Finance and sustainability crash course - session 2
Wednesday, April 01, 2015
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
1.3.1 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
1.4.1 Financial accounts
- Valuing negative (and positive) externalities - shadow pricing - to ultimately incorporate in business balance sheets.
- Case example - PUMA
1.5
1.6 RESOURCES
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
1.7
1.8 CONCLUSION
1.8.1 How can FIs contribute
- A long list (get slide)
1.9
1.10 DISUCSSION
- 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
1.11.1 References
None