Last month’s GreenFin 23 brought together thought leaders, industry experts, and innovators to discuss the future of sustainable finance and investing. As a civil engineer, sustainable finance master’s student, and sustainable building practitioner, here are my top takeaways on what’s shaping the investment landscape.
#1: THE TIME IS NOW FOR IMPACT INVESTING
We’re at a turning point in history for the establishment of the impact investing movement with climate change and ESG serving as the common ground on all fronts. From public and private investment to policy and corporate responsibility, the integration of impact into financial decision-making is more crucial than ever. At the same time, as Bob Massie, Co-founder of the GRI (Global Reporting Initiative), aptly pointed out, like in all other turning points in American history, we must be aware of forces looking to counter the movement. With a focus on the long-term vision, impact investing has the potential to evolve from an emergent approach to an established practice.
#2: ADDRESSING CLIMATE RISK IS A FIDUCIARY RESPONSIBILITY
As climate-influenced weather events continue to cause staggering economic damages globally, organizations are forced to recognize climate as another risk factor and act on it as a fiduciary responsibility. Integrating climate risk into ESG programs is essential for effective risk management. Frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) provide guidance on integrating climate risk considerations, enabling organizations to navigate this complex landscape.
#3: REFRAMING MESSAGING CAN AVOID POLARIZATION
Avoiding polarization and political weaponization of sustainability issues is critical for progress. ESG is simply good business. Organizations should dig into what metrics are informing their ESG score and focus on what is material to them; often they will find that these are real business operational factors that impact their bottom line. Companies can focus on risks and opportunities using objective data and traditional business nomenclature. By reframing their language around ESG, companies can avoid greenwashing and greenhushing, promoting a unified message that resonates with stakeholders. One powerful example of this unified message is to Protect the Freedom to Invest Responsibly.
#4: ESG TALENT IS IN HIGH DEMAND
As ESG becomes increasingly central to investment strategies and as regulation approaches, demand from customers outstrips supply. This shortage of ESG professionals will make it more difficult and costly to secure ESG expertise through outside consultants or inside hires. At the same time, ESG practitioners are challenged to remain agile in the rapidly evolving ESG landscape, continuously adapting to new mandates, frameworks, and reporting requirements to respond to client needs.
#5: SUSTAINABILITY REPORTING NEEDS A GLOBAL BASELINE
Inconsistency and lack of enforcement remains a challenge to meaningful ESG and sustainability reporting. While many frameworks exist, a single global standard and baseline can provide essential consistency and verification across reporting efforts. Luckily, we’re on the right path: the International Sustainability Standards Board (ISSB) took a significant step by launching the first global standards in June 2023. These standards aim to provide a foundation for a comprehensive global baseline of sustainability disclosures focused on the needs of investors and financial markets; however, establishing a verification mechanism remains a critical next step. The ISSB is also set to take on the responsibilities of the Task Force on Climate-related Financial Disclosures (TCFD) in 2024 in an effort to further consolidate sustainability reporting standards.
#6: CARBON ACCOUNTING BRINGS CLARITY TO ACTION
The measurement and disclosure of so-called financed emissions is quickly gaining momentum. For financial institutions such as banks, investors, and asset managers, the vast majority of their greenhouse gas (GHG) footprint lies in their Scope 3 emissions from investments. The materiality of these emissions is reflected in their inclusion in accounting guidance, such as Partnership for Carbon Accounting Financials (PCAF), in reporting standards such as those recently authored by the ISSB, in recent regulatory developments such as the pending U.S. Securities and Exchange Commission (SEC) climate ruling, in the Corporate Sustainability Reporting Directive (CSRD) law in Europe, and in sector-specific net zero guidance through the Science Based Targets Initiative (SBTi). While this trend is daunting for many reporting entities, it plays a vital role in bringing accountability to carbon emissions reductions at scale.
We’ve seen a corresponding uptick in interest in voluntary carbon markets, which are poised to expand exponentially in the coming years. Financial institutions and corporates with net zero targets are not only viewing these markets through the lens of net zero and risk mitigation, but also through the lens of investment in carbon as an asset class. As organizations work to ensure credible carbon credits are purchased – considering indicators such as additionality, double counting, and permanence – we’re seeing blockchain referenced as a technology that can help ensure traceability and transparency, avoid double counting, and ease audits.
#7: NATURE TAKES CENTER STAGE
While many are already familiar with the Task Force on Climate-related Financial Disclosures (TCFD), in a natural progression there’s a new framework moving into the limelight: the Taskforce on Nature-related Financial Disclosures (TNFD). TNFD aligns with TCFD but focuses on the evolving risks nature loss poses to businesses. Organizations can use the TNFD risk management and disclosure framework to report and act on these nature-related risks.
#8: ENGAGEMENT AS AN EFFECTIVE INVESTMENT STRATEGY
While fossil fuel divestment commitments continue to grow as a strategy to shift power away from fossil fuel companies, there may be a more meaningful and effective investment strategy in support of a just transition to zero: engagement. Lynn Forester de Rothschild, Founder and Co-Chair of the Council for Inclusive Capitalism, and Ron O’Hanley, Chairman and CEO of State Street, advocate for impact investing over divestment. They argue that by actively engaging with high-emitting industries, investors have the opportunity to drive positive change from within, potentially yielding even greater positive planetary impact.
Achieving net zero is a daunting task and requires collective action and bold leadership. The GreenFin community provided inspiring and grounded solutions to the challenges faced within the sustainable finance and investing industry. I left feeling confident that, by fostering collaboration, embracing innovation, and aligning financial goals with environmental and social objectives, we can pave the way for a more sustainable and prosperous future.
