Unlike the financial crisis of 2008/9, this time round the financial sector has been part of the solution, not part of the problem, according to the Luxembourg minister of finance Pierre Gramegna.
How the fund industry has stood up to the challenge of Covid, how it differs from the last financial crisis and what the industry needs to do in future were the key areas Gramegna covered in a presentation to the Association of the Luxembourg Fund Industry (ALFI) conference last week.
Speaking remotely to delegates, Gramegna argued that 2020/21 had brought huge challenges to both European governments and asset managers but that, to date, the response had been heartening.
“This applies to asset managers too – we need a thriving investment fund industry to help absorb the shock [from Covid] and then help build the economy,” he said.
Gramegna suggested that conditions following the second wave represented the quickest but not the deepest economic crisis yet – as claimed in some quarters.
“I think we will recover faster than in 2008/9. The ECB provided liquidity when it was needed which is one of the reasons markets have responded well. What is important is that European finance ministers have acted together. Emergency measures were brought in at the same time and as quickly as we could.”
EU coronavirus fund shows bloc’s solidarity
The EU’s €750bn (£670bn) recovery fund reiterates how effectively member states have reacted to the pandemic, according to Gramegna.
He added that agreeing to provide €390bn in subsidies with the remainder in loans shows the incredible solidarity within the EU to deal with the hardship felt by companies during 2020.
The EU’s first issue of social bonds – which was massively over-subscribed – was also namechecked by Gramegna as proof of Europe’s fast and flexible approach to dealing with Covid ramifications.
“In first and second quarter of 2021, the fund industry will play an important role. We need to learn from the crisis and for those who are ‘climate sceptical’ – it will be very difficult to continue this thinking now. We need a green transition as well as we need a digital transition. In Europe, the green transition is more pronounced already, with more than 50% of all green bonds issued in Europe.”
Gramegna said that the issue was not just about green bonds but about sustainable finance and qualitative growth.
He insisted that the development of a sustainability framework for bonds was a positive on which to build a stronger and cleaner economy post Covid.
Tackling inconsistency in ESG across jurisdictions
The topic of sustainable investment – and particularly meaningful and accurate measurement of it – was picked up by other speakers at ALFI.
Anne Richards, chief executive at Fidelity International (pictured), said it was important to establish comparable and consistent criteria on how to measure key ‘sustainable’ characteristics – something she conceded wasn’t easy with different taxonomies to contend with.
“We need something that looks like accounting standards but applied to ESG.”
She added that ESG needed to be embedded into the research process rather than a filter on the top.
Steven Blackie, global head of product strategy at Aviva Investors, suggested an adequate benchmark for ESG required regulators and industry bodies to be much more vocal about what they wanted to see.
Karine Szenberg, who is responsible for Schroders’ business across Continental Europe and the Middle East, echoed the sentiments expressed by Gramegna with regards to ‘climate sceptics’ and those slow to come to terms with ESG as a priority area.
She argued that, while stewardship may have been associated primarily with governance in the past, now climate impact and human capital were essential factors that were driving change.
The change being not just how companies present themselves as an organisation but in what investors now look for and expect to see from them.
“Unsustainable companies have nowhere to hide anymore with much tighter regulation and stakeholders much more focussed on transparency,” Szanberg said.
European companies – that is those at boardroom level – should increasingly be pressured into asking tough questions of themselves, according to Richards.
“There is always a risk that boards focus too much on protocols when what they really need to do is ask ‘what is the real impact on the company?’ For instance, carbon footprint and employee contracts – following this right through the supply chain.”
