Future challenges for sustainable finance

Enhance the comparability of reporting through greater harmonization of the data used to ensure proper implementation of regulations.

In order to support and monitor the financial flows contributing to the transformation of the economy, regulations are setting up a reporting framework, including for the financial sector. These frameworks are being progressively implemented at various levels, notably at European level. This requiresharmonization at several levels:

• At the level of data providers: if one methodology uses satellite data to verify the rate of imported deforestation, while another relies on the testimony of the subcontractor, the comparability of the data may be lacking.
• Transparency of the analysis methodology used is also necessary for comparability.
• When it comes to data publication, we need to pay close attention to the proper use of reporting standards, particularly ESRS. A major challenge lies in the implementation of CSRD within companies.

Strengthening comparability at all these levels would therefore enable us to identify relevant results and those that are greenwashing. The next step is then to harmonize these different methodologies (for collection and inclusion) in order to enhance comparability between results! IFD project 3 is working in this direction: the aim is to develop a common methodological guide for analysts to assess an issuer’s climate and transition performance.

Assessing the alignment of actions with the commitment of stakeholders: the question of steering tools (transition plans, new transition indicators, etc.).

To redirect financial flows, the challenge is not only to direct investments towards the best performers, but also to support the transition of sectors that are the most difficult to decarbonize (energy, transport, etc.). In addition to publishing information transparently, we need to ensure the credibility of the transition trajectory on the basis of the published data. This can be achieved by evaluating corporate transition plans (e.g. the ACT initiative led by ADEME).

Raising awareness of sustainable finance, particularly among company directors

Governance practices are essential, as they will set the tone for companies on ESG issues. Accompanying the transition will also necessarily involve making boards of directors more aware of the long-term financial risks involved, which is the aim of our report Gouvernance de la transition climat dans les entreprises : 10 recommandations de la Place de Paris (Corporate governance for the climate transition: 10 recommendations from the Paris marketplace ) . The report takes stock of governance practices in the area of climate change, and puts forward proposals for the organization of boards of directors, training of board members, dialogue with shareholders and remuneration policies.

Financing transition in emerging countries and disseminating best practices in sustainable finance on an international scale

Making a success of the ecological transition requires supporting the transformation of the entire economic fabric, and implies colossal sums of money. For example, the massive financing needs on a national scale were estimated in our report Action plan for financing the ecological transition at around €110 billion per year.However, as the dynamic in Western countries tends to be one of decoupling emissions and growth, a major challenge for achieving the transition will be to enable emerging countries to continue their development while decoupling it from their greenhouse gas emissions trajectory. The Paris financial center has a role to play here. On the occasion of the Summit for a New Global Financial Pact, on June 22 and 23, 2023, launched at the initiative of the President of the French Republic, the IFD has created a forum of private players[1] to identify the main issues and reflect on solutions aimed at strengthening the mobilization of the private sector to finance the climate and ecological transition in emerging and developing countries.[1] Cf: the Place declaration, published on the IFD website on this occasion.

Scaling up impact finance

The Paris marketplace has also been a pioneer in supporting the development of impact finance. This particular investment or financing strategy, which is based on the belief that investors must prove their specific and direct contribution to increasing the impact generated by their investments, is still relatively young. Seeking to participate in its development step by step, the Institut de la Finance durable coordinates work that has led to a definition shared by the Paris financial center and, more recently, to the first marketplace standards to support the development of impact finance. This has led to the drafting of a new Investor Impact Charter, based on impact potential evaluation grids.

Accelerate efforts to adapt to climate change and biodiversity loss

As the Cour des Comptes reminded us in its 2024 annual report, adapting to climate change is a major challenge today, and the financing of this challenge, including its solutions, needs to be addressed. Indeed, the costs of inaction in this area are much higher, due to the physical risks associated with climate hazards that could affect infrastructures and financial assets, and have major socio-economic repercussions. The financial sector must therefore be able to implement concrete and ambitious actions to encourage the inclusion of adaptation in the financing provided to the real economy. In addition, the actions of financial players in relation to biodiversity issues must also be significantly strengthened. The tools for doing so are not yet fully mature, but support initiatives are multiplying. These include the TNFD reporting framework, the SBTN initiative for commitments and the tools developed by CDC Biodiversité, notably to help players measure their biodiversity footprint. A Panorama of deforestation-related strategies implemented on the Paris financial market was recently published by IFD. It presents the practices of 15 financial sector players (insurance companies, asset managers and banks), tools and actions to combat deforestation, as well as a list of the main databases and instruments available. Through the financing they provide to companies directly or indirectly linked to deforestation, financial institutions such as insurance companies, asset managers and banks are exposed to economic and financial risks, and must be able to integrate this issue into their decisions. This report focuses on the exposure of financial players to deforestation activity, and on the strategic levers that can be implemented to reduce this exposure.