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GreenFin 21 and the 5 cornerstones of sustainable finance

Constructing a new financial system — one with ESG and equitable access to capital at its heart — will require a different blueprint than the one we use now.

5 cornerstones sustainable finance


Midway through our inaugural GreenFin event last week, during a break devoted to three-minute bursts of randomly selected networking conversations, I found myself paired with a university student attending the conference as part of his studies. 

The question he put to me during his introduction gave me pause: "Do I need sustainable finance skills on my resume?"

Apparently, he’d been advised by the professors at his school in the U.S. midsection to dismiss what they perceived as a fad — after he approached them about why courses in green bonds, ESG funds, sustainability-linked loans and other green finance instruments weren’t part of his university curriculum. 

Our encounter reminded me just how nascent this movement is, Just five years ago, there were virtually no classes on sustainable finance offered at the university level — even at places such as NYU Stern School of Business, Yale and Arizona State University, which have relatively strong programs focused on sustainability and environmental management. That’s changing, but it needs to accelerate: My unscientific internet search surfaced close to 100 jobs — such as sustainable finance analyst, director of sustainable finance or director of sustainable finance thought leadership —  just in my neck of the woods in northern New Jersey.

Constructing a new financial system will require a different blueprint from the one we use now.

The rich dialogue during the conference last week likewise had my chat-mate convinced that ESG concerns will catalyze long-term systemic change across the banking and financial services sector. These concerns, he believed, would become core to business practices over the long term.

It’s also clear that constructing a new financial system — one with ESG and equitable access to capital at its heart — will require a different blueprint from the one we use now. A strong foundation requires new thinking by corporations, investors, asset managers, financial services giants and regulators. What are some cornerstones required? Here are five big themes that resonated with me last week. 

Standards can’t come quickly enough  

The confirmation of Gary Gensler as chairman of the Securities and Exchange Commission last week increases the likelihood of regulation mandating disclosure of ESG fundamentals, according to many GreenFin conference speakers. And that would be welcome.

Right now, CFOs and CSOs must rely on a hodgepodge of reporting frameworks and ratings systems that make it difficult to assess progress. "We are seeking a single standard for disclosure, especially around climate and carbon-related issues and emissions," said Mark Wiedman, head of international and corporate strategy at BlackRock, during a mainstage interview. "That is No. 1 on our list. We want a single global standard. It is the top priority we get from CFOs and CEOs around the world, and from asset managers who are our clients."

Scott Mather, chief investment officer for U.S. core strategies at PIMCO, the $2.2 trillion asset management firm, echoed that sentiment: "If the U.S. can coordinate with Europe and Asian investors and develop some standards for investors, then it’s just going to be that much better for the issuer and that much better for our investors. That’s how we think it will continue to evolve."

It isn’t just the reporting process that needs standards — carbon accounting is also a "Wild West for corporations," noted Suzanne DiBianca, executive vice president, corporate relations and chief impact officer for Salesforce. "I think standardization is going to be very key … I’m seeing a lot of this mess on the ground: immature carbon markets, carbon cowboys — pricing of carbon is incredibly different depending on wherever you are in the world. The demand side is acceleration, the supply side needs to mature."

Companies need to control their narrative 

Companies shouldn’t rely solely on existing reporting frameworks and ratings to tell their stories to investors. The shortcoming of doing so was a thread woven through several breakouts I attended, including one representing boards of directors. 

Numbers alone can omit social nuances — for example, a power company that sells electricity generated by fossil fuels might be penalized for its environmental impact, but its ability to provide power to rural communities also should be considered, observed Leslie Seidman, an independent director for Moody's and GE. "We don’t want a reporting scheme that just focuses on the negative," she said. 

Eric Wetlaufer, who serves on the boards of Canadian companies TMX and Enterra Solutions, among others, said corporate directors should not be reactive when it comes to ESG. That means taking a hard look at factors that might be material to your company’s operations and proactively creating key performance indicators that are tracked and followed. "The rankings are just a shortcut."

