligned environmental objectives.

Although the countries ambitions are important, to be successful, these must be achieved on a global scale. In this sense, the COP 26 output was not reassuring. “A COP from the rich countries for the rich countries” as several experts have stated, and with an important gap between the official declarations during the first week and the concrete concessions on paper during the second week. This has created a context of mistrust among countries – and particularly between developed and emerging economies – without precedent that the next conferences will have to resolve quickly. The climate leadership war between China and the United States is already creating some geopolitical tensions. The failure of the COP 26 on several essential points of international cooperation and the mistrust among states will reinforce the geopolitical tensions on the subject.


The impact of regulation regarding social and governance requirements has been quite limited for the moment, especially on valuation.

On the social front, the focus remains on the complex consideration of human rights throughout the value chain, the famous duty of diligence implemented by France and the UK. However, the first draft of the Social Taxonomy was published last summer, and it promises lively and admittedly subjective debates on implementation.

We observe the same in terms of governance: the minimum safeguards to be applied from a regulatory point of view reinforce the scrutiny of the incidents and scandals that issuers may face. Moreover, the movement from shareholder’s supremacy to stakeholder’s governance brings to the forefront the notion of the company’s “mission” towards Society. This has opened the door to interesting debates on the fragile equilibrium of this whole microcosm.


  1. The ESG market has grown very fast over the last 5 years to become mainstream today. There is no reason why the important flows in sustainable assets over recent quarters should stop. Monitoring these flows is key in portfolio management.
  2. The regulation is there to support – if not push – these flows; SFDR in particular is a game changer to recycle investment assets into ESG investment solutions
  3. The demand is then clearly on the rise. On the offer side, the universe of green assets remains relatively small with geographic and sector biases. This could weigh on valuation. It is imperative that the universe grows to avoid overcrowding investment risks across the current well-known suspects. Actively managed portfolios can make the difference.
  4. Following recent higher valuation, the potential mispricing of so-called ESG assets and the positive correlation between ESG and financial performance could be disputed. Given the diversity in sustainable approaches, the answer is not always straightforward. Nevertheless, a recent meta analysis2 from the NYU Stern Center for Sustainable Business and Rockefeller Asset Management confirmed the positive and/or neutral correlation between ESG and financial performance. Market consensus builds that ESG can lead to outperformance.
  5. Finally, the data issue is a well-known challenge. SFDR and Taxonomy in particular have been a game changer for ESG investing and data. Investors’ needs have shifted from ESG subjective assessments from ESG data providers to ESG objective raw data directly from companies. The financial world needs adequate, reliable, and forward-looking data to make appropriate investment decisions, fully aligned with the policy agenda 2030-2050. The announcement by the International Financial Reporting Standards (IFRS) Foundation of the creation of the International Sustainability Standards Board (ISSB) has been therefore welcome by the markets. This will develop a comprehensive global baseline of sustainability disclosure standards for the financial market, which is a promising step in the right direction.

1Sustainable and protection of water and marine resources (1), transition to a circular economy (2), pollution prevention and control (3) and protection and restoration of biodiversity and eco-systems (4).

2A majority of 1141 peer-reviewed papers and 27 meta reviews published between 2015 and 2020


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