Kazi Awal/Insider
This article is part of the “Financing a Sustainable Future” series exploring how companies take steps to set and fund sustainable goals.
Insider, in partnership with Bank of America, is launching the Financing a Sustainable Future editorial series to help business leaders and their stakeholders — including employees, customers, shareholders, and board members — understand the opportunities and uncertainties that come with this secular change to the capital markets.
Over the course of the next five months, Insider’s reporting will bring to life the people, organizations, and coalitions that are driving progress.
While much of the focus of conversations around sustainable finance is on the climate crisis, Insider is taking a holistic approach, with content dedicated to each of the four pillars of stakeholder capitalism as defined by the World Economic Forum.
- People: Reflects a company’s equity and its treatment of employees. Metrics include diversity reporting, wage gaps, and health and safety.
- Planet: Reflects a company’s dependencies and effects on the natural environment. Metrics include greenhouse-gas emissions, land protection, and water use.
- Prosperity: Reflects how a company affects the financial well-being of its community. Metrics include employment and wealth generation, taxes paid, and research and development expenses.
- Principles of Governance: Reflects a company’s purpose, strategy, and accountability. Metrics include criteria measuring risk and ethical behavior.
A pivotal phase in sustainable finance
The series is incredibly timely. A key moment in the world of sustainable finance occurred during the United Nations Climate Change Conference (otherwise known as COP26), in Glasgow, Scotland, during the first two weeks of November 2021.
A consortium of some 450 banks, insurance companies, and asset managers from 45 countries called Glasgow Financial Alliance for Net Zero (GFANZ), which had launched the previous April, announced that it had committed $130 trillion in assets to transform “the economy for net zero.”
“The architecture of the global financial system has been transformed to deliver net zero,” Mark Carney, the coalition’s leader and a former head of the Bank of England, said in a statement. “We now have the essential plumbing in place to move climate change from the fringes to the forefront of finance so that every financial decision takes climate change into account.”
GFANZ has its detractors, with one criticism being that the coalition has made no mention of divesting from fossil fuels. Regardless, the sustainable-finance juggernaut is already in motion and is becoming an increasingly important consideration for companies looking to raise capital.
To extend Carney’s plumbing analogy, imagine a reservoir of $130 trillion in financial capital that’s ready to be piped in the form of lower-cost borrowing into companies that meet sustainability goals.
In order to tap the benefits of this lower-cost
liquidity
, companies have to demonstrate their sustainability credentials. That’s where another abbreviation comes in: ESG, which stands for environmental, social, and governance. Companies are adapting ESG standards to signal to investors and financial institutions alike that they’re attaching targets to sustainability statements and adopting a recognized facility for investors to monitor how they’re doing.
Sustainable finance is bigger than just ESG, though the terms are often conflated. It’s the new ecosystem that’s emerging from the legacy investing and finance structures that have capitalized on companies for generations.
A lot of the finance conversation is focused on capitalizing big industries in transition. It’s also about driving innovation from the ground up. The opportunities to fund renewable energy and electric industries, and to invest in emerging technology and climate solutions, are at a scale never seen before.
A community of experts to help us tell these stories
To help us with this ambitious project, we have convened the following advisory council to contribute thought leadership and insights into how their organizations are setting goals and driving toward measurable outcomes. We will also feature our council in a series of virtual events, with the first one taking place on March 8 on the topic of how investing in people transforms economies.