Support for carbon pricing may be deep

Over the past several months, several unlikely trade associations — including the U.S. Chamber of Commerce, Business Roundtable and American Petroleum Institute — have declared their support for carbon pricing. So it wasn’t all that surprising when the topic surfaced during the first official session of the GreenFin event. 

A price on carbon "would make everything else significantly easier," said Richard Lacaille, global chief investment officer for State Street Global Advisors. "I would say there is a pretty rapidly emerging consensus among asset owners, asset managers in the financial sector that it’s both achievable and that it’s something we can start doing right now."

Those sentiments were echoed by Ralph Izzo, CEO of PSEG, the New Jersey-based power company that is one of the 10 largest utilities in the U.S. "The one piece of the puzzle that is missing that I wish we could have would be an economy-wide price on carbon," Izzo said. "Because while I have my laser focus on the energy sector, the electricity and natural gas sector, it’s entirely possible that there are more economic ways to reduce carbon in totally separate sectors. An obvious one is transportation, but maybe agriculture and various other components of the economy can help us accelerate carbon mitigation in an even lower-cost manner." 

It’s worth noting that CDP released an analysis this week demonstrating that there’s been a strong increase in the practice of companies setting their own internal carbon prices. Of the 6,000 companies it surveyed in 2020, more than a third have done so. The median prices they’re used range from $8 per ton (Latin America and Africa) to $28 per ton (in Europe and Asia). The median price for U.S. companies is $23 per ton. These ranges are lower than many estimates for the "social cost" of carbon — the Biden administration uses $51 per ton.

CFOs like the optics of green bonds and loans

Consider the backstory of the $625 million green bond issued in September by building technology company Johnson Controls — an offering that was nine times oversubscribed by investors. Olivier Leonetti, executive vice president and chief financial officer for Johnson Controls, noted during a plenary interview that the green bond provided the company with a cheaper way to finance R&D related to decarbonization — a 10 basis point (0.1 percent) discount, with an estimated benefit of $5 million over the bond’s 10-year term. 

But Leonetti said he would have supported the issue even if it came at a premium. "We believe decarbonization is a business strength which is accelerating … We think in many industries, the companies embracing green will win. We want to be one of them," he said.

For Fernando Tennenbaum, chief financial officer for Anheuser-Busch InBev, the idea that managing to ESG concerns and the United Nations Sustainable Development Goals is somehow a drag on corporations is a "false dilemma." He noted: "There is always this view that there is a tradeoff between ESG and business. In our case, it is quite the opposite. We say that ESG is our business … ESG financing is just another layer on top of that, but the business case has always been there." (For more on the CFO view, check out Emily Chasan’s recent essay.)

The transition to inclusive capitalism starts within 

In early April, BlackRock agreed to undergo a racial equity audit — a move prompted by the Service Employees International Union (which represents more than 2 million healthcare, public services and property employees) and CtW Investment Group. Other financial services giants, including JPMorgan Chase, Citigroup, Goldman Sachs, Wells Fargo and Bank of America, have resisted such a move.

Addressing the gender and racial balance of who is making investment decisions is crucial for opening up access to capital to underserved communities, according to increasingly vocal advocates of this approach. "Corporate America should look more like America," noted Lisa Hayles, an investment manager with Trillium Asset Management.

"One very tangible action that everyone can take, every company can take today, is to really look at your talent and your culture and make commitments to the people that are making your company successfully ensuring pay equity," suggested Marcie Frost, CEO of pension fund CalPERS, which represents more than 1.6 million public-sector employees. "We would not expect those actions from companies if we were not making them ourselves."

Eghosa Omoigui, founder and managing general partner of EchoVC Partners, an early investor in climate-tech firm Gro Intelligence, urged companies of all sizes to improve their blinds spots and said his organization is moving to require management balance in the term sheets for its investments. "We are not going to negotiate that, we’re going to require it."

What was your "aha" moment at GreenFin last week? Share your reflections with me at [email protected].

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