01 April 2015
Finance and sustainability crash course - session 2

0.0.1 Speaker

Founder of GAIA values - appreiating nature’s assets

Has been managing - “natural value initiative”

Collaborating with “Fauna & flora” in Cambridge

“Sustainabile seafood finance” tool - introduction video

FI: financial institutitions

1 Ecosystem change: Financial risk & opportunity

1.1 Drivers of change in corporate behavior

Environmental change:

The Texas drought caused GAP to cut its profit forecasts by 22%

Increasing raw material prices for cotton made H&M change its cotton source (??? correct note ???)

Markets for compensation - biodiversity off-setting (The Biodiversity Consultancy)

Clean Waer Act - requires wetland mitigation - total market value on the order of billions of US dollars

Unilever certified tea - increased sales w/ 12 %

*Alfa Laval** - “new technology beefs up share price”

Paper with KPMG “Identifying natural capital risk and maternality” directed at CFOs

1.2 Financial services sector

1.2.1 Institutional investors

  • Are emerging economies safe? – case of HSBC report reporting on stress on China’s natural capital and implications for growth scenarios

  • Universal owners - very big institutional investors - national banks, national pension funds etc. etc.

  • How can universal owners respond - universal owners have interest in whole system rather than short-term performance of individual market actors. (Achim Steiner, UNEP Executive Director)

    • Universal owners should avoid systemic risk.
  • Climate risk

  • Water risk

    • Rio Tinto, Ceres database - “A framework for 21st century water risk management”
    • Water database
  • PRI - Principles for Responsible Investment (45 trillion signed up to principles)
    • 2011 Engagement with retailers around sustainable seafod
    • 2013 Engagement with retailers around palm oil production
  • Should I stay or should I go
    • Divestment
    • Etichal councial
    • In 2013 Swedish AP funds divest (sell) FREEPORT MCMORAN COPPER & GOLD stocks based on implication in serious environmental damage in contravention of the UN CBD.
  • New products and services
    • dNb gLOBAL håLLBAR
    • Sumitomo Trust BankK - Biodiversity SRI funds
  • Regulatory driver

Lack of reporting standards pose a significant barrier to gerater incorporation of natural capital - call for sector based reporting standards

1.2.2 Private investors

  • Consumer awareness tools may be a facilitating driver of change

  • Venture capitalists
    • Carl Harl - environmental capitalists
    • Sustainable Technologies Fund
  • Impact investment
    • Investment to try and have a positive impact
    • Often local initiatives
    • Oryx ipact investments as an example


1.3.1 Banking

  • Corportate finance sector policies
    • Lending money for investors
    • Case Deutsche Bank was helping China Tuna with an IPO to raise USD 150 mil
    • The IPO was based on
      • incorrect info to investors
      • ecosystem limits disregarded
    • IPO was suspended

    • Discussion - how did they get the data?

  • Eco-friendly loans

  • Project finance criteria

    • International Finance Corporation (privae sector arm of World Bank Group)

    • As of 2012 IFc requires projects to maintain ecosystem services benefits and to identify those services that the project is directly dependent upon.
    • 78 banks with 70% of global project finance to emerging markets follow the IFC pPerformance Standards

    • Clashes of interest between - shareholder interests (short-term) - company (longer-term) - lenders such as banks (???)

    • Natural capital as last step consideration versus natural capital as a strategic driver

    • Also clashes in interests between short-term and longer-term investors

  • Insurance

    • Climate change may results in higher home issurances

1.3.2 Bond market

  • GREEN BONDS - Mr Green Bond @ SEB

    • In 2013 the total cumulative issurance rose to 19 bill USD

    • In 2014 SEB issed green bonds at a total value of 3.8 bill USD

    • Case ørebro municipality, stockholm län, gothenburg city

    • The green bond market has not increased the size of the environmental projects
      • Instead, the green bond market bundles together all the green projects inorder to diversify the portfolio of lenders
    • Key features
      • Transparency
      • Reporting
      • Third party verification
    • Question
      • Additionality?
    • Green bonds also usually has a slightly lower interest rate

  • Government bonds implicated

    • E-risk report by the Global Footprint Network

    • Ecological footprint balance affects import-export balance and the abiility to generate income to pay interests

  • Financing direct positive impact


1.4.1 Financial accounts

  • Valuing negative (and positive) externalities - shadow pricing - to ultimately incorporate in business balance sheets.
  • Case example - PUMA



  • Natural capital declaration

  • 40+ financial institutions collaborate to - increase awareness - develop methodologies - build consensus for private sector accounting and integrated reporting

  • Corporate assessments

    • Natural capital coalition
  • Corportate reportting & disclosure



1.8.1 How can FIs contribute

  • A long list (get slide)



  • Identifying iniatives of new paradigm and old paradigm
    • Initiatives of new paradigm often start at small scale (e.g. investing for impact)
    • When they try to scale up, maybe they get incorporated in old paradigm


1.11.1 References


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