Sofidel: The Forum for Sustainable Finance

Sofidel

On the topic of finance increasingly in step with the ecological transition, Soft&Green wanted to listen to the voice of Francesco Bicciato, Director of the Forum for Sustainable Finance.

Finance plays an important role in the green transition because, when it is sustainable, it contributes to a more responsible and inclusive society. When did your association start and how does it operate?

The Forum for Sustainable Finance is a nonprofit association established in 2001. The membership base is multi-stakeholder. It includes financial operators and other organizations interested in the environmental and social impact of investments. The Forum’s mission is to promote the knowledge and practice of sustainable investing, with the goal of spreading the inclusion of environmental, social and governance (ESG) criteria in financial products and processes.

The Forum’s activities are divided into three main areas: Research, Projects and Relations with Institutions. 
Through its work, the Association has been instrumental in bringing the issues of sustainable finance to the attention of institutions, financial operators, non-financial organizations, and citizens. Thanks to both advocacy initiatives and ongoing work on the financial education front, awareness and interest in the sector have greatly increased. The Forum has also produced open knowledge about the field through intensive research work, with some 50 publications on the subject freely accessible online. The Forum’s vocation is to try to recognize in advance complex economic and financial dynamics and phenomena and how they may impact environmental and social variables.

When did people start talking about responsible finance and what kind of difficulties did financial actors have in obtaining effective measurement tools/metrics?

In the first study of the SRI (Sustainable and Responsible Investment) market in Europe conducted in 2003, Italy accounted for 0.1 percent of the European market with €240 million in assets, referring only to institutional investors. The situation today is very different. At European level, according to Morningstar’s findings, there has been an increase from less than 400 billion open-end funds and sustainable ETFs (Exchange Traded Funds that allow investors to manage risks associated with environmental, social and governance factors) in 2017 to about 2.5 trillion in 2022. The topic of metrics has been and still is an important challenge because measuring the results of an investment is critical. While we are further along on the environmental front with respect to the social dimension, there is more work to be done, starting with accelerating dialogue at European level to approve a social taxonomy.

From your privileged vantage point, what is the current situation of sustainable finance in Italy and, more generally, in Europe and the world?

The focus on sustainability has greatly increased in recent years, and ambitious climate and environmental goals have been set at European and international levels. ESG finance is growing in importance precisely because it makes a key contribution to achieving these goals toward more sustainable development models. Indeed, sustainable investments are key to building a society that is low-emission, keeping global warming below 2°, and socially inclusive. An interesting ongoing trend is the growth of green bonds. In 2022, green bond issues accounted for more than half of all sustainable bonds issued in the same year (58%, $487.1 billion). After demonstrating resilience in a turbulent economic environment, green bond issuances in the first half of 2023 increased by 22.2% over issuances in the same period of 2022, arriving at $351.9 billion. As predicted by the Climate Bonds Initiative, green bonds have returned to growth and could reach the ambitious level of $5 trillion a year starting in 2025. This data points out two important elements. On the one hand, it highlights the markets’ interest in investments with environmental sustainability goals. On the other hand, it is also an indicator of investor interest in financial products with a high level of transparency. In fact, in green bonds, the use of proceeds is tied to specific projects and reported regularly. Although reporting standards are currently voluntary, they are widespread and it has been observed that their adoption is rewarded by the market. This phenomenon brings us to the second ongoing trend: the increasing demand for data from institutions and investors. Companies, including SMEs, will need to increasingly engage on the reporting front, both to attract investments – data is key to composing sustainable portfolios – and to meet increasingly stringent European transparency requirements.

According to the findings that emerged in 2022 from the “Italian SMEs and the Green Transition: ESG Profiles and Sustainable Finance” research conducted by the Forum and in which 415 SMEs participated, sustainability plays an “extremely important” or “very important” role in the company, driving strategic and investment choices, for over 45% of SMEs. However, with respect to the level of knowledge and practical application of ESG aspects, there still remains significant room for improvement. About 40% of the companies surveyed do not know how to estimate the extent of their exposure to climate risks, and only 17% have approached banks for financing related to sustainability projects.

More and more organizations are claiming that they have embarked on a path toward sustainability even from the point of view of financial investments. This is a positive fact that however raises some doubts about the veracity of what they are claiming. How high is the risk of greenwashing?

As interest in environmental, social and governance sustainability has grown, so as the risk of greenwashing. This term refers to a particular behavior that consists of presenting a company’s products, goals and/or policies as environmentally friendly in the face of actions that contradict said image.

As ESMA, the European Securities and Markets Authority, also notes, greenwashing harms investors who want to allocate their resources to sustainable economic activities. In addition, it amounts to an actual practice of unfair competition, penalizing companies committed to a real path of sustainability. More generally, it is the market’s credibility that loses out. Both companies that incur greenwashing and the financial players that support them expose themselves to three categories of risk: reputational, legal, and financial.

In 2022, the Forum presented a paper dedicated to greenwashing containing an analysis of the phenomenon and a set of guidelines to prevent it. It was the result of a working group on the subject conducted with our members. Going forward, we expect increased awareness of sustainability issues among savers, investors, and businesses and a growing commitment by asset managers to more transparent investments.

Read more about topics related to environmental and social sustainability, themes and projects close to us in terms of culture and corporate modus operandi on our Soft&Green blog.