Thoughts and reflections from an ESG event at a Euronext stock exchange
On 9th September 2024, I attended in person the new frontier of ESG in the boardroom at Milan-based Borsa Italiana, part of the Paris-headquartered Euronext Group, where the chairmen of financial institutions gathered for a panel discussion focusing on the integration of Environmental, Social, and Governance (ESG) considerations in the boardroom. The session highlighted a significant shift in corporate governance, emphasising that companies must now cater to all stakeholders, not just shareholders. Here are my takeaways and reflections from the event.
Key takeaways from the panel
A key theme that emerged was the need for clarity in ESG regulations, as it has become a permanent fixture on board agendas. One panellist underscored the importance of sustainability, stating that it is at the heart of their new strategic approach. This aligns with a growing recognition that ESG principles resonate strongly with new generations, making it imperative for businesses to prioritise these factors.
The discussion also noted the rising importance of ESG ratings and how they affect various sectors, particularly insurance. It highlighted that protection gaps in insurance can create significant challenges for banks and the broader economy.
A crucial point raised was the European Union’s Corporate Sustainability Reporting Directive (CSRD). This is essential for CEOs to build a solid business case for long-term investments. Without the guidance of the CSRD, justifying a 20-year return becomes significantly more challenging, as business cases typically aim for 3-5-year returns.
Furthermore, the CSRD’s implications extend beyond large corporations to encompass the entire value chain. Smaller businesses are now indirectly affected. The EU will force them to improve their ESG through larger businesses in the scope of the CSRD. As a result, banks must engage with corporations of all sizes to ensure compliance.
The panel asked: “What do we want to finance in the age of ESG?”. They asserted that the impact component of returns can no longer be overlooked, necessitating substantial changes in internal processes. To facilitate this transition, boards must include technical experts who can effectively challenge management decisions.
In conclusion, bank boards must make informed decisions regarding investment strategies that contribute meaningfully to sustainability, rather than merely creating a façade of compliance. This evolving landscape demands a proactive approach from finance leaders to align business practices with the broader goals of ESG.
Some reflections on change and value
The insights from the panel align closely with what I covered in my article for The Review – Sustainable change: the new model for value creation. It underscores the notion that value creation today extends beyond traditional returns to encompass ESG factors. This shift towards a holistic understanding of value is essential for long-term success.
As the panel highlighted, businesses are increasingly expected to adopt a stakeholder-centric approach. This shift requires that finance leaders rethink traditional models of value creation. They must integrate sustainability into their strategies. Incorporating ESG considerations can enhance brand reputation, customer loyalty and financials.
Moreover, the article emphasises the importance of transparency in fostering trust among stakeholders. The CSRD is a key tool in this regard. It compels businesses to disclose sustainability efforts and impacts, thereby driving a culture of openness. Businesses must also ensure sustainability claims are backed by genuine actions, avoiding “greenwashing.”
Finally, the discussion in Milan and the proposal in the article reinforce the idea that achieving meaningful change in the finance sector requires collaboration across all levels. Banks must work closely with businesses of varying sizes to share knowledge and best practices. They must ensure a collective movement towards a sustainable future.
Final thoughts
The CSRD will affect not only EU businesses but also the non-EU ones doing business in the EU. Other jurisdictions are introducing rules that go in a similar direction.
On that day, I also attended a discussion on instruments for SMEs (SMBs), where ELITE, Euronext’s private market, was highlighted for connecting 2,000 SMEs – many family-owned – to various capital sources, including Minibonds. Which can finance projects of up to EUR 50 million. At reduced rates, if certain ESG metrics are met. The conversation stressed that SMEs should view ESG as investments to capitalise on, rather than costs. There was also a focus on the need for boards with ESG expertise and better ESG data & software.
Ultimately, the discussion in Milan serves as a final wake-up call for leaders everywhere to foster a culture of sustainability that permeates all aspects of their businesses.
At the networking drinks, I had the pleasure of meeting several interesting people at firms operating in Milan and London, learning more about how minibonds work in the EU. To learn how we can help you develop and implement a tailored ESG strategy for your business, please get in touch with me:
