Investing in our planet
The focus of this year’s Earth Day was to persuade businesses, governments and citizens around the world to do more in investing in our planet.
While Earth Day serves as a good occasion to highlight climate action, it cannot stop there. That passion and verve needs to be harnessed every day. We have teamed up with our partners Cloverly and u impact to share how this year’s Earth Day theme can move from words to action – even after the day has passed.
- What can businesses do to better invest in our planet?
- What is the biggest challenge faced by businesses when it comes to investing in our future, and how can we overcome it?
- How can we best support and empower the financial industry to invest in our planet and future?
What can businesses do to better invest in our planet?
When it comes to investing in our planet, banks, in particular, possess a diverse toolbox. From promoting sustainable finance products, defining sustainability targets & reporting guidelines to including ESG considerations in decision-making, financial service providers have the right base to do good.
The latest IPCC report made it clear: there is sufficient global capital to close global investment gaps, what’s lacking is the redirection of that capital to climate action. This is where banks come in. Being at the center of capital flows, banks are in a great position to be at the forefront of sustainable finance.
There’s an amazing opportunity in the banking & finance world right now to stake a claim in the sustainability transformation. This can be done by providing the foundation to help drive innovation and support the transition to a low carbon economy – either by offering competitive green loan programs or by offering next-generation green banking products that inspire and engage their customers.
[Read more: What can banks do to fight climate change?]
It helps to consider climate action like other more familiar investments, ensuring balance between timeline, scope, risk, and impact. As businesses look to scale their investments, they should prioritize and fund the large-scale infrastructure changes needed to ensure a sustainable future but also balance that with immediate actions to help reduce the amount of carbon in the air today.
Considering action through the hierarchy of removal, reduction, and offsetting helps to place the right priority on the right action. Creating a carbon offset portfolio represents an opportunity to also fund critical projects and technologies that will be a critical parallel path to large infrastructure changes.
It’s important that banks adapt and embrace the changing business models that are needed to create a sustainable world. Financing green and sustainable projects, such as wind or solar projects, requires large upfront expenditures.
This means a move away from operating cost-based systems towards capital expenditure-based ones where banks play a pivotal role facilitating the channeling of investment. It’s estimated that 80% of the capital required to support a transition to a sustainable low-carbon world will need to come from private sources.
[Dive deeper: u impact and ecolytiq ink new partnership]
This change in mindset needs to be adopted by decisionmakers in banks and communicated with investors, so they are empowered to vote for a sustainable planet with the investment choices they make.
What is the biggest challenge faced by businesses when it comes to investing in our planet, and how can we overcome it?
Sustainability is not a quick fix, and neither is implementing credible and long-lasting sustainability measures. In the fight for market distinction, many businesses are falling into the greenwashing trap – a growth-crushing practice which negatively affects business reputation. And with increasing anti-greenwashing regulations on the horizon, practicing false, exaggerated or deceptive claims clearly are never worth the risk.
Investing in our planet does not stop at greenwashing. For those businesses looking to provide credible sustainability offerings and funds, many are still faced with ongoing challenges, the biggest one being a lack of standardization in the world of ESG.
Whether it be the definition itself or the measurement criteria set out to assess ESG ratings, the industry is seriously lacking in transparent and comparable data, both within and across industries. As a result, oil companies might end up with relatively high ESG ratings, when in reality they should be interpreted as facing relatively low risk compared to similar companies in the same industry.
The swell of attention on climate action has made the entire industry very dynamic – constantly buzzing with both risk and opportunity. For many companies, the dynamic nature can make it difficult to define a clear climate action strategy.
Companies should make a milestone-based plan that prioritizes decarbonization within their own and extended infrastructure. Not only do these milestones create an achievable action plan, they also make it easier to identify gaps between the ideal and actual so companies can make investments to close those gaps.
Additionally, companies should move away from considering decarbonization versus carbon credit investments in favor of considering them in parallel. Engaging with trusted experts to find high quality carbon reduction projects is a great option for immediate climate action. These relationships can also help ensure that the projects meet the strategic objectives of the company.
Businesses are facing ever increasing regulations and requirements to track and report on ESG data. At first glance, it can seem an overly burdensome compliance factor. However, businesses should instead see the opportunities that exist by having this reservoir of data available. This data can be deployed in decision making and particularly in risk management.
The regulation is still in its infancy and in places ambiguous as regulators struggle to keep pace. Businesses need to look at the broader aims of the regulation, particularly where the data is intended to provide transparency and protection to everyday retail investors. It’s in the businesses’ interests to make use of this data when communicating with retail investors.
The plethora of data can leave business struggling to see the forest for the trees (excuse the green analogy) when it comes to determining which data is important and running the risk of focusing on the wrong areas and potentially being at risk of greenwashing. It’s vital that experts in the respective areas are engaged and appropriate training given to mitigate these risks.
How can we best support and empower the financial industry to invest in our planet and future?
The basis for long-lasting climate action is there. At a company level, financial service providers need to be the partner in the decarbonization that their customers are looking for. This starts with providing them with the products and services that facilitate just that.
With a key obstacle to reliably investing in our future being a lack of quality and transparent data, businesses need to join forces by fostering partnerships and collaboration, allowing for the development of innovative products based on reliable sources, data sharing and open methodologies.
Only through engaging with stakeholders, investors and even their own customers, businesses such as banks can demonstrate their commitment to sustainable finance while developing more effective strategies and products that meet the needs of their stakeholders across the whole value chain. Investing in our planet has to be more than just a mantra – it’s a new way of doing business.
The financial industry has a tremendous opportunity to play a central role in scaling climate action because they can prioritize their own decarbonization while also creating ways for their end users to also participate.
[More info: Cloverly and ecolytiq joins forces]
By embedding climate action technology into the digital customer journey, they can activate a much wider number of companies and individuals and increase their impact at scale. As more companies and industries make climate action a familiar part of our collective routines, the overall volume and speed of adoption will also scale.
u impact :
The common themes when considering this question are collaboration, technology, and transparency. The finance industry needs to embrace the changing ecosystem and benefit from the collaborative opportunities available from bespoke providers, allowing banks to maintain their traditional products while also adopting the latest innovation and trends.
These opportunities are built on the latest technology by early adopters looking for innovative ways to deal with industry challenges. Transparency is a vital ingredient when investing in our planet and future. It builds the trust needed between employees, partners and clients, keeping parties informed and holding them accountable for actions and impacts.
The combination of these elements will give us the fighting chance we need to meet the needs of current generations without comprising the ability of future generations to meet their needs.