The Critical Role of Sustainable Finance

How will financial decisions change over the next few years? With global trends moving towards more sustainable capitalism, new business models and initiatives such as impact investing, the integration of environmental, social, and governance (ESG) factors, and positive screening, will be at the forefront of sustainable finance.

Find out more with David Blood, Guest Lecturer on the Sustainable Finance online short course from the University of Cambridge Institute for Sustainability Leadership (CISL).

Transcript

We think the next five years are going to be the most significant, the most important years of our career. The challenges around the climate crisis, the challenges around poverty and equality, ensuring that we have a just transition, these are very, very significant and we’re running out of time. We believe that the world will move towards more sustainable footings, that we’ll have more sustainable capitalism. I think the pandemic will be helpful in that regard, as people begin to realise that we need to think differently, as we address challenges and challenges that we might not have foreseen. Though, I guess pandemics have been foreseen for quite some time, but the same is true for climate. So, we see that sustainability and ESG will be mainstream across capital markets around the world.

We believe that impact will become a driver of allocation of capital in the months and years ahead. And we see that while there will be naysayers and that there will be setbacks, for sure, we see over the course of the next five to 10 years, a different approach, a different way of deploying capital, a way that ultimately takes into consideration return, risk, and impact.

There are probably three challenges that we need to address over the course of the next five years. One is to continue to establish that sustainability and ESG are part of your fiduciary duty. We would like to see that extended to impact as part of your fiduciary duty over the course of the next three to five, 10 years as well.

We believe that measuring impact is critically important. Initiatives like the Impact Management Project, initiatives like SASB and TCFD are going to be critical to establish measurement and establish reporting of impact.

And the last issue that we need to address is the challenges of composing indexes. Clearly, as we get better in terms of reporting on impact, we’ll have more tools to understand the creation and construction of indices, but that will be a critical part of achieving more sustainable investing and a better usage of ESG, because indexes are so critical to the allocation of capital. And right now, if we’re just simply allocating without regard to understanding the challenges of, say, decarbonisation, then we’re not going to achieve what we need to achieve in terms of managing risks and opportunities in our index portfolios as we go forward.