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    THE CHALLENGE: FINANCING A POSITIVE ECONOMY


    Investments contributing to positive change

    The financial sector plays a key role in allocating financial resources and incentivizing clients. It is therefore the sector’s responsibility to catalyse the necessary transition towards a more sustainable economy. For example, through their investment decisions, banks can favour companies working with renewable energies, from equipment manufacturing to distribution. A positive contribution can also be made by financing projects that assist sustainable economic growth, be it through creating infrastructure, allocating funds to microfinance or granting loans to social businesses.  Insurance products can also promote sustainable behaviours, for example, by charging lower premiums for electric vehicles and energy-efficient homes.


    Screening for environmental, social and governance risks

    The environmental and social impacts of the finance sector are somewhat limited compared to other industries, notably energy or retail. However, the financial sector invests in companies present in such industries and provides financing for projects that directly impact both the environment and society. By integrating ESG criteria into their investment and loan analyses, investors can reduce the indirect impacts of their funding and in the long term, promote greater risk mitigation for their corporate clients.

    In 2003, the launch of the Equator Principle (a voluntary standard for assessing and managing environmental and human rights risks in project finance) marked the beginning of the financial sector’s recognition of their indirect environmental and social responsibility. Since then, various other subsectors have launched similar initiatives, such as the Principles of Responsible Investment (PRI), the Sustainable Stock Exchange (SSE) and most recently, the Principles for Sustainable Insurance.


    Reaching the underbanked

    The World Bank estimates that 2.5 billion people currently have no access to financial services such as bank accounts or credit lines. Through responsible microfinance, by offering services such as savings accounts, credit lines and insurance to low-income communities, the finance sector can help these populations in both developed and developing countries to manage their assets, generate income and reduce financial risk.

     

    SOLUTIONS IDENTIFIED BY MIROVA
     


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    REVIEW OF CSR QUALITY


    In addition to the identification of business models that respond to sustainable development challenges, a CSR policy review of quality is systematically carried out prior to stock selection. This is done to confirm that the company is relevant to the investment theme and ensures that the overall business operations are consistent with the sustainable development positioning of the company’s products and/or services.

    This risk management focuses on key areas, for example: market manipulation, money-laundering and insider trading should be given proper attention.


    (1) Socially Responsible Investing
    (2) Eurosif, 2010, European SRI Study 2010 USSIF, Sustainable and Responsible Investing Facts
    (3) UNEP, 2010, Universal Ownership: Why environmental externalities matter to institutional investors
    (4) World Bank, 2012, Who are the Unbanked