The Earth does not belong to man, man belongs to the Earth. All things connected like the blood that unites us all. Man did not weave the web of life; he is merely a strand in it. Whatever he does to the web, he does to himself. ~ Chief Seattle, December 1854
These are the excerpts from Chief Seattle’s famous speech in response to “The Point Elliot Treaty.” Many things have changed since then. The transition from the Holocene era to the Anthropocene era reflects the profound impact of human activities on the Earth’s systems. A new era of human activity has become the dominant force, shaping the environment, altering landscapes, and disrupting climate patterns. In this epoch, the need for sustainable practices has never been more urgent.
To learn more about this brewing notion, we joined Professor Dr. Dhafer Saïdane, a full-time professor at SKEMA Business School and head of the M.Sc. Sustainable Finance and Fintech at the Paris campus, on a weeklong International Immersion trip to Paris. Dr. Saïdane has also published several books and was awarded the TURGOT Prize by the Ministère de l’économie et des Finances in 2012.
Why the Way We Do Business Matters
This graph published by the International Panel on Climate Change (IPCC) demonstrates the need to cut emissions by around 43% to limit the warming climate. Our conversation with Dr. Saïdane began with a sobering realization: despite our best efforts, we are falling short on our commitment to limit global warming to 1.5°C, as outlined in the Paris Agreement.
Dr. Saïdane argues the underlying issue to be “Our finance is without ethics = unsustainable.” The main criticism of mainstream neoclassical financial theory is that it’s failed to incorporate the notions of altruism, morality, ethics, and emotional intelligence. The mainstream has enclosed only “Rational Intelligence” but needs to revamp its accounting standards with a stronger focus on Behavioural Finance. The crisis has influenced the shift towards social finance. It’s a “financial humanism” taking the form of a responsibility for sustainable development in the social and environmental spheres.
The International Immersion trip taught us that Sustainable Banking is a modus operandi where internal activities are sustainable and external activities such as lending and investments are focused on sustainability for customers and entities in society. Dr. Saïdane mentions that “The starting point is not environment regulations or the market, but the vision regarding the environment, the organization’s goal, and the role that the organization wants to play in society.”
Additionally, sustainable banks are prepared to accept lower margins to stimulate certain activities that do not have a chance of succeeding in the current paradigm. The risk is too large, and the profit margins are too low. Dr. Saïdane explained the two extreme standpoints on the environmental responsibility of bank products: 1) All pollution caused by companies financed by banks is the responsibility of the banks and 2) As the products of banks do not pollute in themselves, the users of those products (the clients) should take responsibility for the pollution they create. We derived both standpoints to be absurd and that the truth lies somewhere in the middle but remains almost difficult to quantify.
We also observed that there is a strong correlation with size as for large institutions it is challenging to implement the ESG measures proactively, and thus they are more prone towards controversies related to “Greenwashing.”
What is Impact Investing?
The Global Impact Investing Network (GIIN) defines impact investing as a strategy that considers investments made into companies, organizations, and funds to generate social and environmental impact with a financial return.
The main dimensions of impact investing are exclusion, humanity, equality, philanthropy, and solidarity.
Moreover, the EU Taxonomy regulation created a common language for all its member countries to identify sustainable activities and a new classification of products by SFDR article 6 (all funds), article 8 (General ESG), and article 9 (sustainable aligned strategies).
The EU Taxonomy regulation sets 5 goals for environmental factors: climate change reduction and adaptation to it, sustainable use and protection of water and marine resources, transition to a Circular Economy, pollution prevention and control, and protection of biodiversity and ecosystems.
Disclosures are vital for implementing ESG goals, and the European Union is at the forefront of this mission. It recently launched CSRD (Corporate Sustainability Reporting Directive) in January 2023 and is a key development in this step as it aims to have more than 50,000 companies, compared to the 11, 700 today, in Europe to achieve non-financial reporting. This helps investors, civil society organisations, consumers, and other stakeholders to evaluate the sustainability performance of companies. Its main goal is to accelerate the objectives of the European Green Deal, which is to achieve carbon neutrality in Europe by 2050.
The International Immersion trip was a crucial element in our Master program that emphasized the three pillars of EADA: Sustainability, Leadership, and Innovation. This trip provided us with a unique perspective on business and significantly highlighted the need to readapt to create a positive impact. Thank you, EADA.
Author: Saminul Minhaj
International Master in Finance participant
About Saminul
Before joining the program, Saminul Minhaj worked as an associate for Carelon Global Solutions in Bangalore, India. He holds a Bachelor’s degree in Business Administration and finds challenging Business-related problems exciting.
