Sustainable Finance Live: A Catalyst for Actionable ESG Strategies
Finextra Research and ResponsibleRisk recently convened the first virtual workshop of Sustainable Finance Live, launching a series of events aimed at devising actionable strategies for ESG technology and fostering partnerships essential for translating these strategies into real-world applications.
The workshop highlighted investment opportunities that could reshape the greenhouse gas landscape, outlining the needs of investors to confidently track and securitize investments, as well as the requirements for asset managers to curate portfolios favored by institutional investors. A pivotal focus was placed on the reliability of data and the efficient reporting of ESG practices within the sustainable finance framework.
Richard Peers, founder of Responsible Risk and a contributor to Finextra Research, opened the session by drawing a compelling parallel to the Apollo 13 mission, showcasing how collaboration can overcome seemingly insurmountable challenges. He likened this teamwork to the objectives behind the Sustainable Finance co-creation workshops.
Peers further illustrated the potential of an estimated $30 trillion in capital earmarked for sustainable projects, emphasizing the critical distinction between mere allocation and genuine investment. The objective is to dismantle barriers that hinder the flow of capital, ensuring that this sizable amount translates effectively into sustainable investments.
Addressing the Integration and Financing Gap
Keith McGrane, CEO of Corre Energy, provided insight into the promise offered by compressed air energy storage (CAES) and expressed concerns over the challenges tied to the integration of renewable energy. He emphasized that the market for electricity storage, while established, cannot rely on a one-size-fits-all solution. The industry must adapt technologies to align with varying stages of renewable integration, especially as penetration levels reach unprecedented highs.
“Transitioning from low to high renewable penetration exposes several critical grid issues,” McGrane stated, noting that increased curtailment of wind and solar energy is often necessary when the grid struggles to absorb the output. He identified the need for effective frequency management at lower penetration levels and highlighted the limitations of battery technology in catering to higher levels of renewable energy usage.
The pathway to sustainability also involves moving toward alternate energy sources like hydrogen, as outlined in the European Commission’s recent Covid-19 recovery plan which prioritizes energy transition to stimulate investments in hydrogen technologies.
Investors shifting away from subsidized renewable energies face new risks, highlighting the significant role technology can play in managing these risks while ensuring a stable energy supply at affordable costs.
Development Banking: A Solution to Investment Risks
Maya Hennerkes from the European Bank for Reconstruction and Development (EBRD) addressed the complexities associated with early-stage investments in sustainable projects. Despite the EBRD’s focus on profitability and environmental and social considerations, she noted the necessity of government backing to mitigate risks.
Hennerkes emphasized that de-risking investments is essential, particularly in the context of innovative technologies that carry perceived risks not fully understood by financing institutions. The EBRD’s status allows for continued project support even during financial crises, helping to attract private sector co-investors and encouraging broader participation in sustainable projects.
The Role of Data in Distinguishing Green Investments
Elena Philipova, global head of ESG proposition at Refinitiv, underscored the importance of clarity in defining ESG, which varies significantly among stakeholders. This definitional challenge complicates capital allocation to sustainable projects and requires consistent regulatory frameworks to advance ESG reporting.
Despite the surge in ESG-related regulations, issues of inconsistency persist. Philipova stressed the need for a comprehensive framework, such as the EU taxonomy, to classify economic activities accurately and ensure consistent reporting standards across portfolios.
Looking ahead, Philipova called for a redesign of data access and reporting processes within investment sectors. This initiative is critical for fostering trust in ESG solutions and facilitating the transition to a greener economy.
Upcoming Workshops on Sustainable Finance
Future sessions of Sustainable Finance Live will target pressing topics, including:
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Investing in Green Energy Storage: Innovating financial models for infrastructure and aligning them with project finance and impact investing.
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Impact Investing: Building portfolios that demonstrate impact while ensuring appropriate returns and ROI.
- ESG Portfolio Reporting: Developing passive investment indices to guide institutional ESG portfolios.
Insights from these workshops will be shared on the Finextra Research page in due course, contributing to the growing dialogue on sustainable finance and its transformative potential.