Category: Blog

I’m pleased to be speaking at and moderating ‘Technology and Impact: An entrepreneurial perspective’ (Breakout 3E) at the upcoming The Global Steering Group for Impact Investment (GSG) summit, and sharing the stage with three insightful leaders, Andrea Pereira, Co-Founder of GiveBack – Sustainability Made Easy, Iker Marcaide, Founder of the Zubi Group and Vanessa Kacherginsky, CEO of The Israeli Forum for Impact Economy Economy.

You’ll find us in the Exhibition Room, as part of the Building Impact Economies theme, and we will be finishing up the first day prior to networking drinks, the session starting at 5:05 pm (which is practically lunchtime because it’s Spain, right? 😉 ) ! 

As the session reads; “.. Too often, impact investing focuses on the supply of capital. This session will focus on the demand for capital. How well are entrepreneurs and business builders served by investors? What do impact entrepreneurs and growing companies need in order to build their businesses and deliver positive impact? ..”

I can already see many ways to take the conversation, and if you have any burning questions, feel free to reach out to me or suggest in a comment! 

If you aren’t yet registered, join the four of us and 1000+ impact leaders, investors, philanthropists, businesses, entrepreneurs, banks, and policymakers at the world’s premier impact convening.

Beyond networking and enjoying Malaga, we will exchange innovative ideas and plan how to replicate innovative best practices at scale in three areas:

· Mobilising capital for people and planet, where it is most needed
· Achieving full transparency in measuring impacts
· Accelerating impact and social economies

I look forward to seeing you at the #GSGSummit.

#caminoalimpacto | #impactinvesting | #finance | #bestadvice | #strategy

In this Interview Edition of Smarter Impact, I’m pleased to present you with the complete insights of David Carlin and my time together.

David is the Head of Climate Risk & TCFD for the United Nations Environment Programme.

You can watch the whole video here;

Or listen in audio via all your favourite podcasts;

“In the same way we don’t give people medals for not robbing banks, the goal is to drive impact, avoiding greenwashing means that what you’re saying and what you’re doing are consistent.” – DC

Full transcript follows;

Philip –

A big welcome to my regular viewers and listeners and those of you who are joining us for the first time. It’s Phillip Bateman here, I’m the host of Smarter Impact, and I’m the Managing Director of Bravo Charlie.

For the past 14 years, I’ve been supporting CEOs with their strategy and communication. And for the past five years, working mainly with the impact finance industry, helping CEOs tell the right story to investors.

And to coincide with this interview, I’ve recently launched our Investor Trust scorecard. So make sure you take 5 minutes to get your results and see how you stack up with the best companies in the world.

Now, with that said, I’m so pleased to introduce our guest, David Carlin, who holds a number of roles.

These include working with the United Nations Environment Programme Finance Initiative (UNEP FI), where he is the Head of Climate Risk and the task force on Climate-Related Financial Disclosure. That’s based out of Geneva in Switzerland.

He is also the founder of Cambium Global Solutions in New York, which is a team of sustainability experts and holds a variety of other roles which will get into it as we go through.

Thank you so much for joining me for this conversation David.

David

Yeah, it’s great to be here, Phillip, and really looking forward to our discussion.

Philip

So I wanted to start out strong; Q. How do I win the future with a better climate strategy?

David

So I think that the right question that not enough people are asking, because right now I think there’s a lot of what I’d call playing defense on climate for much of the private sector and even some governments, which is to say, how do we minimize risks and how do we do just what is necessary to meet the demands of stakeholders?

Obviously, the public now is very much aware of the urgency of the climate crisis, and it’s more the case that if you’re a corporate there are disclosure requirements.

We just saw this week the International Sustainability Standards Board put out its guidance on climate disclosures and wider sustainability disclosures. And yet playing offense is really going to be where people win, which is thinking about climate not as a trend, not as a regulatory obligation, but really as a change to the operating system of business and society going forward.

And the people that look at that are going to be most successful because they’re going to be innovating not only the solutions that are necessary to build resilience, to transition the overall economy, and they’re their own communities to net zero, but they’re also going to find those opportunities for growth.

They’re going to find ways to manage their risks. And doing those things together, I think is the way to to play offense here, to see this not as a sustainability commitment, but really as a strategic commitment.

So I think firms that are going to be considering where they’re getting their energy from, the kind of products and the markets that they’re involved in, those in governments that are looking at growing and increasing the industries that are playing a positive role, both on the resilience side, avoiding physical risks of climate change, but also on the mitigation side, reducing emissions.

I think these are not only going to be huge opportunities, but really ones that are a move to a different way of doing things. And I think that that to me is the key in the same way that we think about what are the prospects of a typewriter manufacturer after the personal computer came out, or what are the ways that we think about a brick and mortar retailer after the Internet and Amazon?

This is kind of the scale of change. But instead of a single industry, instead of a single product for the whole of the economy, and I think thinking in that expansive way is a recipe for success, because it will lead you to not only the new products, the refinement of what you’re doing, but also to really see how to be a positive player in that ultimate social goal.

