Europe’s ESG Opportunity
Far from being a purely technical matter, assessing firms’ non-financial performance is a deeply political issue. Europe’s inclusive governance model may give it a competitive edge in shaping global environmental, social, and governance regulations for firms and investors.
PARIS – Finance is evolving in a more sustainable direction, and just in time. Pension funds, insurance companies, and sovereign wealth funds have made multiple commitments on climate change, biodiversity, and economic inclusion. In each case, the aim is to treat finance as a tool, not an end in itself, and to adopt objectives that go well beyond financial returns.
Today, more than $40.5 trillion globally is invested according to environmental, social, and governance principles. But who defines what constitutes an ESG investment, and how far can we trust ESG statements issued by corporations? We need a set of genuinely global ESG standards – and Europe can, and should, play a leading role in formulating and implementing them.
Far from being a purely technical matter, assessing firms’ non-financial performance is a deeply political issue. The first step is the choice of indicators to measure a company’s environmental or social performance. Then there is the question of establishing baseline ESG standards that Europe, the United States, or China will require from all firms that want to do business in their market, as well as a frame of reference that will directly influence financial and investment flows.