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Sustainability Meets Mainstream Financial Markets
GreenBiz GreenBiz Subscribe475 Add to Share More 297 views 3 0 ShareEmbedEmail https://youtu.be/c9pxKz46pFc Start at: 2:26 Published on Feb 22, 2017 What does it mean when the world’s largest financial data, analytics and benchmarks provider, S&P Global, acquires sustainability experts, Trucost? The implications for companies and sustainability professionals are vast. S&P Global Head of Innovation Dmitri Sedov and Trucost CEO Richard Mattison explore how financial markets are responding to the transition to a low carbon economy and the strategic importance for corporations. Category Science & Technology License Standard YouTube License English (Automatic Captions) 0:04we're going to you true cost mentioned a 0:07minute ago we're going to talk about the 0:10role of data and financial data 0:14particular in sustainability please 0:17welcome to the stage the CEO of to cost 0:19and the head of innovation S&P global 0:21rich Madison and vici said of so last 0:30fall I think October SP global x as the 0:34dow jones S&P indices part of S&P global 0:38if I got that even partly right bought 0:41to cost the UK based research and data 0:44firm that we've been part had a great 0:46pleasure of partnering with for about 0:48five years on our state of your business 0:49report and in other ways Dimitri why did 0:53S&P by true costs what did you see in 0:56that opportunity yeah I think it's all 0:59for this question well first of all S&P 1:01global has too many great brands within 1:03so we all get mixed up in all these 1:05names but of course S&P global is a 1:07fairly young brand from the marketing 1:10perspective we changed the name from 1:11mcgraw hill financial earlier this year 1:14but of course the brands that S&P global 1:17a host or at home two are quite 1:21well-known its S&P dow jones indices its 1:24S&P global ratings the largest credit 1:26rating agency in the world and it is SMP 1:29market global market intelligence which 1:31is kept like us and our financial plots 1:33and so on and so forth I think you know 1:36I'll answer you a question I will dodge 1:39your question in a wave if you don't 1:40everyone else does I will actually say 1:45this the big question in my head is why 1:48did we not by true cost back in two 1:50thousand eight when we started 1:51collaborating with them and you know the 1:55you know there's so many different good 1:58reasons today to partner with with a 2:00company like to cost but it would have 2:02been fantastic had it happened 10 years 2:03ago now as i talk to people here in this 2:06room where over the last day and a half 2:08it's clear that you know everybody is 2:10very pumped around 2:12you know this room and kind of gathered 2:14in talks you know in unison about the 2:17issues that are facing sustainability 2:19but like my good friend Paula de piernas 2:21from CDP says you know it's like you've 2:23logged these people in the room and they 2:25all scream very loudly but nobody can 2:27hear on the outside and I think many 2:30people will agree that over the last you 2:32know decade maybe even two we've been 2:34talking about this but we haven't seen 2:36the progress happen as as rapidly as 2:38many have hope and this being what do we 2:42do with all the data that all these 2:44companies are putting forth or that 2:46you're finding from other sources right 2:48because no absolutely and I think it's 2:50the fundamental misalignment between 2:52what people in this room are really 2:55working hard on and what investors in 2:57the financial markets expect there's 3:00clearly a you know a level of 3:02misunderstanding that sustainability is 3:04not just a social choice but it is a 3:06requirement but the questions such as 3:09how do we actually demonstrate to 3:11investors that more sustainable 3:13companies actually do lead to better 3:15returns how do we demonstrate to 3:19investors that fiduciary duties that 3:20they have to uphold to their clients 3:22such as pension funds and endowment 3:24would not be compromised in fact they 3:27would be enhanced and at the same time 3:28they would not have to sacrifice the 3:31yield they could still produce better 3:34returns for the risk profiles that 3:35they've committed to and ultimately you 3:38know the biggest question for us as a 3:40company today is how do you balance out 3:44the supply and demand in the 3:46sustainability finance the balance is 3:49completely out of whack there is no 3:51equilibrium right you have what 60 3:53trillion dollars committed to un PRI by 3:57a roster of who's who of signatories of 3:59the financial world but on the supply 4:02side there's just not enough investments 4:04there not enough paper and so the 4:06question is how do you balance that 4:08equation how do you produce more 4:10investments put them into the market and 4:13ultimately drive for that ever-elusive 4:15greynium right the premier let's get to 4:17hide you that in a minute but yeah 4:18Richard maybe I mean we