Put six experts in the fields of sustainability, social awareness, and finance on a stage and you’ve got a lot of firepower for a lively and productive discussion. That was the case during one SIBOS 2023 session: ‘The 2+2=5 effect: Joining forces to achieve
more in ESG.’
Amruta Kelkar, partner, climate and sustainability issues in financial services at Oliver Wyman led the panel, which included five women from three financial institutions, a fintech, and a values-focused investment advisory firm.
The purpose of the gathering was to encourage financial institutions and corporations to take action “to make a positive difference […] by leveraging their capabilities, influence and assets for environmental and societal good.” Also to do it in a way that
“makes the biggest bang across the financial community.”
What are the areas of concern around sustainable financial technology?
Panellists first acknowledged the fact that meeting widely-agreed mid-century greenhouse gas (GHG) emissions reduction targets are not yet in reach, and that mounting social pressures are adding to the list of problems faced in the environmental arena. They
continued that the investments required (around $3-5 trillion EACH YEAR between now and 2050, according to Kelkar), and potential solutions.
Genevieve Piche, head of sustainable finance and advisory, Wells Fargo, kicked off the discussion by suggesting as four main areas of concern.
These included navigating “constantly changing” geopolitical dynamics, providing support for evolving technologies that are “critical to achieving decarbonisation”, and recognising and dealing with “climate apathy” as a clear and present obstacle to action
to confront pressing air, water, and biosphere concerns.
The final hurdle facing sustainable finance proponents is especially tough, said Piche, particularly correcting the “uneven distribution of capital available in the global north vs. the south” to fund projects and products aimed at confronting climate change
challenges.
How do silos and scarcity impede sustainable capital flows?
Jeanne Hegner, senior adviser of the nonprofit Impact Finance Center is primarily engaged in projects to allocate “personal and institutional assets in line with values.” Speaking of her employer’s mission, she shared an example: “One of our largest clients
is the United States Forest Service which engages with many small scale ventures […] in local towns close to the forests that have cross-laminated timber facilities. But these ventures will never be unicorns. Finding capital for these is very difficult.”
Hegner said the problems of silos and a scarcity mindset also impede progress in sustainable financing. Hegner added that the corporate social responsibility area is “usually our entry into an organisation,” but this often has a limited budget which may
not be adequate to fund many projects. The organisation may have resource elsewhere that is inaccessible, making the challenge for company innovators to determine what can be done with scant resources.
Foundations often have the same limitations in breadth of vision or budget, not to mention, financial authority, to spend much of what they have.
Hegner said her nonprofit typically deals with those who only control over 5% of the foundation's entire assets. Hegner explained: “There are $150 trillion of assets held by foundations around the world […] the scarcity mindset stops people from thinking
a little more creatively on how to invest in the ventures needed to unlock more capital to reach that three to $5 trillion tier” in new product and service investment needed annually to sustain climate-mitigation momentum in industry.
Why does awareness and action on climate change vary?
Kalliopi Chioti is the chief marketing and ESG officer at Temenos, shared her take on the toughest tasks facing financial institutions: “What we see from our everyday experience with our clients is that there is big pressure on financial services to rethink
the business model they operate […] traditional business models are not sufficient anymore. They need to change in order to have a more sustainable way of embedding ESG and sustainability in the core of their operations.”
Chioti, with a broad background spanning more than 20 years in the fields of sustainability, corporate social responsibility, marketing, communications, and public policy, said with emerging requirements in Europe and the UK, “there is nowhere to hide” for
large corporations when it comes to sustainability and reporting. What’s more is that there is also a “reputational risk if you choose not to do it. If you choose just to be a follower, it will come back and haunt you,” she asserted.
Adding to her previous comments, Chioti emphasised that operating under new sustainability guidelines and practices is “top of the agenda” for many of her customers. To address climate issues, she explained that we need to accelerate the pace of change on
the part of the business community. .
“What we see are different [levels] of ‘sustainability maturity’ around the globe. In some countries, it's become mainstream. In other countries it’s just starting. If you add to the equation the fact that standards are not uniform, there are different reporting
requirements - this is making the whole journey even more difficult,” Chioti furthered. This lack of uniformity in standards is the biggest challenge that global businesses have at this point.
Social activism grows in importance to younger customers and employees
Later in the discussion, Chioti pointed out one of several potential accelerators of positive momentum on social issues related to climate change; younger people, as a demographic group, tend to want to work for companies that have defined strategies for
addressing climate change challenges.. “We see that a lot of young people want to do banking in a sustainable way,” Chioti said. “ So, they want to know the carbon footprint of their transaction.”
