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For a sustainable and responsible economy: the role of finance

Digital format, 06/07/2020, National Interest

Sustainability has been a concern in the financial world for some time now, with steady and significant growth over recent years in investments centered on ESG (environment, sustainability and governance) criteria. Far from slowing that trend, the Corona virus epidemic is proving an accelerator, with investors seizing on the opportunities associated with a “green” recovery and reconstruction.

Current data show that the companies with the best performance are those mindful of sustainability. The pandemic has also focused attention on firms’ ability to address systemic risk, which has led to a gradual alignment of the key business elements of profitability and sustainability, which no longer qualify as alternatives to one another.

The Corona virus crisis also offers other opportunities. Many companies receiving government subsidies will have to consider and demonstrate to their financiers their positive impact not only on the economy but also on the society. Considering and gauging a firm’s impact will therefore help investors choose more sustainable enterprises better equipped to confront the threats and uncertainties of the future.  To achieve that goal, it is critical to unite the short-term vision of a company’s annual report with the long-range one needed to face the challenges humanity is being forced to confront, starting with the fight against climate change. The extraordinary 8% drop in CO2 emissions measured this year as a direct result of the lockdown should be repeated annually through 2030 to ensure achievement of the Paris Accord goal of keeping to a 1.5-degree temperature increase.

Thus, it is necessary to act quickly; and while Europe’s Green New Deal is itself an ambitious plan for change, Italy too is well placed in many fields to be a leader in generating a circular economy. It is essential, however, in a country with a solid fabric of small and medium-sized enterprises, not to weave a legislative web but rather to enact concrete measures that facilitate the hundreds of thousands of companies already riding the green wave and that are seeing a tangible improvement in performance.

On the impetus of new European plans, Italy should incentivize green investments, possibly shifting the 19 billion euro in subsidies already available to damaging environmental activities with a view to encouraging those companies’ transition to new models. In a world where sustainability promises to become the economic and financial paradigm of the future, those who move first will likely gain a major competitive edge.