started with 4:20assumption everybody knows what true 4:21cost is and i'm sure that's probably not 4:24the case so maybe give first of all the 4:25elevator pitch but 4:26along the way talk about how you see the 4:30how sustainability meeting capital 4:33markets and how that shift what's 4:35happening over just the last couple of 4:36years that this is sort of maybe reached 4:38an inflection point yeah so true cost 4:41you know a true cost we work with 4:43companies and with investors and the way 4:46in which we work with both parties is 4:47really to understand environmental 4:49performance and ESG performance more 4:51broadly and we were founded on the 4:55principle actually that capital markets 4:57were lacking really rigorous robust 4:59analysis that would allow investors to 5:03make reasonable investment decisions and 5:05in fact it's still the case that we're 5:07facing massive market failures 10 years 5:09since Lord stern said that climate 5:13change represented the biggest market 5:15failure known to man and that could 5:18represent literally GDP loss of up to 5:20twenty percent globally if we don't 5:23solve this problem and part of the issue 5:25is an information gap and also a 5:28mismatch of expectations so if you start 5:32at the top of the investment chain you 5:34have acid owners like pension funds and 5:37endowment funds who have a long term 5:39time horizon and somehow as you move 5:43through that investment chain that time 5:44horizon becomes very very short and in 5:46some cases seconds if you're talking 5:48about quantitative trading and then 5:51write down towards the assets you start 5:54to get longer term again so you know 5:56everybody in this room has long term 5:58assets that they're investing in be they 6:00power plants or you know even the supply 6:02chain of things like that so actually we 6:05have a complete mismatch in the middle 6:08of that set of decisions that is not 6:10driving capital towards sustainable 6:13investments or in into assets that that 6:16the companies are managing on behalf of 6:19shareholders and really it's this 6:22mismatch that was the the fundamental 6:25analysis that came out the financial 6:27stability board's task force on climate 6:30related financial disclosures t CFD that 6:34Peter Becker mentioned yesterday and 6:36it's really that that report that 6:38highlight 6:39that the fact that there's a complete 6:41mismatch between what acid owners expect 6:44the pension funds how asset managers are 6:47analyzing information and the kind of 6:49information that can be provided by 6:51companies to enable that analysis what 6:53we really need to do is enable capital 6:55flow that is sitting on low yield right 6:59now waiting for investment in 7:01sustainable assets and that's what we 7:04need to unlock right now so which is 7:06that the imbalance that the 7:08supply-demand imbalance of sustainable 7:10finance talk a lot about what you mean 7:12by that because I'm not sure that's 7:13clear to everybody sure well I think 7:15Richard articulated it wonderfully today 7:18I think there is a verified interest on 7:21the part of the large asset owners on 7:24you know the pension funds and 7:26endowments that actually sit on 7:28trillions of dollars to put their money 7:30towards something that is sustainable 7:32that is greener not necessarily harder 7:34percent green but better than you know 7:37the alternative if you will and the big 7:41question is how do we meet that demand 7:43with supply of available investments to 7:46do so you need an industrial-strength 7:48system that is transparent that is 7:52comparable across asset classes and 7:54across regions and you need a system 7:57that actually everybody can agree on and 8:00today we don't have that system now SP 8:05global ratings the credit rating agency 8:07has been in the market with their credit 8:10ratings for the better part of the 8:12century and today it's not even a 8:17thought how do you assess default risk 8:20well you look at a credit rating that's 8:22how institutional investors think about 8:25credit risk we need a system that is 8:28similar to that in sustainability how do 8:31you assess sustainability risks and 8:32forget risks how about assessing 8:35sustainability in so give an example of 8:37how this might play at an actual product 8:39yeah it might help solve this imbalance 8:42well so on the product side of course 8:45S&P Dow Jones indices has been out there 8:47since I guess 1999 or 19 8:50eight with their dow jones 8:52sustainability indices it's a family of 8:55about 50 index indexes that provide 8:59passive investors and retail investors 9:02with fantastic opportunities to put 9:04money towards more sustainable 9:05investments and true cost has been a 9:08great partner in our carbon efficient 9:09indices so on that side on the equity 9:12side on the passive investment side I 9:14think we have it pretty well covered the 9:18biggest asset pool however is bonds it's 9:21two-thirds of the financial markets and 9:23it's 80 trillion dollars so how do you 