I attended this conference and thought I’d share what discussions are going on between policy makers, fund managers, bankers and investors, on the topic of sustainable investment. How we finance a sustainable economy is crucial, so the discussions between these stakeholders makes a difference.
It is clear that the whole financial services industry is under pressure from the increased demand from investors to see a just transition. Many said that in the last two years more progress has been made in this subject than over the last 20, which is encouraging, but how they are responding to the pressure, in my view, isn’t.
How can we improve reporting standards so investors can get a clearer idea of the impact of their investment?
The dialogue between parties seemed to circle around this question. They ask it as it is incredibly difficult to get accurate information on listed company impact - some told stories of trying at Amazon and coming against significant barriers. It is an understandable desire to have more information for investors, and it does make sense to make listed companies report, as then they will take notice. Indeed the EU is about to introduce new legislation that improves listed company reporting standards called ‘EU Taxonies’, and there is a much prayed for output from the climate change talks in November to have a global standard of company reporting.
The thing which irritates me is how little they talk about creating new investment funds based solely on decarbonising tech, or funding disruptive businesses. It is obvious there are simply not enough investment funds accessible to pension holders that enable sustainability, and institutions are not backing risky new ventures in favour of old less risky traditional investments. There are some creating innovation funds, but this was not a focus of discussion. That seems to me to be crazy when it is clear that companies that hold the market aren’t transitioning, especially when new hopes aren’t getting money to scale.
It leads me to think that the financial services aren’t thinking outside of the box, and are pointing the finger at regulators to provide answers for the problems they face. They shudder at increased investor demand for change, openly criticise the divestment movement, and seem to want to maintain the status quo by backing the same listed companies, with the argument that all need to transition.
When banks and financial institutions hold the keys to linking impact investors with actual impactful projects, shouldn’t they be doing more to enable that?
I think so. One speaker mentioned a recent report that stated that ESG or Impact investors are only investing 13% of their potential portfolio due to the lack of available funds to invest in. It is astounding that financial services institutes want to focus still on the FTSE 100 when there is such a big pot of money to tap into, if only they were prepared to disrupt.
It feels like the financial services industry is finding it difficult to break old habits. There is also a sense that they don’t want to disrupt the status quo. This is understandable due to their role in helping stabilise revenue for investors, but doesn’t respond urgently enough to the challenge of climate change and biodiversity loss.
What can financial services do to enable a just transition?
I would love to see financial services do more to disrupt the market by creating decarbonisation and innovation funds, and by supporting the creation of innovative decarbonisation enterprises. They need to realise the power of their position in the ecosystem. They could be discussing how to fund large-scale energy efficiency, renewable energy and nature regeneration programs, and should be talking about how to educate their workforce to assess company impacts.
Although the conference did talk about numerous alliances tasked to create company disclosure standards for environmental, social and governance measures, and very promising discussions on implementing these standards internationally, to me this felt to draw too much focus. We are in an exciting time and financial institutions need to begin thinking big, for instance - what does next 30 years need to look like to decarbonise the economy and how could investment be used to make that happen?
They need to think about how to alter their structures, improve their knowledge and adapt to new risk paradigms. I believe time is wasted at pointing fingers at others to take the lead, we must all forge this great new sustainable world together and to do that we’re going to need to take off our blinkers.
I am happy that I am working on some innovative projects with finance partners with vision, but this does need to occur across the ecosystem of financial services. I hope they will find a way in future conferences.