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SustainableFinance.Live: Empowering ESG data for green bonds and the supply chain

SustainableFinance.Live: Empowering ESG data for green bonds and the supply chain

$30 trillion of capital is pledged to Sustainable Finance and supporting outcomes aligned to Sustainability and Impact goals, such as the UN SDGs.

This huge volume of capital is only trickling from behind a dam created by uncertainty from lack of data, taxonomies, schemas, reporting and products, robust enough to satisfy the risk register of financial institutions. The result is a lack of confidence about viable options for investing in sustainable initiatives.

Finextra Research and ResponsibleRisk are hosting SustainableFinance.Live, the first workshop in series of events designed to create actionable ESG strategies, and build the ecosystem of partnerships which will turn strategy into reality.

Kicking off sessions is Richard Peers, founder of ResponsibleRisk and contributor editor at Finextra who evangelises the role of sustainable finance in commercial banking, highlights the importance of delivering what is referred to as the 'triple bottom line' of profit, people and planet and explores how the interactive structure of the day will operate.

Peers references Roger Gifford’s definition of green finance, the highlights that “green finance is about risk mitigation, profitability and allocated finance. The principles of green (or rather sustainable) finance encourage lending on the basis of projects. This makes lending less risky - the purpose of the money is clear.”

He goes on the explain that “data is trapped behind a reservoir, but people are too frightened to allocate money downstream. They don’t understand how to manage the risk or opportunity or understand the provenance of data to inform decisions to allocate capital more safely.”

SustainableFinance.Live will explore how to ensure that money flows at the same rate as data flows and the subsequent impact. Picking up on points discussed by the Bank of England, Peers adds that “physical changes are aligned to transitional change.

“We can’t go from brown to green overnight, the transition must be done in a safe manner.” CEO of not-for-profit firm OceanMind, Nick Wise provides a breakdown of the role data and AI plays in working towards sustainable supply chains.

OceanMind began as an initiative to develop technology which fuses satellite data and artificial intelligence to detect illegal, unreported and unregulated (IUU) fishing. This soon developed into a suite of services to help governments and the seafood supply chain to understand the compliance of fishing activities.

Wise says: “The fundamental OceanMind model is to empower enforcement and compliance of the fishing industry by developing comprehensive data intelligence which can be worked into decision making processes.”

While the process undertaken by OceanMind is unique to the fishing industry, the concept of using granular data-sets and working them into valuable insights for regulators and players within the supply chain can be applied across markets.

Wise explains: “Traditionally, the traceability systems within the fishing industry have been quite clear and manageable once the fish is landed. The challenge lay in understanding the process prior to the fish reaching the established systems onshore.”

“Now, using AI technology we can harness a variety of data points such as satellite imagery and sophisticated tracking devices to see much deeper into the supply chain.”

This abundance of raw data – though very detailed – is not of great use to players in the supply chain until it is interpreted. “The question will be how do you understand what the data is telling you, and to achieve this a level of analytics is required,” comments Wise.

OceanMind applies layers of AI and expertise analysis to translate this data into disgestible insights which are then passed on to suppliers and to regulators within the supply chain, both attempting to operate within a very complex industry effectively.

The benefits are manifold. Suppliers value this information immensely as they are able to asses third parties with greater clarity and have greater certainty about the origin of their product. Regulators are able to more effectively deploy their resources and improve compliance while reducing criminality across the globe.

The fishing industry provides livelihood for 12% of the world’s population and has been associated with criminality as serious as human trafficking. Wise furthers: “being able to understand some of the patterns of behaviour, allows us to understand the risks of human rights abuses and social problems within the supply chain.”

Adrian Sargent, treasuring operating officer at Virgin Money, gives the audience a whistle-stop tour of the challenges in green commercial bond products. The green bond market remains relatively small, currently worth $319.8bn. It has, however, grown from just over $100bn in 2016 and is expected to surpass $1trn annually in the early 2020s.

Sargent references a quote by Mark Carney about sustainable investment as the “new horizon that can bring enormous opportunities”. The departing governor of the Bank of England has this week been appointed United Nation special envoy for climate action and finance.

“Capital markets are moving in the right direction, but they could move faster,” Sargent tells the audience. “Regulation is coming, but it could arrive too late so how can you be ahead of the curve?”

Trade finance, he believes, is a singularly complex area in which to monitor sustainability because of the multiple levels of the supply chain. “How do you track ESG performance all the way along the line and ensure that sustainability is running right the way through it?” he asked.

This is where the United Nations’ 17 Sustainable Development Goals (SDGs) provide a framework, allowing financial institutions to assess the environmental and social impact of businesses and industries. Use of renewable energy, for example, meets the goals of climate action and responsible consumption and production. Sustainable water and wastewater management meanwhile aids good health and wellbeing and sustains life in the oceans and rivers.

Sargent encourages institutions to consider the clients they lend do, really understand the ESG performance of businesses and suggests review existing assets as a starting point, however this does come with the risk of greenwashing.

Sargent speaks of “strategy, process and review”, stressing the importance of genuine intent and desire to be a catalyst for change. “You don’t just issue a bond that says ‘Sustainable’ on it.”

Like Wise, Sargent speaks of the importance of obtaining the right data, to enable continuous review, ensuring that sustainable criteria is still being met. “Make sure it’s transparent and clear to investors that have bought the debt and that you are still supporting their goals.”

Mark Line from Challenge Sustainability concludes the morning sessions of the day by referring to himself as a “sustainability geek.” Offering a perspective from the other side, Line addresses that information and data flows are often ringfenced away from green bonds but are necessary for good decision making.

He explains that several of the larger global companies do voluntarily report sustainability disclosures and have done so since 2004. Using mobile network operators as an example, Line states that there are often complex disclosures involved and these companies are often under pressure from a range of stakeholders to be accountable for performance.

“The response to rebuild trust in a world that doesn’t trust businesses is to be transparent.” However, as Line explains, a problem persists as not all organisations are reporting in a uniform fashion and in addition to this, while some are providing information on what is referred to as ‘climate risk’, others are looking into specific metals that are used as semiconductors and the human rights risks involved in sourcing them.

“There is an awful lot of complexity out there. The devil’s in the detail and it’s not straightforward. There are a range of standards, but no clear winner.” Despite the GRI, SASB and IR providing standards, it is important to remember that 32 of the 50 largest country economies have at least one regulation covering an aspect of non-financial disclosure. Also, although regulations take a long time to establish, tracking needs to take place.

Line concludes by expressing that while the UN SDGs have been influential, having only been established four years ago, he is frustrated. “Commercial banks need to spend less time prioritising assessing the potential environmental impact and more time taking action.”

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