Opinion – Rodrigo Tavares: Who deserves the title of world capital of the ESG market?

It is risky to discuss which country can be recognized as the nerve center of anything. It is a flirtation between the subjectivity of criteria and the imposition of wills. But the world is full of “global centers of” and “priority destinations for”.

World capital of gastronomy? From the design? Of culture? We all have suggestions. There are also studies by consultancies with statistics and hierarchies of cities and countries, instilling some judgment and comparability to our unreasonable impulses by some nations.

Who deserves the title of global center of the ESG market? What seems like a tiny issue is taking on the contours of a direct dispute between several countries. “As the world capital of sustainable finance, Switzerland must stop greenwashing” released a wealth manager a few days ago in Geneva in a conversation to discuss the Swiss regulator’s involvement in ESG practices.

In recent weeks, I have heard similar comments from a Brazilian banker, a director at the British regulator and an investment analyst at a family office in the United Arab Emirates. In their eyes, they all work at the global center of the ESG market.

With nearly half of all assets under management applying ESG filters, territorial competition is not just a matter of imagery, a path to a label, or the expression of the Freudian “id”. The title, if properly sanctioned by logic, has the ability to attract billions by impacting millions.

But let’s go by parts. The UK has strong arguments. Its government institutions have, in an apolitical, non-partisan and consistent manner, launched programs to support sustainable finance; the country is the biggest stage of events dedicated to the theme, including the COP26 in November 2021; 100% of its fund managers integrate ESG data, practices and policies into investment management (2021 Annual ESG Manager Survey) and the regulator (FCA) has proposed guidelines and standardization in this area.

There is political will, practical experience and regulatory robustness. There is also no lack of entities dedicated to the subject, such as the UKSIF (UK Sustainable Investment and Finance Association) or the Green Finance Institute. The headquarters of the United Nations PRI (Principles for Responsible Investment) is also in London. But, strangely, the main academic institutions in the country have a scarce curriculum offer on topics related to sustainability. Oxford offers just five master’s degrees, the London Business School four and Cambridge five (in the US, Wharton has 22, Kellog-Northwestern has 26 and Harvard has 16).

The United Arab Emirates is the country with the highest density of public policies, national strategies and visions for sustainability. As examples, UAE Sustainable Finance Framework 2021-2031, National Climate Change Plan of the UAE 2017–2050 and UAE Green Agenda 2015-2030. There are about 20.

In 2006, construction began on Masdar, a sustainable futuristic city near the capital Abu Dhabi, which today is also a center for innovation and investment in renewable energy. However, it remains to be ensured that the country’s main sovereign wealth funds and family offices integrate ESG issues into their investments and contribute capital in the country’s transition to a low carbon economy. As the host of COP28 in 2023, the UAE will have little time to prepare to be audited by the global community.

It was in Switzerland that the acronym ESG was created, in 2004. Since the 1990s, UNEP FI (United Nations Environment Program Financial Initiative), based in Geneva, has been among the main promoters of the sustainability agenda with the Financial Institution. A constellation of other organizations such as the Swiss Bankers Association, Swiss Sustainable Finance and regulator FINMA have also published good practice guidelines and guides for ESG integration in investments and credit and preventing greenwashing.

The Swiss market has also shown a lot of appetite for training and certifying financial managers on ESG issues. University of Zurich, St. Gallen and IMD lead the curriculum offering.

In 2020, the Federal Council (the Swiss government) presented recommendations for the country to become a global destination for ESG practices. However, that same year, the Responsible Business Initiative, a popular proposal aimed at amending the Federal Constitution to oblige Swiss companies to do due diligence to ensure that internationally recognized environmental and human rights standards were respected in their seats. of supplies, was rejected. It won the popular vote, but was defeated by most cantons (12 out of 20).

Brazil also has predicates. The credibility of its banking system and its colossal environmental heritage naturally give it a voice in the global debate on sustainability, even when the ethical wealth of the presidential occupant is inversely proportional to the country’s wealth of biodiversity.

Among all the nominated countries, Brazil is certainly the one with the most engaged and internationalized civil society to discuss social and environmental issues. In addition, leading banks are globally recognized for their work on internal and external sustainability. Also, no country has as extensive media coverage of sustainability as Brazil, with dozens of articles, reports and opinion articles published daily on the topic. There is also emphasis on the volume of ESG debt and regulatory issues, with CVM and Anbima leading pioneering initiatives at a global level.

Downside: Investment managers, family offices and pension funds are still hesitant on the sustainability agenda, often choosing to only cosmetically integrate ESG practices and data.

In this championship there will be no official winners. Depends on the crowd. An attempt by a consultancy to rank the green financial centers at a global level (The Global Green Finance Index) has not been able to obtain the unequivocal support of the financial community, despite the interesting results that put London at the top of the pyramid.

Being considered one of the global capitals in the area of ​​sustainable finance produces much more than radio recognition. About US$ 50 trillion (R$ 240.5 trillion) is invested according to an ESG logic. The country that is recognized for its regulatory virtue, for the standardization of its sustainability practices, and for its degree of demand in transparency, will draw the attention of the owners of this capital, the institutional investors.