Philip

On a more tactical level, because I hear you say those things and then at the moment we’re in the middle of London Climate Action Week and I know we were moving times around to get the opportunity to speak – And when I looked at that, their opening bar was that tackling climate change requires us to change everything we do faster than has ever happened before.

And somewhere between these sort of like far off aspirations and you saying, we need to look holistically at things and use this as an opportunity rather than something we’re reacting to.

What levers are there to pull? In the consulting work you do for governments and organizations, How are you seeing people actually pull levers and get on the offensive with this stuff?

David

Yes. So I think that’s really where where the rubber meets the road and where the specific changes take place. And so I would highlight maybe three areas what governments are doing, what financial institutions are doing and what innovators are doing in the business space.

And I’ve worked with a number of institutions in all of those areas. I think from the government side, it’s really learning quickly.

It’s seeing where good practices are amongst international peers and it’s really trying to create both a level playing field, but a marketplace that is open and transparent as well as one that has the supervisory oversight to manage risks.

And so some of the work that I’ve done, both in helping governments, in setting up climate stress testing, in assessing their disclosure requirements versus things such as the Task Force on Climate-Related Financial Disclosures, and now that work of the International Sustainability Standards Board, but really trying to make sure that there is a regime that encourages and accelerates.

So we talk a lot about what the incentives are. We talk about managing risks. And so I think having not only a fast learning government, both in terms of the policy side and the supervision side, but one that is going to adapt to the local risks in the local context is really key.

On the financial side, I think it’s about aligning… And if may, as we talk about the Government side, those skills you’re talking about, about being forward looking and agile and practical, if you will.

Sometimes they’re not really associated with bureaucracy.

Philip

Is it like a people challenge? Is it an incentive challenge? Where do you start, if you want to achieve that level of government capacity?

David

This is sometimes swimming against the current. I would say in the supervisory space that it’s really been fascinating in the last several years. The extent of interest in innovation that’s gone on and a lot of that thanks to the collaborative work that The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) has been doing there.

But people usually don’t consider exploration to be a common word when associated with regulators. But indeed, that’s actually I think what has really been taking place.

And in the UK you have the Climate Biennial Exploratory Scenario (CBES) and that’s part of a larger effort that the Bank of England and Prudential Regulation Authority (PRA) have been doing to explore new topics every couple of years anyway. But now climate has been one that they’ve gone deeper on.

And so I think part of it at the supervisory space is really to be sharing knowledge across institutions, seeing where good practices are, learning the lessons from others first, rather than trying to do something and see and get the same results.

So if we’ve done a test and we see what is successful, do we need to run the same one that someone else ran? Or can we build on that?

And I think you’re seeing that kind of iteration. And then the other piece on the more policy front is, this has been a challenge, but I think the countries and societies that have really put something big together have seen the benefits. It seems like just every other day that there’s a new graphic or a new announcements in the U.S. based on the Inflation Reduction Act, whether it’s a new factory, whether it’s a new estimate for output of batteries.

And so I think that has been a game changer, was that months and perhaps years in the making? Absolutely. But I think that doesn’t preclude more local level incentives, whether you’re the mayor of a municipality, whether you’re looking at a state or county level, that there are actions to be taken.

And I think part of that is, is getting those incentives to be aligned with what needs to happen. And once that happens, I think it does produce that game change.

To your point, it’s not necessarily easy to move fast. I think on the regulatory side, there’s more of kind of a learning culture. And on the policy side, sometimes there’s a bit more of a response.

There’s no doubt that the Inflation Reduction Act has inspired and instilled responses in other governments because of the fact that it does bring a bit of competitive pressure to them.

Philip

And excuse me, you were sort of going through three tracks as well. When I dived into Government.

David

No, no, I think government is a big one. I would just say, on the financial side.. Finance should be looking at aligning to net zero, but thinking about what that means in terms of the risks and opportunities that they face.

And so part of this is being able to first measure those risks, but also have a sense of what new products, what new clients they want to be engaging with. We’ve seen an explosion the last few years of green bonds, of green loans, of sustainability linked products and ESG funds. Some of these things have been really successful. Others have encountered justifiable scrutiny. But the point is that this is an expanding product market, but that product market really is undergirded by an expanding real economy and real industry.

And so what does a firm’s sustainability strategy look like?

I think it means managing the risks of an increasingly volatile world while aiming for those opportunities. And I guess that brings us to the real economy and to those innovators.

And I think what I’m always looking for when I think about who to work with is who has scalable solutions that can really drive impact, who is hitting at the leverage point of a system, whether it’s informational.

So, we know that all financial institutions are going to need better information on what the emissions data is of their clients, not just so they can do baselining, but so they can engage better and so they can see who leaders and laggards are.

We know for example that people working on grid stability and using obviously these hot topics of AI and digital assets, but bringing those into into the sustainability space for things like virtual power plants or as I said, balancing loads on grids. These are things that are going to be absolutely needed.

