How are different financial institutions approaching climate strategy and sustainable investment? The potential for sustainable investment was explored in the keynote presentation: How can nature be made bankable? by founder of ResponsibleRisk Richard Peers and CEO of sustainable investment company Mirova, Philippe Zaouati.
“Climate and nature is a double-sided coin. Most big companies in a variety of industries realise that they have a lot dependencies on nature. However, starting to understand dependecies is not enough, they need to have to right information to move forward,” Zaouati began.
Zaouati listed three pillars as part of the roadmap on the impact of companies on nature: the first being participating in biodiversity in nature, the second is helping the market in biodiversity, and the third and most important is investing in nature-based solutions.
As an example, Zaouati cited French fintech Iceberg Data Lab as having the first set of data to report the impact of businesses on nature.
Emphasising that the investment of economic conveyable entities with the objective of restoration can contribute greatly to sustainable development, Zaouati cited the Sustainable Ocean Fund that is working on nature-based projects in Latin America to restore land and water ecosystems and combat deforestation as a successful example of sustainable investment.
Zaouati concluded: “Utilising land and labels to restore land, plant trees, harvest, aiding the local population in partnerships between NGOs, farmers on the ground, and co-investors, and scaling up businesses led by expert innovation will have a long term impact and is a part of a big roadmap in our investment framework.”
The largest green finance instrument is a bond, but whether they are green, sustainability linked, or conventional, the jury is out on the impact they deliver.
Sustainable Finance Live explored how while the BIS are exploring tokenisation of bonds and how new forms such as sovereign sustainability linked bonds are emerging, the use of distributed ledger technology is currently being debated by banks and other financial institutions.
However, can the use of blockchain and encryption algorithms truly help boost confidence in the green bond market? Or do we need alternatives such as rewilding tokens as verifiers of impact? All these questions were debated in a panel led by
Richard Peers, who was joined by Shana Vida Gavron, CEO and founder, Endangered Wild.Life; Paul Jepson, head of innovation, Ecosulis; and Professor Brian Scott-Quinn, chairman, ICMA Centre for Financial Markets.
While the session title was ‘What are the benefits of green bonds vs. green tokens?’ Peers explained that it is not a battle. Instead, the sustainable finance industry must consider what is occurring within institutions and within communities. “Is there not merit in both,” Peers asked. Bond instruments are the largest provider of finance for sustainability. However, increased proceeds do not mean impact will be made on the ground.
We are now in the age of sustainability linked bonds and sovereign linked bonds, which do have greater veracity, but also come at a greater cost. The panel explored the capitalisation of nature and whether this means that we lose nature. Should we be pricing nature? Gavron posited that perhaps the sector should separate pricing nature and valuing nature.
By putting a price tag on nature, it could incentivise people to destroy nature. Moreover, by not putting a value on nature, biodiversity could be taken for granted. Gavron continued to explain that we must think about how human make purchases and how we place more value on objects that are more expensive. In this respect, we as a society, are letting nature down.
“We must acknowledge that nature is at the very core of how we survive,” Gavron said. “The greatest service provider – everyone interacts with nature and by not being able to put value on nature is ignoring a large part of our planet. We should feel obliged to value nature and actually recognise the snail in your garden is creating value. Start levelling the playing field and value nature in the same way we value companies. Some species are equivalent to multinational corporations in terms of value,” Gavron explained.
But how do we value nature? How do we manage this value and measure it? How do we make nature recovery and rewilding investable? How do we make nature fit for finance? How do we make finance fit for nature? In answer to these questions, Jepson responded by saying that there have been two large shifts in the biodiversity and conservation world.
“There has been a big shift from the goal to protect nature from humans and corporations to a second agenda where nature recovery and restoration is being viewed as a major opportunity for investment,” Jepson said. As explored in other sessions, there has been no historic precedent to resolving the issue of climate change, so it is difficult to imagine what investment into this space can deliver.
Jepson’s view is to measure what is in front of us and configure ecosystems now that we have the science to back it and can measure the components against function, structure, and integrity. He provided an overview of the Ecosulis digital asset which is a nature impact token underpinned by metrics of recovery. While this token is inspired by NFTs, it is a nature positive biodiversity credit that acts more like a share in a company.
Scott-Quinn also questioned the concept of green bonds and tokens. “If we’re going to save nature and biodiversity, we must consider the energy transition and for this to be successful, funding is required and that will come from the infrastructure of bond markets.” He added that in time, all bonds and loans will need to be green. Investors are buying green bonds – for whatever reason, virtue signalling or otherwise – but the issues persist.
Scott-Quinn suggested that while “blockchain and distributed ledgers will help, it won’t solve the real problems.” The industry has been working on common domain models, which he described as a “blockchain without blockchain” but this could lead to the likes of Swift and Euroclear being disintermediated, which is why they are heavily involved in the creation of these projects.
Decentralised blockchains provide a common view across the chain of events across the bond process and over issuance, trading, clearing and settlement, but it calls into question whether intermediaries need to be abolished, or if they provide the security that is required.
Scott-Quinn concluded by saying that greenwashing still permeates the landscape and the only way that real change can be made is if directors of companies are held personally liable for untruths about how sustainable their businesses are. “The green revolution will fail unless huge number of green litigation cases actually succeed. Directors need to be taken to court and held personally liable for the things that they say, and that is the only thing that will speed up the climate change mitigation revolution.”
CEO of Chora Foundation, Gina Belle, explored use cases in both public and private sectors to incite environmental and social change using sustainable strategy in her presentation: 'The transformation challenge: ? uncertainty, Δ strategic innovation, $ capital allocation.' Observing how positive change can be made in the financial industry, Belle touched on how transformative action is becoming more complex in the sustainable finance sector.
Belle explained that Chora Foundation works in disrupted systems at the intersections of SDGs, creating an impact on a societal level, and using financial services to manage risk and adapt to what comes next. She detailed a triple-tiered model of how Chora aims to tackle the current challenges in the space:
1. Capital allocation: determining the right amount of capital and financial resource to invest in your sustainable strategy;
2. Strategic innovation: managing investments to respond to present needs and problems that climate change is creating; and,
3. Uncertainty: coping with strategic uncertainty and risks to your business created by rapidly increasing complexity.
Belle emphasised that Chora examines the evolving role of finance that interacts at intervention, human experiences, and resources; leveraging new resources to create positive value. Moving back to strategic innovation, she defined it as a means to learn ways into change and adaptively manage strategies over time in complex systems.
Belle noted that not many organisations take into account complexity and ambiguity in sustainability strategy, but instead building organisational departments to be compliant with ESG strategies.
“I think one of the opportunity spaces that we identified in the beginning is what happens if we start to create constellations of action and value generation. What we realised is that these things don't neatly plug into each other. Often think about sustainability, ESG, regulation compliance, and data, almost like Tetris; like we are trying to fit everything together perfectly. What we really need is ways of actually forming shared intent, and then using our human judgement and forging informal and social connections between organisations that can attend to the things that sit in between measurable data and all the things that we are trying to fill the boxes in.”
Using a case study of sustainable tourism in Egypt as an example, Belle explained how Chora explored and designed a variety of options to move towards sustainable tourism using the Social System Transformation Canvas, a tool to help manage the complexity and multiple dimensions of a problem. They analysed different journeys towards the desired outcomes, using their portfolio as a source of new solutions and generate new strategic intelligence.
Belle questioned: “Whose job is it to invest in the future of sustainability and resilience of whole systems?” She went on to challenge the audience to be willing to step into a space of unprecedented change, collaboration, and investments inside organisations and across organisations.
“You cannot stay the same and transform at the same time,” Belle concluded.