For better transparency & accuracy in responsible finance

In this month's interview, Frédéric Samama, Head of Responsible Investment at Amundi, discusses the evolution of responsible investing in the approaches adopted by institutional investors and reflects on the most effective ways for investors to enhance the materiality of investment decisions. He also tells us how to move towards more universally accepted norms for ESG reporting and explains how EDHEC-Risk Institute’s research can help the industry to cope with these challenges.

Last December, as Amundi’s Head of Responsible Investment, you moderated a roundtable session on approaching climate risk from an asset owner perspective at the inaugural EDHEC Climate Finance Conference. How do you see Responsible Investing evolving in terms of investors’ approaches?

Frédric Samama:

The financial environment has been changing drastically worldwide, and in particular in Europe with the new green deal, taxonomy, and disclosure regulations. All these regulations are put in place for better transparency and accuracy in responsible finance and have already started changing the way investors make investment decisions.

On the other hand, changes have occurred partly as a result of public opinion, including investors, who have called for clarification about responsible investing criteria. The knowledge gained in recent years has provided a broader view of the risks and opportunities of such investments. Media coverage, political positioning through events such as COP21, and actions taken by institutions like the United Nations have also played an important role by giving investors meticulous information.

To summarise, we have seen a change in the political landscape, a wakeup call from public opinion, investors gaining knowledge and therefore interest, and finally a change in investor profiles with the new generations entering the market. Millennials and Gen Z are slowly taking over the workforce and have specific – and usually stricter – demands with regard to what they consider responsible, and this has a direct impact on the market.

This mobilisation of investors around ESG issues has already been affecting ESG stock prices. Amundi’s thorough research has highlighted that the mass mobilisation of institutional investors in support of ESG has had a direct impact on the demand mechanism with a knock-on effect on price, resulting in higher performance.

As a result, we are seeing more specific demands around ESG. Impact investing, ETFs and green bonds are booming on the market because investors have seen the space for good returns on investments and the clear impact of these strategies.

Green investing has led to a proliferation of new investment offerings in both equity and bond markets. Could you offer some thoughts on the most effective way for investors to enhance the materiality of investment decisions?

Frédric Samama:

The extent of materiality varies according to the investment environment, the time, place and strategy. Sustainable investing is significantly different from one market to another, and so a set response would be too restrictive here.

However, impact measurement and reporting are materiality criteria used for investment decisions. New frontiers are being drawn today with huge gaps in certain markets. Analysis of these criteria allows us to work out where market creation is possible and generate impact and return.

In the past few years, Amundi has launched numerous partnerships with institutional public bodies such as the European Investment Bank or the Asian Infrastructure Investment bank to create innovative solutions on specific markets, as with green bond markets in emerging countries and in Europe. Today, these offers have shown to be effective and create strong materiality for investors.

The research Amundi has the ability to carry out internally plays a crucial role in these successful investment opportunities by providing valuable information to investors.

Research, analysis, reporting and impact measurement are therefore essential for materiality but, as mentioned earlier, we should be careful not to be restrictive when answering such questions.

The lack of common standards is often perceived as an impediment to the development of green investing practices. How do you expect a consolidation process to lead to more universally accepted norms for ESG reporting?

Frédric Samama: The trend today is a Europe-wide consolidation of standards due to the regulatory framework and the growth in demand for responsible investing. The challenge here is to align along a set of standards for ESG reporting across borders. Through the new European green deal, countries are on the path towards this particular goal.

The consolidation process gives all actors a common language and a calculation point of reference, which is not yet at the desired level. Such a structured process is crucial for reporting because it ensures the completeness of information and data quality since everything is based on the same standard.

Some institutions can play a role in the development of universally accepted norms. PRI, for example, introduced mandatory reporting for service provider signatories in 2018. Another example is the introduction of mandatory reporting on climate change policies, practices and reporting, aligned with the TCFD requirements for asset managers from 2020. The Sustainable Development Goals (SDGs) are another example of a standard on which the finance industry can base its reporting criteria.

How do you think EDHEC's research can help the industry cope with these challenges? More generally, do you have any suggestions for specific issues on which you feel more academic work could be useful?

Frédric Samama:

There is a growing need on the market for clarification of all regulations and legal projects carried out by the European Commission and for the link between ESG and performance. Going further, even though numerous studies have shown the positive impact of ESG on returns and the management of risks and opportunities, investors are deeply concerned about achieving high returns on their investment. Targeted research on these particular issues could help them understand how to achieve this objective and which targets to aim for.

About Frédéric Samama

Frédéric Samama, Co-Head Institutional Clients Coverage, joined Amundi in 2009. He is the founder of the SWF Research Initiative. Formerly, he oversaw Corporate Equity Derivatives within Credit Agricole Corporate Investment Banking in New York and Paris. During his tenure, he developed and implemented the first international leveraged employee share purchase program, a technology now widely used among French companies. He has advised the French Government in different areas (employee investing mechanisms, market regulation, climate finance, etc.) and has a long track record of innovation at the crossroads of finance and government policy. Over the past few years, his action has been focused on climate change with a mix of financial innovation, research and policy making recommendations. He is a graduate of the Stanford Executive Program and holds a diploma from Neomia Business School.