The transition towards sustainable finance and addressing the challenges it presents requires collaboration across sectors and disciplines. In particular, integrating scientific research with sustainable finance practices and bridging existing gaps is essential.
This month, we interviewed Andrew Ferrone, Deputy Director for Climate and Sustainable Development at the Luxembourg Ministry of the Environment, Climate and Biodiversity and Chair of the LSFI Scientific Advisory Board (SAB). We discussed the link between science and sustainable finance, the objectives of the SAB, how scientists and financial professionals can collaborate more effectively to drive sustainability, and the biggest challenges in aligning the financial sector with the latest scientific understanding of sustainability-related topics.
LSFI: What is the link between science and sustainable finance?
Andrew Ferrone (A.F.): In the rapid transition to a fully sustainable world that is needed, the financial sector will have an important role to play, both in aligning financial flows with this transition and in integrating environmental, social and governance (ESG) factors into all investment decision-making processes, as well as in managing sustainability-related risks, impacts and opportunities from a ‘double materiality’ perspective.
The scientific community can help the financial sector in this transition by providing it with the relevant information to fully understand the ESG dimensions of today’s financial structures, which are often intertwined, and it is not easy for financial institutions to assess the ESG impact of its decisions.
Academia can also help by identifying and offering solutions to remove barriers that prevent the alignment of financial flows with ESG factors. Finally, it can help identify knowledge, data, tools and methodologies to better manage sustainability risks and impacts, and, ideally turn them into opportunities.
LSFI: As the chair of the Luxembourg Scientific Advisory Board (SAB), what would you like to see the SAB achieve?
Andrew Ferrone Deputy Director for Climate and Sustainable Development at the Luxembourg Ministry of the Environment, Climate and Biodiversity, Chair of the LSFI Scientific Advisory Board (SAB)
A.F.: I am writing this before the inaugural meeting of the SAB, where the members of the SAB will discuss the issues they would like the SAB to cover in detail, so I will limit myself to a very general overview at this point.
One of the problems facing decision-makers and the private sector is the huge amount of scientific literature that exists today, and which is most relevant for which application. At the international level, the Intergovernmental Panel on Climate Change (IPCC) and, for biodiversity issues, the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) have been established to address these issues and provide policymakers with the best available science.
For sustainable finance, there is no equivalent scientific body, and I see the SAB as stepping into this role to advise the LSFI and its stakeholders on the best available science tailored for the Luxembourg financial center which will help support the transition to sustainable finance.
LSFI: How can scientists and financial professionals collaborate more effectively to drive sustainability?
A.F.: One of the barriers I see both at the science-policy interface and in outreach to the private sector is communication. Often, policymakers or the private sector misinterpret the key messages of scientific reports, while scientists have problems identifying the real information needs of their counterparts.
Therefore, the SAB would benefit from establishing a two-way dialogue with the LSFI stakeholders in Luxembourg. On the one hand to clarify the language of the SAB reports, but also to better understand the needs of the stakeholders.
LSFI: What are the biggest challenges in aligning financial markets / financial sector with the latest scientific understanding of sustainability-related topics?
A.F.: One of the main challenges preventing a rapid transition to sustainable finance is the existence of barriers. It will be important for the SAB to clearly identify these barriers and propose solutions to overcome them.
Another challenge is transparency, in today’s interconnected financial structures, to help financial actors fully understand the ESG dimensions of their decisions. Here again, scientific approaches can help to create mappings and identify pathways to fully sustainable approaches.
Finally, another challenge is the availability and need for data. This will be a major obstacle in managing sustainability-related risks, impacts and opportunities from a ‘double materiality’ perspective.
