Sustainable Investment in Europe at a Crossroads

An interview with Flavia Micilotta, Eurosif’s Executive Director
Jan 16, 2018 10:00 AM ET

Sustainable and responsible investment is helping mobilize and direct finance towards building a more inclusive, stable and greener European economy. We talked to Flavia Micilotta, Executive Director at Eurosif, to discover how.

​Eurosif is the pan-European sustainable and responsible investment (SRI) membership organization whose mission is to promote sustainability by means of European financial markets, and through its membership network encompassing €8 trillion in total assets.

Flavia has over 16 years of experience in responsible business management and responsible investments. She is also part of the European Union’s High-level Expert Group (HLEG) on sustainable finance, set up to help steer Europe towards a low-carbon, resource-efficient and sustainable economy.
What led you to your work at Eurosif?

Our vision at Eurosif is to promote responsible investing to enable the development of a better economy that serves society in a responsible way. This has been my personal conviction since the beginning of my professional career. I was strongly influenced by the set-up of the UN Global Compact initiative by Kofi Annan, which coincided with the Enron collapse. It was then, perhaps for the first time, that even people outside the financial market realized the urgency for a better, more transparent and responsible financial system. I knew right there and then that I wanted to be part of this change. I chose the path of corporate social responsibility, and began working within consultancies, banks, the private sector and international associations, helping them embed sustainability in their business models. Eurosif and its work in SRI represents the natural continuation of my earlier experience, as it entails giving concrete evidence that sustainability is also a business opportunity, and can be so much more than ‘just’ the right thing to do.
Can you give us a brief description of the direction that Eurosif is taking under your leadership?

One of the first tasks I worked on together with my Board was to devise Eurosif’s strategy for the next three years. Its focus was enhancing our member value, reflecting the new governance structure. In parallel, it is Eurosif’s role to promote SRI practices and raise awareness about our industry with different stakeholders, and we intend to further our collaborations with partners across different areas of the economy and society.
In line with our advocacy role, our interface with European institutions has significantly characterized our work and it has culminated in my appointment in the HLEG on Sustainable Finance, representing Eurosif. This is an invaluable opportunity not only for our organization but also for Europe to invest in a more sustainable financial system, to fund the global fight against climate change, and initiate the right dynamics to help mobilize more private capital towards green and sustainable investment and enable the transition to a low-carbon economy.

What are some of the priority areas that Eurosif will be addressing over the next few years?

Advocacy has always been one of our main focus areas and we will continue to invest in it, with a view to being increasingly recognized as the one-stop-shop for SRI knowledge in Europe. Our main goal with advocacy is to enable our European members to bring forward their work and share best practices across Europe. We are working with policy makers to explore the best ways to enable SRI becoming more mainstream and to remove barriers to the industry’s development. Today, we have greater clarity on what the industry could profit from. However, more could be done to improve the level of transparency in the SRI investment cycle and how it works, and to have greater consensus on definitions and, specifically, on the criteria which define SRI and environment, social, and governance (ESG) factors.
Another one of our priorities is to focus on the connection between policy developments across Europe and the evolution of SRI markets in different EU Member States. There is a lot that Member States can learn from each other, and regulators have a crucial role to play in this. The work we are carrying out on the HLEG on Sustainable Finance will help in this direction.
What are some of the trends and challenges you see facing the European SRI industry?

It is interesting to note that the strong pull from institutional investors has virtually doubled since 2012, showing the extent to which the investor class retains the power to shape the industry (Eurosif European SRI Study 2016). Materiality consistently remains a key aspect for investors, and together with fiduciary duty represents a critical factor in the relation between asset managers and asset owners.

The Eurosif SRI study also disproves the concern that integrating ESG factors in the investment strategy negatively affects returns. Yet, it remains one of the top debates affecting the investment dynamics today. In addition, the lack of viable investment products, accompanied by the lack of qualified expertise as part of the SRI service offering, remain troubling issues which keep hampering the true ability of the industry to be part of mainstream finance.
Can you give us one or two key recommendations proposed by the HLEG on creating a sustainable financial policy framework in the EU?

As a member of the HLEG, I believe that all the recommendations made so far, are crucial to the creation of a sustainable financial policy framework. One fundamental recommendation, for instance, concerns asset managers, and requires a clear classification of assets and products at the European level, which encompasses all the different definitions of sustainability, not only covering environmental, but also social and governance impacts. This is also a recommendation highlighted in our last Eurosif SRI study, and it addresses a widely prevalent, existing gap.
Another recommendation is to determine a standard at the European level, not only for green bonds but also for SRI products. Since its inception, Eurosif’s Transparency Code has represented such a framework of reference for SRI labels in Europe. SRI  labels aim at certifying and promoting sustainable and responsible investment, so as to bring clarity to end investors. Over 700 funds subscribe to the Code, which can be considered the mother of all labels, as it defines the basis for most labels today.
What role do you see for sustainability disclosures in SRI and how can this be improved?

The issue of disclosures is the crux to creating a more transparent and sustainable financial system. Eurosif has always been a strong advocate of more transparency on the side of investors – see our Transparency Code – and on the side of issuers. Our community of investors is firmly convinced that better ESG performance is inexorably linked to higher economic value, and increased value creation. The lack of reporting requirements so far, has increased the level of information asymmetry on the issuers’ side, inevitably affecting investors’ abilities to use this information in their decision-making process. What we need are clear reporting standards, both for issuers and investors, such as the ones already available like GRI, and the monitoring of their correct application.
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