9:26tap into that because that acid poll is 9:30certainly managed by professional asset 9:32managers that's institutional money and 9:34it's the active side of the investment 9:37equation so these are the green bonds 9:38that's the green evaluations that we 9:40actually this week we formally launched 9:43but proposed at g20 last year and sort 9:47of reinforced in Marrakech at cop 22 a 9:50framework for evaluating any type of 9:53bond for its relative greenness we do 9:56believe it's a game changer because 9:57today the only thing that's available 9:59out in the market is a set of frameworks 10:03that look at one hundred percent 10:04eligible projects that can be financed 10:07through bonds that's your labeled green 10:09universe we would like to take the 10:13markets further Green Green Finance has 10:15done wonders you know it certainly has 10:17grown but it's still a hundred billion 10:20dollars you have this gap of hundred 10:22billion dollars of supply and 60 10:25trillion dollars of committed demand and 10:27we can get there through just eligible 10:30projects so green evaluations from S&P 10:32global ratings is actually an very 10:35interesting proposition to the markets 10:37and to corporate issuers in this room we 10:41don't really need to think about a bond 10:43being one hundred percent green we can 10:45think about all of the amazing 10:46initiatives that are being conducted by 10:48people in this room at the corporate 10:50level as business as usual but are not 10:53recognized by investors as being green 10:57so they cannot really aggregate it for 10:59the you know for their portfolios and 11:00say well you know we have good 11:02investments we have I don't 11:0460 trillion dollars worth of you know 11:06bonds overall but there is a percentage 11:09of them that actually are financing 11:11initiatives such as energy efficiency 11:13such as you know better use of water 11:16such as reduction of pollution and and 11:19that's what we want to recognize with 11:20green value so so rich what are the 11:22implications for people in this room and 11:23others is this happen entirely passively 11:26from their perspective that just happens 11:28that you now have the ability to 22 in 11:31fact monetize or aggregate a lot of the 11:33great work being done or is there 11:35something that needs to they need to be 11:36doing differently or thinking 11:38differently yeah I mean I thought I 11:39think there's been a huge amount of work 11:41on on you know scoping out 11:43sustainability and and everybody in this 11:45room has contributed massively to that 11:48to my mind it's actually harnessing 11:50capital markets as a force for good you 11:53said yesterday the companies can be a 11:55force for good I actually believe the 11:57capital markets can be a force for good 11:58there is capital sitting there waiting 12:00to be invested so and what do we really 12:03need we actually need a you know a 12:05magnitude higher level investment in 12:09sustainability can you give some numbers 12:11to give us a sense of how big we need to 12:13be aiming well I mean let's take China 12:16for example China's just China's climate 12:20plan every year requires six hundred 12:22billion dollars of investment 12:24eighty-five percent of that does not 12:27come from the Chinese government 12:28eighty-five percent of that has to come 12:30from private capital markets so in China 12:34and that is China they have measured 12:36quite precisely what that looks like if 12:38you go across the world that number is 12:40probably bigger so ninety percent 12:41ninety-five percent even and certainly 12:45in the u.s. probably ninety nine percent 12:46I don't know but the point about this is 12:48that in terms of the scaling that is 12:52required to meet sustainable challenges 12:54that will need a lot of capital that's 12:57billions and billions of dollars last 12:59week a French pension fund issued a 13:01low-carbon mandate of five billion 13:04dollars just last week and that's not 13:05unusual this is happening all the time 13:07now so you have asset managers you have 13:09fund managers who are looking for 13:11investments so there's an opportunity 13:13here for everybody in this room to 13:15present investable opportunities 13:18add scale to the market to allow the 13:21market to invest so I actually think the 13:23job here is to connect sustainability 13:26with a financial community within 13:28companies and really you know I I 13:31actually believe that every company in 13:32this room in the next year should 13:34probably be thinking about issuing a 13:36green bond so or I could actually say a 13:39bond that could be assessed for its 13:41relative greenness which is all of a 13:43sudden exposing so many more investors 13:45to this potential investable opportunity 13:47so Dimitri we talked about 13:49sustainability and and and and then we 13:51talked about green which is just one 13:52part of sustainability is there an 13:55opportunity or do you see this moving 13:57also to include social opportunities or 14:01is