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Is Finance Driving Sustainability?

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Stockholm (NordSIP) – On May 14, NordSIP attended “Finance driving sustainability”, a conference arranged by the Stockholm Sustainable Finance Centre (SSFC). Subjects on the agenda varied greatly. Can financial giants make a difference in saving the Amazonas? How can science-based targets be integrated? Speakers also talked about active ownership, long-termism and sustainable fixed income as well as the EU action plan on finance. With such a full schedule and highly qualified speakers with a broad range of backgrounds from the commercial as well as the academic world, the audience received more than a few inspirational ideas to take back to the office.

Notwithstanding the breadth of the agenda some common themes and messages were brought up and stressed by several of the speakers during the day:

  • The financial industry, as well as politicians, must have a communication and planning horizon of more than a few quarters or years.
  • We can do a lot of good and make a lot of money by doing more sustainability work in fixed income.
  • To get to where we want, we need to form more global alliances and partnerships.
  • The financial industry and academia need to talk more.
- Promotion -

Arial Babcock, Director at Focusing Capital on the Long Term (FCLTGlobal) pointed to the fact that “savers have a long-term perspective, so do companies, but the financial market works with a short-term horizon.” According to her this short term approach “puts the future of economic growth at risk.” She referred to a Harvard study showing that corporate communication focused on longer-term goals leads to a decreasing cost of capital, reduced stock volatility and a longer investment horizon. Babcock also mentioned that, according to the study, 50% of investors worldwide have a long-term view and a majority of them set long-term goals. Yet only 9% of companies give long-term guidance. She stressed how this discrepancy needs to change to achieve a more sustainable alignment between investors’ and businesses time horizons.

Ulf Erlandsson from the Knut Wicksell Center for Financial Studies at Lund University talked about the importance of fixed income for integrating the notion of sustainability in the asset allocation. He pointed to the paradox that bonds issued by the most polluting oil companies in the world are bought by large investors who consistently exclude equity in these oil companies from their portfolios. With ESG analysis and rating entering the fixed income arena on a meaningful scale globally, Erlandsson expects that the risk of a devaluation in the value of oil reserves will be priced in, leading to higher cost of capital for companies with potential future stranded assets. He also believes that the volatility of green bonds will decrease relative to brown bonds. This, in turn, should lead to the much-needed expansion of the green bond market globally, he explained. Erlandsson is asking for sustainability ratings of sovereign bonds and says the financial community must be tougher on issuers that are either major polluters or breach human rights, for example.

According to Sandrine Dixson-Declève, Advisory Council EIT, Climate-KiC and Senior Associate, E3G, the EU action plan on finance is the first project ever where people are truly working across borders in the EU. She stressed that “we are not seeing the changes in capital flows that are needed. CO2 emissions are growing. We are far from the goals of the Paris agreement. That is why the Commission is driving these actions with legal proposals, a sustainable taxonomy, creating sustainable benchmarks et cetera.” Focus is on reducing C02 emissions and to create a framework for future work. “We need a flexible, dynamic system that continuously must be reformulated. The action plan that we are working on is not perfect, but we need to act,” Dixson-Declève concluded.

Other prominent speakers included Dr. Victor Calaz of the Stockholm Resilience Centre, Aasron Maltais and Emma Sjöström of the SSFC, Magnus Billing, CEO of Alecta and Chairman of the SSFC Advisory Board, Eric Usher, Head of the UNEP Finance Initiative, Jenny Gustafsson, Head of Responsible Investment, AMF, Nate Aden, Senior Fellow of the Wolrd Resources Insitutute and Science Based Targets Initiative, Adam Matthews, Director of Ethics and Engagement at the Church of England Pensions Board, Stephanie Pfeifer, CEO, Insitutional Investors Group on Climate Change (IGCC), Dr. Rieneke Slager, Assistant Professor, University of Groningen, Emilie Westholm, Head of Responsible Investments & Corporate Governance at Folksam, André Löfgren, Senior Vice Presiden Investor Relations at Skanska, Lena Österberg, Head of Research at Carnegie Investment, Anita Lindberg, Chair at Swesif, Marie Baumgarts, Head of Sustainability at SEB, Ben Cladecott, Director, Oxford Sustainable Finance Programme and Associate Professor, Harald Francke Lund, Senior Advisor, Center for iNternational Climate Research (CICERO), Jeremy McDaniels, International Network of Financial Centres for Sustainability (FC4S), Ben Caldecott, Northern European Partnership for Sustainable Finance (NEPSF) and Cecilia Repinsk, CEO Stockholm Green Digital Finance and SSFC Advisor.

The messages from the scene spanned from optimistic to clearly pessimistic but, most of all, a sense of urgency was communicated which perhaps could be visualised by the following quotes heard during the day:

“Don’t wait for the perfect metric. Act.”

“Asset owners have started setting the terms of the debate”

“We have seen a lot of positive initiatives and actions during the last 12 to 18 months.”

 

  Picture © NordSIP

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