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Sibos 2020: Defining sustainable finance and ESG, beyond climate action and the environment

Sibos 2020: Defining sustainable finance and ESG, beyond climate action and the environment

As wildfires, hurricanes, social and economic unrest and the pandemic play out across the global stage, the final of day of Sibos 2020 focuses on banking for humanity, the impact of ESG and the triple bottom line as a driver for sustainable business.

Panellists from ING, BNP Paribas Securities Services, Brown Brothers Harrison and the University of Cambridge Institute of Sustainability Leadership discussed the implications associated with this agenda and how banks are moving sustainability in from the fringes and bringing meaningful change for people, planet and prosperity.

Florence Fontan, head of company engagement & general secretary at BNP Paribas Securities Services, states that climate change is not happening 500 years from now, the impact will be felt by our children and grandchildren.

This personal “wake up call” encouraged Fontan to take urgent action at BNP Paribas and drive change by influencing clients to channel investments towards sustainability assets and projects.

Providing a regulatory point of view and taking a somewhat harsher stance, Adrian Whelan, global head of regulation, Brown Brothers Harrison, similarly thinking about his children’s future, has faith in the Paris Agreement, the EU taxonomy and other regulations and is convinced that policy will ensure that most banks and asset managers will recognise that “sustainability is a mission critical business.”

Taking a step back, the panellists pose the question: what is sustainability? While climate action and the environment have dominated headlines, there is more to ESG than climate as highlighted by the UN’s 17 Sustainable Development Goals. Only a handful have anything to do with climate. Fontan explains that while ‘sustainable finance’ is a “large, ambitious term”, the interconnectivity of climate and other social aspects is important.

She highlights that when considering climate change, we also need to consider the impact of rising sea levels and how this will result in an increase of homeless people in certain countries and immigration of environmental refugees.

Nina Seega, research director, University of Cambridge Institute of Sustainability Leadership posits that sustainable development should be incorporated in business models, while Whelan takes this further and says sustainable finance is an “elusive and evasive” term, ESG is an “unhelpful” acronym because “the primacy of the E and the environmental elements sometimes leaves Social and Governance neglected.”

In addition to business models, sustainability must be engrained in corporate culture - Whelan provides the lack of diversity within a company or a gender pay gap as examples of where corporate governance has traditionally not prioritised sustainability.

“The EU is bringing in corporate disclosure regulations which looks at things that are non-financial measures of success. We won't just be looking at P&L and the balance sheet. We'll be looking at other [factors] that happen to be elusive today, which could be gender pay gap, composition of your board and carbon footprint. And this kind of broader stakeholder competency is where we all collectively need to go for a more sustainable future,” Whelan explores.

10 months after BlackRock CEO Larry Fink’s letter warning global chief executives of climate change market risk, Whelan states that this has caused asset managers to question themselves about their place and purpose: to accumulate profit or do they have a broader remit?

The difficulty around BlackRock is that as a passive investor, indices have to be bought, making is harder to screen for non-ESG when tracking specific benchmarks, so there have been debates in the industry about whether Fink is merely talking the talk, and not walking the walk.

What is clear is that asset managers are change agents and the private market must build tangible infrastructure to ensure ESG is prioritised as momentum in this space increases.

However, this is by no means a quick process; prioritising sustainability will require a transition and banks will need to ensure there is enough ESG data at hand to backtest different products and in turn, create a common harmonised dataset.

Leonie Schreve, global head sustainable finance, ING concludes by saying that “the key reason we integrated sustainability into our commercial strategy in 2012 was because our belief is that sustainable business is better business.”

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