Sustainable Finance Live: A Platform for Transformative Change
Sustainable Finance Live is set to return with another engaging virtual event, hosted by Finextra in collaboration with Responsible Risk. This initiative invites participants from the banking and technology sectors to collectively foster significant change.
In 2019, a coalition of prominent banks and the United Nations introduced the Principles for Responsible Banking. A total of 130 banks, which control assets worth $47 trillion—approximately one third of the global banking sector—have committed to these principles. By adhering to them, banks aim to align their operations with the objectives of the Paris Agreement on Climate Change and the Sustainable Development Goals (SDGs), thereby contributing more effectively to these critical global initiatives.
Nevertheless, a substantial amount of capital remains trapped behind barriers created by uncertainty related to data availability, taxonomies, and reporting standards. This uncertainty erodes confidence in viable sustainable investment options. To overcome these challenges, enhancing supply chain traceability is essential. It provides reliable, dynamic data from complex supply chains, enabling investors to fulfill their commitments to Environmental, Social, and Governance (ESG) standards.
Richard Peers, a contributing editor at Finextra and the founder of Responsible Risk, moderated an initial session focused on supply chain traceability. He highlighted the palm oil supply chain as a case study, discussing associated risks such as biodiversity loss and climate change. He emphasized the need for better data to effectively address these risks. Successful mitigation and conservation efforts will require appropriate adaptation strategies and transparent corporate disclosures.
Peers raised a crucial question: "Can a transactional mechanism effectively convey data beyond traditional non-financial reporting?" He suggested that integrating features like carbon and biodiversity certificates into payment processes could encourage financial institutions to refine their mitigation strategies related to money laundering and environmental crimes.
As he elaborated, "As transactions progress, our understanding of biodiversity and climate risks evolves, necessitating updates to our mitigation and adaptation measures, as well as the data we collect throughout the process." Peers assured attendees that subsequent sessions would delve deeper into the comprehensive landscape of the supply chain.
Understanding Supply Chains: Converting Nature into Goods
If we think of the planet as a balance sheet, it’s clear we are running at a loss, utilizing resources 1.6 times faster than the Earth can regenerate. Supply chains play a crucial role in this transformation of nature into products, yet many businesses struggle to comprehend the intricate details of these processes. David Cox, who focuses on digital strategy and accountability at Microsoft, shared insights about the challenges his organization faces.
Cox articulated Microsoft’s commitment to not only empower its customers but also support their suppliers through three foundational pillars: integrity, accountability, and respect.
- Integrity: Upholding honesty and ethical standards.
- Accountability: Taking full responsibility for actions and outcomes.
- Respect: Acknowledging the universal rights of workers and the communities involved in supply chains.
These pillars are underpinned by technology and transparency. Cox expressed Microsoft’s dedication to addressing environmental concerns alongside human rights issues, noting that modern slavery remains a significant challenge. He illustrated the importance of transparency in supply chains, highlighting labor conditions and advocating for diversity and inclusion not only within Microsoft but throughout the supply chain.
Despite technological advances, Microsoft encounters significant hurdles, particularly related to data transparency and integrity. Cox acknowledged the ongoing difficulty of obtaining reliable information from their supply chain, stating it remains a work in progress. Additionally, aligning stakeholders on the company’s values and their significance is integral to maintaining goals across the supply chain.
Cox emphasized that "risk encompasses both resiliency and elasticity," urging the need for alternative suppliers to ensure quick adaptability. Moreover, he stressed the geographical implications of climate change and how they impact supplier selection.
In closing, Cox presented Microsoft’s current reporting mechanisms, which include material assessments of its devices, with the latest assessment expected to conclude by the end of the fiscal year. He reiterated Microsoft’s commitment to the UN’s Sustainable Development Goals and compliance with the Global Reporting Initiative Standards.
Integrating Reliable Data for Portfolio Carbon Assessments
During a Lean Back session, Martina Macpherson, head of ESG strategy at ODDO BHF, addressed the importance of encompassing systemic risks in global supply chains when making investment decisions. She argued that a comprehensive ESG investment approach must consider risks and opportunities linked to sourcing, tracing, due diligence, and disclosure.
The ESG investment sector has ballooned to $35 trillion and is projected to reach $53 trillion in the coming decade, presenting an urgent call for enhanced transparency and standardized frameworks to maintain investor interest.
Macpherson highlighted a significant challenge: two-thirds of a company’s environmental, social, and governance impact exists within its supply chains. The financial services sector experiences the highest indirect environmental effects. Compounding these issues is the presence of small and medium-sized enterprises (SMEs) within many supply chains, which often lack the resources for adherence to EU disclosure regulations.
To successfully manage ESG risks, Macpherson identified the need for a holistic approach encompassing company assessments and stakeholder engagement. She outlined three essential requirements for driving ESG progress, each tied to data metrics and frameworks:
- Improved supply chain management oversight that transcends short-term financial goals.
- Enhanced relationship management with key stakeholders to foster long-term value creation and accurate ESG risk assessments.
- The integration of sustainability concerns into investors’ due diligence and procurement practices.
To promote consistency, she suggested redefining ESG assessment methodologies to address unethical practices across global supply chains. By fostering collaboration among all stakeholders, investors could effectively facilitate the allocation of essential funds toward sustainable projects.
The ‘Bindustrial Revolution’: Innovating Waste Management
Michael Groves, CEO and founder of Topolytics, highlighted the complexities of waste management during the third Lean Back session. He emphasized the importance of tracking solid waste data to improve visibility and verification across the global waste system.
Groves presented an insightful perspective on waste as its own supply chain, with materials sourced and processed before ultimately entering the waste management system. He noted the need to transition from a linear waste model—where products are discarded after use—to a circular model that maximizes material utility.
One of the primary challenges in achieving a circular economy is the poor visibility of downstream waste supply chains, resulting in a significant amount of waste being disposed of without effective recycling. Groves acknowledged that more than 60% of urban waste ends up in landfills, exacerbated by the informal waste sector and associated social issues.
Groves underscored the necessity of analyzing how waste moves through systems, noting that significant distances often separate waste from its recycling destinations. Further complicating the situation is the uneven access to recycling infrastructure around the globe.
He indicated that while the waste management sector has seen technological advancements, much of the available data is still collected manually and inadequately reflects the complexities of the industry. Transitioning to machine-based data collection methods is on the rise, but comprehensive, standardized systems remain elusive.
The emergence of "smart bins" equipped with sensors represents a significant step forward. However, to establish a comprehensive understanding of the waste system, it is vital to aggregate data from a variety of disparate sources. This nuanced approach is essential for improving the quality of data used in ESG metrics.
In conclusion, achieving granular accuracy and comparability in waste management data is critical for informing effective ESG strategies. Through a concerted effort to enhance data collection and reporting mechanisms, stakeholders can ensure that sustainable initiatives receive the necessary financial support.
For further exploration of these topics, register for the Sustainable Finance Live workshops here.