Sustainable Architecture for Finance in Europe (SAFE)
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SAFE Update October 2021
(2021)
We analyze the ESG rating criteria used by prominent agencies and show that there is a lack of a commonality in the definition of ESG (i) characteristics, (ii) attributes and (iii) standards in defining E, S and G components. We provide evidence that heterogeneity in rating criteria can lead agencies to have opposite opinions on the same evaluated companies and that agreement across those providers is substantially low. Those alternative definitions of ESG also affect sustainable investments leading to the identification of different investment universes and consequently to the creation of different benchmarks. This implies that in the asset management industry it is extremely difficult to measure the ability of a fund manager if financial performances are strongly conditioned by the chosen ESG benchmark. Finally, we find that the disagreement in the scores provided by the rating agencies disperses the effect of preferences of ESG investors on asset prices, to the point that even when there is agreement, it has no impact on financial performances.
SAFE Update December 2021
(2021)
SAFE Update February 2022
(2022)
This policy note summarizes our assessment of financial sanctions against Russia. We see an increase in sanctions severity starting from (1) the widely discussed SWIFT exclusions, followed by (2) blocking of correspondent banking relationships with Russian banks, including the Central Bank, alongside secondary sanctions, and (3) a full blacklisting of the ‘real’ export-import flows underlying the financial transactions. We assess option (1) as being less impactful than often believed yet sending a strong signal of EU unity; option (2) as an effective way to isolate the Russian banking system, particularly if secondary sanctions are in place, to avoid workarounds. Option (3) represents possibly the most effective way to apply economic and financial pressure, interrupting trade relationships.
Joint Institutional Frameworks in bilateral relations are circumscribed in policy scope, can lack adequate instruments for dynamic adaptation and provide limited access to decision-making processes internal to the contracting parties. Informal governance, the involvement of private actors as well as rules such as equivalence provide avenues to remedy these limits in bilateral relations in sectoral governance. Through bilateral agreements, the scope of territorially bound political authority is expanded. The formalised and institutionalised frameworks and bodies established are, however, frequently accompanied by mechanisms of informal cooperation and special rules either to cover policy fields where no contractual relation exists, to provide for flexible solutions where needed, or to involve both public and private actors that otherwise do not have access to formal decision-making bodies. This SAFE working paper conceptualises formal and informal modes of cooperation and varying actor constellations. It discusses their relevance for the case of bilateral relations between the European Union (EU) and Switzerland in sectoral governance. More specifically, it draws lessons from EU-Swiss sectoral governance of financial and electricity markets for the future relations of the EU with the United Kingdom (UK). The findings suggest that there are distinct governance arrangements across sectors, while the patterns of sectoral governance are expected to look very much alike in the United Kingdom and Switzerland in the years to come. The general takeaway is that Brexit will have repercussions for the EU’s external relations with other third countries, putting ever more emphasis on formal and rule-based approaches, while leaving a need for sector-specific cross border co-operation.