To solve the social and environmental challenges of our time, we need scalable solutions — and we need them yesterday. The financial sector will play a critical role in catalyzing those solutions. At Greenbiz’s inaugural GreenFin conference, I joined more than 600 sustainability, finance, and investment leaders in New York City to share insights into how innovative financial products and services can address key challenges. Here are five things I learned from the inaugural conference.
#1: Everyone is learning
GreenFin attendees spanned from ESG novices to seasoned sustainability professionals. One thing we all had in common, though, is that we are all actively learning — especially when it comes to the ever-changing dynamics of the ISSB, SEC, and other industry acronyms. At the opening plenary, most folks in the room carried notebooks or computers in their laps, capturing the state of the proposed SEC regulation, how investors are using (or not using) ESG disclosures, keynote speakers’ best guesses at what might come next, and more. In the world of sustainable finance, we are all students just as much as we are teachers.
#2: Good decision-making relies upon good data
As more and more companies measure and report on ESG metrics, the quality of that data has become increasingly important. The discourse around the merit of Scope 3 emissions — indirect emissions which occur along a company’s entire value chain — in the SEC’s proposed regulation, for example, centers on data quality. Investors want quality from the lens of comparability, while companies think of quality from the angle of integrity and avoiding criticism — or worse — lawsuits. In the end, everyone is aiming for a level of data quality that allows for informed decision-making and credible communications.
#3: ESG ratings systems need standardization AND flexibility
A growing number of investors and investment groups agree that companies acting in pursuit of sustainability offer less risk to the investment portfolio, resulting in higher overall value. And while evidence for this theory is mounting, quantifying that value is tricky. As they decide which companies to include in their funds, asset managers are calling for standardization of ESG ratings to enable comparability. At the same time, different firms value different things. To create rating systems that meet everyone’s needs, multiple panel discussions suggested that our future may have both: a standardized, third-party system and custom rating systems crafted by investment firms to reflect the ESG topics they deem most worthy.
“The climate crisis demands significant changes to the foundations of our economy, and ESG analysis and investing has the potential to shift capital markets toward sustainable outcomes. We are thrilled to convene leadership companies, investors, and asset owners and managers to align corporate and institutional finance with the goals of a clean and just economy.”
- Grant Harrison, Green Finance & ESG Analyst, GreenBiz Group
#4: “Dual materiality” might be redundant
Among the GreenFin crowd, there was growing recognition that the impact the world has on a company and the impact a company has on the world are one and the same. They are inextricably linked and cannot be discussed in isolation. Water availability, for example, influences the viability of food companies’ supply chains: farms must have access to clean water. But the same farm may contribute to eutrophication and water scarcity. By another example, a new corporate headquarters is unlikely to be built in an area with a high risk of natural disasters due to climate change, a problem that businesses have contributed to creating. In other words, “dual” materiality is really just, well, materiality.
#5: SEC regulation is inevitable
The general consensus at the New York City conference: government regulation is necessary to ensure that companies are disclosing and making progress on climate. What exactly the regulation will look like, especially for Scope 3 emissions, is unclear. But what’s certain is that climate disclosure will be regulated in the United States, and it will be regulated soon. The SEC has been discussing this since 2010, and the European Union already has a formalized system underway. If your team hasn’t yet begun to prepare, it's time.