As any Head of Sustainability or Chief Sustainability Officer will tell you, the most common question asked by fellow employees, clients, partners, family or friends is “What does sustainability mean to you?”
- At Refinitiv, we launched a sustainable leadership agenda at the end of last year, looking at sustainability through two lenses: How we operate and how we measure our impact, and How we drive wider sustainable behavior beyond the boundaries of our own footprint.
- We’re moving from a one dimensional to a three-dimensional risk rating view. This is a big step in the sustainable finance ecosystem and further reinforces the triple bottom line concept.
- Transparent data and consistent standards alone aren’t the answer – they’re the beginning of the process – but they can help underpin the necessary shift in behavior needed to solve the world’s environmental crisis.
I believe there are two sides to sustainability:
1) How we operate and how we measure our impact.
2) How we drive wider sustainable behavior beyond the boundaries of our own footprint.
Both of the above can be on an individual basis, or as part of a collective.
When asked specifically about our professional roles as sustainability leads, that collective means the business we work for, or own.
For how we operate, we launched a number of environmental and social pledges, including reducing our annual carbon emissions by an average of 10% over the next five years, being powered by 100% renewable energy by 2020, committing to carbon neutrality in the same time-frame, and hitting our 40% women in leadership target. We also pledged to double our engagement with community investment programmes and recently signed up to the UN Global Compact, reaffirming our commitment to the United Nations Sustainable Development Goals (SDGs).
For impact beyond the boundaries of our business, we use our core data, risk and analytics expertise to drive wider impact, through empowering investors to shift towards sustainable finance initiatives. There is a major leadership gap in this space, and the current model is not delivering.
So what is sustainable finance?
Finance is the engine of our global economy and has a big part to play in tackling the environmental and social issues the world faces. The ultimate goal is transitioning to a low-carbon, resource-efficient, sustainable economy.
Sustainable finance is the provision of finance to investments which take into account environmental, social and governance (ESG) considerations, for the benefit of global societies. A simplistic view is it is the finance needed to progress the UN 2030 sustainable development goals agenda, and includes a range of products and initiatives, such as sustainable funds, green bonds, impact investing, micro-finance and active ownership.
Currently the EU estimates there is approximately a 180 billion Euro annual investment gap needed to drive the UN 2030 agenda and Paris climate agreement in Europe alone. This is one of the reasons Refinitiv has recently joined the United Nations Task Force on Digital Financing as a data partner. This task-force consists of leaders from a range of sectors from developed and developing countries, and is charged with harnessing the potential of financial technology to advance the UN SDGs – and ultimately close that investment gap.
Fundamentally, sustainable finance takes into account a triple bottom line; a framework including social and environmental impact alongside financial returns, as a true measure of success. It considers opportunity costs with an ESG lens, which is hard to measure and standardise.
The foundational pillars of sustainable finance are:
- Policy and governance: Introducing regulation to re-orient capital towards sustainable investments, fostering transparency and disclosure, and mitigating sustainability-related risks in the financial systems.
- Taxonomy: Establishing a common, dynamic standard for ESG investment activities.
- Disclosures: enhancing corporate disclosures to enable the development of sustainable financial products, e.g. adoption of a green bond standard to enhance transparency.
- Benchmarks: facilitating broader adoption and comparability in the market.
Refinitiv sits on the European Commission Technical Expert Group on Sustainable Finance, which is at the forefront of developing these core pillars.
Alongside the EU, China is also taking a lead here – the China Securities Regulatory Commission (CSRC), in collaboration with China’s Ministry of Environmental Protection, has introduced new requirements mandating all listed companies and bond issuers to disclose ESG risks associated with their operations by 2020.
Transparent, consistent, timely, actionable data and standards are crucial to all the above; they underpin sustainable finance. If finance is the engine for the global economy, data is the fuel – it helps de-risk sustainable initiative investments and encourages lending on the basis of well-defined projects, with sustainable supply chains.
Data drives clarity and clarity drives decisions; no data simply drives opinions.
ESG is now becoming a mainstream part of the data sets within the investment process, and credit rating agencies increasingly view risks through an ESG lens when they assess long-term outlook. Governance has traditionally featured in credit risk analysis but there are now new environmental and social factors being taken into account.
We’re moving from a one dimensional to a three-dimensional risk rating view. This is a big step in the sustainable finance ecosystem and further reinforces the triple bottom line concept.
Tackling the world’s environmental and social issues is the biggest challenge we all face and most organisations are not doing enough to shift how they operate, produce and consume. It needs collective action, from governments and global co-operation through to business practice and individual responsibility. Transparent data and consistent standards alone aren’t the answer – they’re the beginning of the process – but they can help underpin the necessary shift in behavior needed to solve the world’s environmental crisis.
To find out more about how Refinitiv’s suite of products can help corporations drive sustainable leadership, and investment firms meet sustainable investment mandates, go to refinitiv.com/sustainability.