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Interview: Julien Froumouth (ABBL) : Transitioning to a sustainable finance approach

About Julien

Julien is in charge of supporting the Luxembourg Bankers Association (ABBL) members in achieving their transition to a sustainable finance approach, adapting to new regulatory requirements and deploying solutions across sustainable investment, financing and advisory activities. In the sustainable finance domain, Julien contributes to maintaining Luxembourg’s position amongst the top sustainable financial centres, by supporting cooperation between the sustainable finance ecosystem and sharing innovative ideas to anticipate future risks and opportunities in this field.

Julien Froumouth, Sustainable Finance Adviser at ABBL says we are at a turning point in the field of sustainable finance. Financial education and training will be absolutely critical to maneuver this transition. Interview.

Can you describe the importance of financial education and training in regard to ESG?

First, the level of financial literacy is a key factor contributing to people’s ability to make sound and well-informed financial decisions. It is at the heart of financial empowerment of individuals and a powerful catalyst of financial inclusion and consumer protection. It ultimately complements the efforts to build a stable and sustainable financial system.

Over the last years, the growing importance of new aspects such as the climate change, the degradation of the environment and the social crisis have created further interplay between financial education and the role of investments and funding to build a more sustainable and inclusive society. Financial education and training have been influenced in a manner that they have both progressively included ESG components and even transformed into full-fledged sustainable finance programmes.

Regulatory and political pressure also plays an essential role in pushing financial professional to gain expertise on ESG topics. The EU action plan on sustainable finance introduced new measures and requirements to include sustainability factors throughout the entire value chain of the financial industry. Even the European Banking Authority now has a mandate to review and coordinate financial literacy and education initiatives via national initiatives and contribute to the convergence of practices and the integration of ESG in a consistent way.

Since its creation in 2016, the ‘Fondation ABBL pour l’éducation financière’ supports and promotes financial education, fostering research programmes, offering collaboration and financing of projects initiated by both the academic universe and the training bodies for financial professionals.

In addition to the regulatory pressure, banks will have to deal with clients’ new expectations and take into considerations their sustainability preferences on top of knowledge and experience.

Since 2019, the ABBL has been focused on sustainable finance to create and raise awareness of general public, and to integrate sustainability/ESG into education. We are strongly convinced that our role is to support our members in identifying and addressing the needs to skilled resources, specialised employees and targeted training on ESG and sustainable finance. To this end, in partnership with the House of Training, we have launched a comprehensive sustainable finance programme, targeting professionals of the financial sector, as well as a series of videos to raise awareness with the general public of the principles of sustainable finance, showing how they can act responsibly via their savings and investments.

We are at a turning point in the field of sustainable finance, and financial education and training will be absolutely critical to the success of the EU Action Plan on financing sustainable growth and ultimately addressing the sustainability goals set at the national and at the EU level.

For further information on ABBL financial education and training initiatives:

How is Corporate Social Responsibility leveraged into the ESG agenda?

Even though most stakeholders today recognise the value and the importance of ESG data, they are minimising – or at least not properly considering – the role of corporate social responsibility (‘CSR’) in the context of current initiatives, ambitions and regulations. This could be due to the lack of common understanding or definition of the fundamental concepts and principles involved, and how to implement them. On the other hand, many organisations are just not ready or equipped to understand, identify and prioritise ESG criteria and leverage them when defining their business strategies.

In the context of the EU agenda on sustainable finance, it is clear that ESG information will be soon accounted for in the same way as financial information. Establishing the right governance and culture to deliver companies’ business objectives and integrate sustainability in all employees’ work (including directors) and their decision-making is embedded in the likely legislative proposal from the Commission on sustainable corporate governance.

In addition, the review of the Non-Financial Reporting Directive is expected to improve the disclosure of climate and environmental information by companies, corporate transparency and the value of meaningful sustainability reporting.

Finally, the forthcoming measures on the management of ESG risks embeds a double materiality perspective including, on one hand, the environmental and social impacts originating from the companies’ activities throughout its entire value chain and, on the other hand, the impacts stemming from climate change, environmental and/or social risks on the companies’ performance.

Those pieces of the European ESG regulatory puzzle require a systematic integration of ESG criteria into the strategic objectives, the business models and the operational processes of companies and leverage in return the need for adequate corporate disclosures including sustainability information. To this end, the adoption of environmental, social and governance considerations at all level of the organisation has matured continuously in the past years and will continue to improve to better align companies’ measurable sustainability objectives with their corporate strategies. This will require regularly identifying and assessing the relevant requirements of all their stakeholders, implementing related measures and finally disclosing both financial and sustainability performance in a holistic manner.

What ESG challenges & opportunities do you identify for the banking sector in the medium term?

The challenges that the banking sector is faced with are twofold: (1) the timely compliance with an accelerating regulatory agenda along with (2) financing a successful transition to a low-carbon and more sustainable economy. It touches upon the environmental, the social and the governance aspects of banks’ business models but it ultimately relies on the financial component to thrive.

Policy makers are emphasising the central role of the financial sector in advancing the ESG agenda. Banks are particularly affected in the way that they are exposed to ESG risks and sustainability factors indirectly, through their lending and investment activities, and directly, through their own operations and organisational setup.

However, the impacts could vary among banks depending on their level of maturity with regards to ESG, the level of sophistication and the granularity of their products and services offering as well as the internal expertise of their employees in sustainable finance matters.

In addition to the regulatory pressure, banks will have to deal with clients’ new expectations and take into considerations their sustainability preferences on top of knowledge and experience, their financial capacity and their risk profile.

Both changing customer preferences and the influence of regulatory changes affect the entire value chain and raise fundamental questions at senior management level, as well as strategic and operational changes across all business lines, such as the IT department that will have to collect and process a significant amount of new data.

At all level of the organisation, banks will need to ensure proper awareness and training of identified staff, upskilling client-facing employees and developing specialised ESG competencies within risk management and control functions.

Finally, not all areas of the EU action plan have been implemented in full and the renewed sustainable finance strategy might also bring new measures and reforms for the banking sector.

But if banks are under growing pressure, opportunities also exist, like the introduction of new products and the improvement of brand and reputation. At the same time, the long-term business risk can also be reduced by properly managing, measuring and tracking sustainability factors. This creates new substantial investment opportunities in emerging sectors and activities like hydrogen, renewable energies, green infrastructure or clean technologies. It is a great opportunity for enhanced dialogue with clients and counterparties looking for guidance and support on sustainability considerations.

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