Further, Chioti noted that as talent is increasingly tough to find, young people are seeking jobs in companies “where they can make a big, big change” happen in the world. For example: “Temenos is in the war for talent for developers, in India, the competition
is big. Younger generations are willing to waive all these benefits, company cars and additional benefits, just to work for a company that aligns profit with purpose.”
Why new tech requires new thinking on cost and risk
A mismatch between investor financial and risk appetites, to the scope of the job at hand is often a problem for innovators in new and complex, capital-intensive areas of technology, as Marie Freier has observed in her role as global co-head of sustainable
and impact banking for Barclays.
“We help raise capital for solution providers in the clean tech space and in people redeveloping the solutions. These could be in the hydrogen space, carbon capture, long duration energy storage - solutions that really need to be scaled, to bring down cost
and deployed at scale by large organisations.”
Freier said that the financing gap is proving to be a considerable problem. Freier opined that one cause of financing fails or delays is often unrealistic or inaccurate expectations by investors: “Cleantech is very different from what people think of when
they think of technology.” Cleantech tends to be a tangible-asset-heavy, capital intensive sector.
Freier said the financing gap has also “arguably opened up an opportunity. If investment funds can be created, or other asset owners can come to the table and say, ‘I can actually take that risk return profile here’, and participate in that sort of size
of capital raise”, then investments, and innovation can proceed.
Why ROI must follow discussion
Freier added that we are seeing a “politicisation of the debate” around emerging climate-related technology, and that financial factors are still critical for many projects to seal the deal.
“When we read the newspapers, when we talk to friends at dinner parties, we see the argument hasn't been won. I do think there is an ongoing need for all of us to articulate and then finance - but initially articulate a commercially compelling, pragmatic
way forward, that everyone can buy into and see how their business – (regardless of what they do with their policy regulation on a particular business side) that we make sense. I think now it is time to figure out the practical next steps.”
The final panellist, Melissa Fifield, head of the Bank of Montreal’s BMO Climate Institute, has observed what she calls “a fundamental disconnect between awareness in the big picture of what is happening with climate and what people can actually do about
it.”
Fifield described how her team works to advance the cause of sustainable investing and social action: “One of the things that we are constantly doing is evaluating what's happening out there. What are our clients saying and how do we understand what they’re
doing. We then help to translate what the trends are and what kinds of solutions help our clients advance and make their way to Net Zero – or halfway” by 2050.
“One of the things that we're trying to do is help bridge that gap and overcome that challenge of awareness and education and connect the dots between what (they) are experiencing in their everyday lives as business owners, and the steps that they can take
to make tangible progress.”
SMEs want more sustainable solutions
There’s a large and relatively untapped sector that needs to understand this message, said Fifield. SMEs make up a large majority of businesses across the globe, and they are motivated to address climate change. Research being done by the BMO Climate Institute is trying to understand how to tackle these challenges and build tools so that SMEs can work towards change. She explained that the BMO Climate Institute, has a tool called
Climate Smart, “which will help assess what your emissions profile is and then also help develop strategies for what decarbonisation looks like in your own business.”
Why sustainability should not be associated with extra cost
As the conversation continued, the collective message, and the central challenge of convincing businesses to accelerate their climate transition plans and actions, was clearly articulated by Wells Fargo’s Piche: “In order to compel a CEO to accept a business
sustainability strategy, it can't just be a tax, it cannot be a cost. CEOs get excited by vision, innovation, growth.”
“The way that we can engage with our clients ,” Piche asserted, “is by taking that mindset and helping our clients identify and unlock value within their sustainability strategies. For example, companies have a vast number of decarbonisation levers, things
that they can do in different sectors. It might be installing rooftop solar, it might be installing LEDs in all of their buildings and facilities, it might be electrifying their fleet. Each of these are Capex and Opex (capital and operational expenditure)
decisions that companies must make - they require capital expenditures up front that when you add in tax incentives, maintenance considerations, some intangibles such as worker health and safety, you’re able to model a return on investment.”
It comes down to emphasising the balance between doing good and acceptable returns, said Piche. You can take investment opportunities individually and you can take them collectively, and as banks if we have those insights, we can deliver the capital.”
It makes sense for banks to take such an approach, to encourage their customers to make needed investments to change their business practices for a cleaner world, Piche concluded. “Because you are doing what you should be doing as a bank, for your clients
and your relationships - day in and day out.”