In October we sponsored the 3rd edition of Building Bridges in Geneva, a conference focused on advancing sustainable finance in Switzerland and connecting the different worlds of finance and international organisations as well as government.
The event comes at an interesting time, as sustainable investment is facing its greatest challenges; regulation is pushing forward the definition and disclosures of sustainable funds, while concerns about greenwashing are at their peak.
These complexities only emphasise the value from getting together to talk about sustainable finance; the event was very well attended throughout the four days and full of high value discussions. We saw some real honesty, with concerns about ESG-fatigue and greenwashing. We heard from the Vice Chairman of Blackrock Philip Hildebrand who admitted ‘We can’t fix this as an industry… we can only be an enabler’ when discussing climate change. Certainly not a point of view shared by everyone at the event.
One of the most notable presentations for us was an honest reflection of the significant issues in the data available for the most-often used sustainability metric – carbon emissions. There are errors in the reporting methodologies; some companies do not include new investments or divestments, reporting boundaries are unclear between domestic and international operations, and other companies pick and choose how they report. Only 40% of companies who disclose emissions are verified by a third party. Many of the data gaps are filled by agencies who are using proxies on top of proxies, providing estimated data which has been shown to be inaccurate. Meanwhile other presenters were calling for more data to demonstrate the sustainability of funds, not less.
This debate is what makes a conference like Building Bridges so valuable; the regular exchange of views, including representatives from outside the financial community to challenge the effectiveness of the strategies and products being created.
Mark Carney gave a speech back in 2015 titled ‘the Tragedy of the Horizon’ emphasising the fact that despite our growing awareness of the human infliction on the climate, and the potentially catastrophic impacts of climate change, our actions were totally insufficient. The reason was that the “catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors”, which means they could be ignored in business modelling and financial analysis.
Mark Carney spoke at this year’s Building Bridges, at a time when that horizon has perhaps grown shorter. 2022 has been a year of significant climate disruption, with record-breaking heatwaves hitting many countries and both intense flooding and droughts affecting people, supply chains and energy production around the world. Along with the war in Ukraine, this shortens the timeline for climate transition risk as well as physical risk, as energy systems are being pushed more aggressively away from fossil fuels.
What cannot be in doubt is that while there may be debates around ESG data quality, or about effective methodologies, trillions more in capital needs to be directed to climate solutions. At Quaero Capital we have committed to continue to design and launch new funds focused on this theme, with more than 39% of our AUM invested in funds that have a significant focus on climate change solutions. We believe this is where asset managers can really make a difference.
We now approach COP27 which will take place in November in Egypt with the same intensity as the last COP but with additional focus on the ‘loss and damage’ debate; developing countries need financial support for coping with climate disasters as well as climate change mitigation and adaptation. The world is grappling with political, economic, and social challenges, and the COP27 must maintain the attention of global governments on the climate crisis.
Greenwashing concerns have risen significantly in the industry and beyond, and current regulation can only partly prevent this. It is a common theme in conferences today that we as industry players must act and communicate responsibly, and address these concerns face on. The danger, of course, is that conferences act as a platform for sales and promotion, as well as a platform for collaboration and learning. We would encourage in the future for there to be elements of the conference available only to industry players, not clients, to reduce the level of promotion. One of the great risks from greenwashing in the market, is that clients become disengaged when they are confronted with excessive ESG marketing and promotion. ESG-fatigue needs to be combatted.
As a final note, nowhere is safe from greenwashing! Stay vigilant.