Last year, for the first time, global sustainable investment flows declined, with a net outflow of USD 2.5 billion. The complex international economic and geopolitical environment and its consequences, from fears of recession to rising inflationary pressures and interest rates, played a key role.
The only exception was the European context, which maintained positive net flows, attracting 3.3 billion in the fourth quarter of last year, albeit down from the previous quarter. This is one of the findings of the second annual report of O-Fire Observatory on Impact Finance, the sustainable finance observatory created two years ago by the University of Milano-Bicocca together with Banca Generali Spa and Aifi-Italian Association of Private Equity, Venture Capital and Private Debt. O-Fire's activities are part of Spoke 4 of Musa, Ecosystem of Innovation, funded by the Ministry of Universities and Research as part of the National Recovery and Resilience Plan. The report, entitled "ESG Disclosure Obligations, Sustainable Funds and Renewable Energy Sources in the Midst of the Ecological Transition", was presented this morning at the Guido Martinotti Auditorium of the University of Milan-Bicocca.
Towards a new regulatory horizon
Europe is rapidly moving towards a renewed regulatory framework for sustainability. The recent publication of the Delegated Act for the Environment and the introduction of the Corporate Sustainability Reporting Directive (CSRD) mark decisive steps towards extending non-financial reporting requirements. By requiring almost 50,000 companies to comply with the European Sustainability Reporting Standards, the EU is aiming for greater transparency and corporate social responsibility, key factors for market competitiveness.
The analysis therefore shows that the European taxonomy is still evolving and that new additions and changes will be needed to facilitate the investments needed to make the EU carbon neutral by 2050.
Sustainable finance and energy transition: an inseparable pair
The report highlights the critical importance of investment in renewable energy sources for the energy transition and the achievement of sustainable finance goals. However, challenges are emerging related to the impact of climate change on energy production, which could redefine the global supply and demand balance and influence investment in the sector.
"Investments in renewable energy sources," the researchers write, "while having a positive impact on ESG ratings, may have an opposite effect on credit ratings. In fact, an analysis of the relationship between the two types of ratings for 116 European companies showed that for only 35 companies, representing 30 per cent of the sample, the credit rating and the ESG rating were of the same quality".
Adapting to climate change: an urgent priority
The need to adapt to climate change requires a substantial and well-designed financial commitment, which is currently only minimally supported by global investment. Allocating resources to specific interventions, such as natural disaster prevention and food security, remains critical to mitigating the effects of climate change.
"The report's findings underline the challenges and opportunities that lie ahead on the road to a more just and equitable environmental transition," commented Giovanna Iannantuoni, Rector of the University of Milan-Bicocca and President of Musa. "It is significant to observe how, despite the economic and geopolitical turmoil, Europe continues to show a unique resilience in maintaining positive net flows of sustainable investment. This is a clear indicator of the continent's commitment to long-term sustainability goals, even in uncertain times. However, the global decline in sustainable fund flows reminds us that the road to sustainability is littered with challenges that require attention, innovation and international cooperation. This report highlights not only the progress that has been made, but also the areas where we need to focus our efforts. It is through this awareness and understanding that we can mobilise concrete action to address the most pressing challenges of our time, for a collective commitment to finance that is truly sustainable, inclusive and capable of meeting the challenges of our century".
Achieving the ambitious goals of climate policy is an undertaking that requires and will continue to require great responsibility, commitment and the ability to coordinate between institutions, companies and individuals in order to channel the efforts and investments of the community in the right direction towards a more sustainable world", says Carmelo Reale, Head of Banca Generali's General Counsel & Group Sustainability Area, "and in this context, financial institutions are one of the main catalysts for promoting investments in this direction". In recent years, there has been a great evolution in the sensitivity to environmental issues and in the offer of sustainable investments by the financial industry, but in 2023, for the first time, there was a reverse trend in the flows towards these investments. It is therefore crucial to focus on best practices in order to reinvigorate impact finance and not to abandon the virtuous path taken so far. We would like to thank the University of Milan-Bicocca and all those involved in the project for their meticulous and exceptional research and analysis, the results of which will feed into our thinking on the future challenges facing the sustainable investment industry and into our model. As a bank, we are at the forefront of addressing the challenge of sustainability, as evidenced by our recent membership of the UN Global Compact, a voluntary initiative of the United Nations aimed at encouraging businesses to create the economic, social and environmental conditions for a healthy and sustainable global economy.