According to the recently released ‘Intergovernmental Panel on Climate Change Sixth Assessment Report’, the biggest threat to our planet right now is the impact of climate change.
In response to the crisis, Mariuz Calvet, Head of Sustainable Finance MX and Latin America at HSBC, believes that both a collective will and innovation are necessary to curb this threat, and that all stakeholders in the global economy are required to commit to immediate change.
While she agrees that the 2015 Paris Agreement was a major landmark in the global mission towards reducing carbon emissions, Calvet says that achieving these ambitious climate targets would entail a massive transformation of the global economy.
"Banks play a key role in allocating finances to channel private investment towards the transition to a climate-neutral, climate-resilient, resource-efficient and fair economy." – Mariuz Calvet
This would involve investing in the next generation of clean technologies, re-orienting supply chains and reimagining business processes. "Access to finance is crucial to catalyzing the measures needed to achieve net zero targets and a systemic transition to a low carbon economy," she explains.
"Many institutions across the financial system – banks, investors, pension funds, stock exchanges and market regulators – are making their own commitments to net zero and are dedicating significant sums to accelerate the transition to a low-carbon global economy."
Given that banks have access to every entrepreneur, corporation and household in society, Calvet believes they’re uniquely positioned to make a significantly greater environmental and social impact.
"Banks play a key role in allocating finances to channel private investment towards the transition to a climate-neutral, climate-resilient, resource-efficient and fair economy," she says.
A Sustainability Agenda
Senior Specialist in Gender Finance Jose Etchegoyen at IFC’s Financial Institutions Group says investments should not only aim to generate a positive financial return for a corporation, but to also create a positive social impact in the markets and populations receiving the funds.
"All financial institutions have a sustainability agenda that is aligned with the United Nations’s Sustainable Development Goals and are therefore looking for investments and advisory services that increase their capabilities to map the use of funds with ESG standards," he says.
In the last six months, his team has helped leading commercial banks to issue the first blue bond in Ecuador as well as the first gender bond in Brazil.
"Both were aligned with the banks’ sustainability/ESG priorities," he says, adding that they’ve also leveraged innovative instruments such as blue and green bonds in support of programs focused on climate and the environment.
"ESG investing is changing the way financial institutions do business at an unprecedented rate." – Jose Etchegoyen
"Along the same line, we have led socially focused investments in areas such as gender and DEI loans, and bonds that target underserved populations like women, migrants and the LGBTIQA+ community," he tells The CEO Magazine.
He perceives that there has been a significant surge in demand for ESG investments during the last three years. "From large and sophisticated organizations to small and new-to-market ones, the interest and focus on the ESG agenda is consistent and growing," he says.
"ESG investing is changing the way financial institutions do business at an unprecedented rate."
Wayne Shah, the Senior Vice President at Wells Fargo Bank and leader of the International Correspondent Banking business for the Caribbean region, agrees. He affirms that banks must tackle ESG criteria and make it a part of their DNA sooner rather than later, or risk becoming irrelevant to investors.
Addressing bankers in his capacity as a member of the board of the Financial and International Business Association (FIBA) during a conference in Miami, he emphasized the importance of hiring and nurturing ESG teams within their organizations.
He also advised that ESG compliant investments are normally better positioned when facing external risks, given their robust governance and commitment with the world.
"It is not a conversation about changing light bulbs or planting trees, but one of sound procedures, risk mitigation strategies, social balances and, yes, commitment to the environment," he said.
"It is not a conversation about changing light bulbs or planting trees, but one of sound procedures, risk mitigation strategies, social balances and, yes, commitment to the environment." – Wayne Shah
According to Alan Elizondo, CEO of Mexican development bank FIRA, ESG investing isn’t just a current business trend but also an obligation to act toward what he describes as "a more transparent and responsible capitalism".
This trend translates to many institutional investors demanding ESG practices from the issuers they invest in, and it also trickles down as issuers like FIRA also demand better practices from the companies they lend to.
"An essential part of this is not only to adopt these principles but to encourage their adoption within the ecosystem of companies that approach us," Elizondo explains.
FIRA listed in May its first Resilience Green Bond, a bond focused on fighting climate change, that raised close to US$171 million.
"The concept of greenwashing always appears in every sustainability-related conversation, and the field of sustainable finance is no exception," Calvet points out.
"We are all aware of an increased demand for financial products with sustainable credentials. Trillions of dollars are invested in ESG-labeled funds, loans and bond issuances. Greenwashing will remain through 2023 as a key issue for financial services and the private sector," she says.
"Recent greenwashing lawsuits, legal action and the severity of its consequences make this a hot topic that will drive decision-making, but it also threatens to paralyze or slow down sustainable finance activity."
"The concept of greenwashing always appears in every sustainability related conversation, and the field of sustainable finance is no exception." – Mariuz Calvet
Moreover, Cerulli Associates’s latest white paper, ‘Global State of ESG’, indicates that increased criticism over ESG has led governmental bodies around the globe to improve efforts to more clearly define and better regulate the ESG investment market.
In Calvet’s opinion, a balance must be achieved to maintain robust governance structures and procedures to ‘tag’ a financial product as ESG, or "green, social or sustainable", and to also increase sustainable loans or investments to enable the economy’s transition to a low-carbon, just and inclusive society.
"Nobody said it was easy," she says. "The financial sector has a lot of work to do to increase the flows of capital toward sustainable activities, while working with corporations to avoid misleading information and keep following strict and robust ESG-transaction approvals."
Female Participation a Positive for ESG
A 29-country study from the University of Portsmouth, Brunel University and Loughborough University found that that firms with more gender-equal boards are less likely to exaggerate their sustainability credentials.
Looking at ESG decoupling data, which refers to the gap between what firms disclose about their ESG practices and their actual sustainability performance between 2005 and 2019, it also concluded that companies in more religious countries were more likely to greenwash, since religion tends to promote traditional gender roles.