Sustainable investment solutions continue to gain momentum
With its tremendous momentum in recent years, how is sustainable finance faring in the current market environment? Has the pandemic accelerated the integration of Environmental, Social and Governance (ESG) criteria into investment processes? Have ESG investment solutions been impacted?
Isabelle Millat, Head of Sustainable Investment Solutions within Societe Generale’s market activities, answers these questions: “Investors are continuing to prioritize investment themes that address sustainable development and ESG issues, confirming the changes in pre-crisis mentality and society." Despite the extreme market conditions caused by the pandemic, ESG remains an increasingly sought-after investment theme for investors. “Stocks of ESG indices on the Societe Generale Index (SGI) platform tripled compared to the end of 2018 and reached 6 billion euros at the end of September 2020," she notes.
This positive dynamic is also observed by investors specialized in ESG who participated in a round table moderated by Isabelle Millat during the European ESG/SRI & SPIF conference organized by Societe Generale from the 17th to 19th of November 2020.
“The Covid-19 crisis has strengthened retail investor awareness of the importance of corporate ESG performance; insurers and pension funds are on their side increasingly setting a net zero emission target to ensure the transition of their portfolios. There is also an increasing demand from investors who want managers to tell them what they are doing in terms of ESG, but also to prove it to them, and even to involve them," said Marte Borhaug, Global Head of Sustainable Outcomes at Aviva Investors, during the conference.
“The number of ESG requests from our investors has increased by 60% per year since 2012. Today, ESG questions are asked by institutional investors, investors in private debt or infrastructure, funds of funds, but also wealthy retail investors," added Candice Brenet, Managing Director, Head of Sustainability & Digital at Ardian.
To meet the growing investment, hedging and financing needs of corporate and investor clients, as well as their ESG priorities, Societe Generale’s market activities offer innovative financial solutions that fit within its “Sustainable and Positive Impact Finance” offering that was launched in 2017.
Among the investment solutions are the ESG indexes, launched on the SG Index platform, which also include tailored indexes from the platform’s flagship indexes or thematic baskets. These indices and baskets are accessible via ETFs, funds, swaps, certificates or structured products. As a direct result of COVID-19, sustained index growth is driven by social themes. “On the three ESG criteria, given the impact of the health crisis on our societies, the social criterion is attracting more interest from investors. In response to client demand, we launched, in partnership with index provider Solactive and research company Vigeo-Eiris, the indices "Just transition" and "Employee Well Being" that address themes related to a just transition and employee well-being, respectively," adds Isabelle Millat. The first index gives exposure to a selection of European companies best prepared to support a just transition to a low-carbon economy, while integrating social issues (integration of social factors in the supply chain, responsible management of restructuring, compliance with human rights standards, etc.). The second follows the performance of those who have the best practices in terms of employee safety and health management (working time arrangements, paternity and maternity leave, stress training, etc.).
The appetite for green investments or positive impact financing favors the structuring of tailor-made solutions such as positive impact notes and charitable notes. “The success of our latest innovations, namely the positive impact Africa notes and the charity notes distributed to Asian investors, reflects a desire on the part of clients to support positive impact financing or the fight against inequalities through the bank’s commitments,” explains Isabelle Millat.
Positive impact notes are structured products that allow clients to contribute to Societe Generale’s positive impact financing initiative. Through them, the bank commits to finance or refinance positive impact assets for an amount equivalent to the notes outstanding. Societe Generale has issued nearly 1.3 billion euros of such notes since 2017. Since the beginning of the year, they reach around 300 million euros, half of which comes from Africa positive impact notes. Recently launched, they support the financing of the construction of hospitals and infrastructure to provide better access to water in Africa. Charity notes are structured products on which Societe Generale undertakes to make donations up to a certain percentage of the amount subscribed in the products. Since 2017, subscriptions have reached 1.3 billion euros and are close to 420 million euros since the beginning of 2020. The Bank has issued charitable notes for the first time in Asia and will pay a certain percentage of the amount of issued structured products to CARE France, a charity partner of the Group, which fights, among other things, against poverty and gender inequality.
The ESG offer is also diversified thanks to sustainability-linked derivatives hedging solutions. These are derivatives that provide corporate clients with hedging against interest rate and/or foreign exchange risks, the characteristics of which depend on the company meeting the sustainable development objectives it co-built with Société Générale. These derivatives may, in particular, hedge interest rate and/or currency risk in the context of sustainability-linked bonds (issues whose coupons depend on the company meeting its sustainable development objectives). In September 2019, Societe Generale structured the first cross-currency sustainability-linked swap linked to a sustainability-linked bond issued by Enel.
Societe Generale’s market activities also contribute to sustainable project financing and positive impact through vanilla hedging derivatives. In 2020, the bank once again innovated by setting up, alongside four other banks, the first cross-currency swap linked to the first green financing project in India, a Soft Bank Energy Holdings initiative.
“2020 is a year of strong growth compared to 2019 for ESG solutions and we expect continued growth in the coming years,” says Isabelle Millat. She also points out that “the ESG market is not yet mature. The transformation of investment processes will take more time and clients will need increasing support from their banking partners to fully incorporate the evolving European regulation and green taxonomy.”