SUSTAINABILITY
“ I would also include a‘ do nothing’ scenario. If an organisation is considering US $ 20m of climate-resilience investment, the board should not only see the expected return from making the investment. It should see the projected financial cost of not making it – whether that is through disruption, regulatory exposure, increased insurance costs, stranded assets or lost revenue.”
Managing public perception However an organisation looks to invest in green initiatives, it’ s important to remember that these investments will only be well-received if they’ re tangible. Regulators, stakeholders and consumers alike are becoming more and more aware of greenwashing – with vague promises likely to become a reputational risk. In order to build genuine credibility, Cara suggests that finance leaders need to focus on making sure environmental initiatives are actually embedded into business operations.“ The better approach is not to create a separate category of‘ sustainable’ capital,” she says.“ It is to integrate material sustainability factors into normal capital allocation. Set a credible baseline, define measurable outcomes, keep testing the investment thesis and be transparent about assumptions and uncertainty. The objective should be better capital allocation – not simply carrying a sustainability label.”
Saffron, meanwhile, says she believes the most effective approach is“ moving away from aspirational sustainability commitments to evidence-based capital allocation”. Putting this into practice often means replacing empty, goodwill statements with actual facts and data – meaning that people will look at the way an organisation is genuinely using its investment to drive change, rather than a vague intended impact.“ Every material sustainability claim should have provenance,” says Saffron.“ For example, rather than saying that a financial institution is“ supporting the transition”, it should be able to demonstrate how much transition finance has been committed, deployed and ultimately delivered, what eligibility criteria were applied and what measurable outcome resulted.“ The same applies to international climate finance. From my perspective as a United Nations Net Zero Facility Capital Fund Ambassador, it is important to distinguish between capital that has been announced, capital that has been mobilised and capital that has actually been deployed, while also measuring the resulting climate or resilience outcomes.” The future of sustainable finance, she concludes, will belong to the institutions that can“ identify risks early, quantify them financially, allocate capital intelligence and demonstrate, with evidence, what that capital achieved”.
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