that even investable in the same kind 14:03of way and absolutely and and I think 14:06the the way I think about es angie is in 14:10terms of operational risk and 14:11operational opportunities as well as 14:13company's ability to manage these risks 14:16and perform better for the benefit of 14:18their shareholders so whether it's green 14:20or its social it's a combination of both 14:22I think we should and will assess it on 14:27its own merits ESG speaks more to the 14:30corporate behavior then it's then let's 14:32say green finance that is more focused 14:33on the actual use of proceeds and so you 14:36sort of need both in the market you know 14:39if you're an oil and gas company with 14:41investments that go towards improving 14:43the environment that ought to be 14:46recognized and that's your use of 14:47proceeds and where you say well you know 14:49we've invested two billion dollars into 14:51a clean coal or a coach and gas 14:53conversion or whatever it is that's fine 14:56we should not say well no no this is not 14:59hungry now oh you're you know a minor or 15:02an oil and gas company therefore you 15:04should not be even in this room just the 15:06opposite so that's the green evaluation 15:08ESG speaks more to the broader corporate 15:11behavior and more to the combination of 15:14various factors that management puts in 15:16place in order to be more sustainable as 15:18an organization and we certainly are 15:20looking to assess those as well let's 15:22take a question from the audience elane 15:24yeah we're getting quite a few questions 15:26on Twitter as well as our virtual 15:29one question is a two-part on twitter 15:32because 140 characters wasn't enough 15:34investors use a small number of sources 15:37for data and often want very small 15:40numbers of ESG metrics many are reported 15:44but not in the 10k are we solving the 15:47problem of no data or laziness of 15:49investors rich I think it's true that a 15:56vest is one simplicity and I think that 15:59one of the findings of the financial 16:01stability boards report was that 16:03actually some of the information that's 16:05been presented is not that usable by 16:08investors so I thought I do think they 16:11need simple formats they need 16:13information they can cooperate with in 16:15models within multi-factor models within 16:18net present value calculations whatever 16:20way in which they're calculating value 16:22but what they're really looking for and 16:24the recommendations of that report I 16:26would really recommend everybody reading 16:28is they're looking for scenario analysis 16:32they're looking for connectivity between 16:34sustainability indicators and financial 16:37outcomes because that allows them to 16:39justify the investments they need to 16:41make to scale and transition our economy 16:45to a more sustainable world so really 16:47simply put yes they are looking for very 16:52clear data sets presented in a format 16:54that makes sense to them but there may 16:57need to be further work done on exactly 16:59how that data is presented great let's 17:02take another question yeah this one is 17:06on Twitter how do you identify 17:08opportunities and interest in investors 17:11with aggregate funds etfs mutual funds 17:14large cap etc these are investing that 17:19we can invest in is in our retirement 17:21account and that's what you're talking 17:23about these kinds of products yeah well 17:26I if I understand the question correctly 17:28if you're a retail investor and you just 17:30want to know what the offerings are 17:32there are plenty of offerings out there 17:34in the market that cater to the 17:35sustainability investor I think what we 17:37are trying to do is take it mainstream 17:40with institutional money it's not our 17:43lacking opportunities for very targeted 17:47somatic investment those have been 17:49around for a while and they're quite 17:51well-documented the question is how do 17:53the rest of the of the issuer's the 17:57ninety percent of the issues are there 17:59who have a variety of different business 18:01models that may not necessarily fit that 18:03perfect sustainability mold can 18:06demonstrate to investors their 18:08sustainability and drive from greater 18:09returns on their assets as a result of 18:12it and that's what we're trying to 18:13accomplish this party is just getting 18:14started I think it's so not just your 18:17partnership but this this whole field I 18:19think we saw green bonds I one of the 18:21really good news parts of the state of 18:24green business report this year in terms 18:26of the market uptake of those are the 18:28issuance of those and it's going to be 18:31really exciting to watch this watch you 18:32guys figure out how to one plus one 18:35equals eleven in your case just numbers 18:37guys and and and what the bigger 18:40opportunity is for all of these 18:41companies so we'll look forward to that 18:43please join me in thanking rich and 18:45Dimitri 18:45[Applause] 18:51you |
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