And then of course, there’s a whole fascinating space across materials science and the innovations that go into everything from better solar panels using perovskite to potential methods for hydrogen generation.

And each of these, I think, has an opportunity to really scale. And part of what we’re excited about is because of the diversity, because of the excitement going on. There is a real market competition to be the one that grows to be the big solution, and it’s not going to be just one.

It may be very well an ‘all of the above’, but how much of a role each of these things are going to play is still somewhat yet to be determined because the market will begin to decide that. And that to me is one of the big roles where private innovators play a big and important step in driving this forward.

Philip

Yeah I’m fascinated by all of those things. I was speaking recently with some senior government leaders around playing to strengths rather than going out and trying to compete or trying to implement regulation to slow down the ingress and egress of other people and companies, to look at the organizational strengths, or the countries strengths and then market on those. But then seeing companies who are looking to other markets and offshore markets to bring the ability to actualize this data into business outcomes, for example to look across biomass to provide greater regulation or load balancing systems.

And those two tensions of government wanting a strong economy and playing to strengths. And then the individual actors going well, which governments can we go to where we can achieve scale and play at the edges and create this kind of impact at scale? Yeah, so it’s really just a fascinating time.

David

Yeah, I think it’s incredibly vibrant that there’s a level of innovation that some people would say is it’s only been equaled during during wartime. You think of all of the developments, that old adage of necessity being the mother of invention is really true here. But I also think that while policies aren’t always fully comparable, coherent and as effective as they can be, there is a huge move, And if you think about where money will be coming from; Governments, there are major opportunities to grow and innovate, new ideas, new solutions.

We see where we are today and things like the Inflation Reduction Act, and the act around Net Zero in Europe, that’s similarly trying to accelerate what Europe’s doing. Many other governments, China obviously is a huge investor in many of the renewable technologies that are produced by Chinese companies. But this is just the current state today. The expectations and the needs, when we look at where we need to go, the level of financing that needs to take place is so much larger. So it’s not just about how do we capture a static market, but really how do we thrive in a dynamic one. And I think, as you said, there really is room for many different entrants for many different solutions, and we probably need them all. It’s very, very much harder to get an 100% solution than to get ten, 10% solutions that will will bring us to the same result of emissions reductions.

Philip

And that was a slight addendum to that point about playing to strengths, because it was in the context of not being able to do something like the Inflation Reduction Act for a smaller economy, that there simply isn’t the money there to support that level of adjustment to the market and therefore having to look at what technology, what resources, how can we value add to our supply chains as a way to not only achieve this net zero outcome, but to be competitive, to get on the offense, not to sit there and say “regulatorily, we’re going to get thrown out by our constituents if we don’t do this” because that isn’t a sustainable or practical strategy as a way to go forwards.

David

Absolutely. I think that this is really a time of proaction rather than reaction. The governments that do this will be leaders. And it’s not just about their electoral prospects, but really thinking and using national pride in the best possible way to say where can we be world leading, whether it’s you look at the Netherlands in terms of providing advice around flood defenses, around engineering for physical risks. You think about what Denmark is doing around wind power. You consider the scale and scope of supply chains and the role that China has staked out and then a number of other countries in the solar generation space. We’re seeing in the Gulf, which isn’t necessarily seen as a exact hotbed of renewables because of the huge oil and gas reserves.

They have record lows in terms of the generation cost for solar farms. And so these are real changes where not only countries have an opportunity to play to their strengths, but also where there is this element of wanting to stay out in front and wanting to continue pushing. I’m sitting here in London speaking to you that there’s clearly a view that London wants to be that net zero financial center. That is something that was stated by the Prime Minister when he was chancellor, and I think it continues to be a guiding ethos and very much needs to be because there are others, whether it’s in New York and Singapore, that are also actively looking to take that leadership role for financial markets on this topic.

Philip

There’s a whole lot of things firing off in my head as we say these things, because I’ve got a bunch of questions in different areas and it’s sort of opening all the doors to them. As a relative aside for the listeners, Previously we did a paper called No More Greenwashing around ESG and Impact Investing and the regulatory environment that was coming to bear to support just better transparency and basically bring the market to heel a little around Disclosure, around this proliferation of green bonds and things.

I know with the Responsible Investing Institute in Australia recently at the annual conference, we had the head of our Securities and Investment Commission talking about how they were proactively going into the market and really just hitting people with a stick and saying, we’re de-listing funds, you can’t do that, you can’t say those kind of things.

Now, one of the major reasons I reached out to you is because the ISSB have released the new IFRS standards and this is quite a big deal. to paint a contextual picture here for the listener, I’m going to put up the slide you recently shared of the TCFD, the ISSB, the GRI and the mix of things.

Can you take me through the basics of this?

Are they voluntary or mandatory standards?

And, what’s the benefit of complying, if you will?

David

So to tell you a little bit of a story on this, if we we rewind back to 2015 and we think about what questions the G20 was asking and the Financial Stability board that they convened was asking one of the questions about climate change was it had been recognized many years prior that this is a major market failure.

Clearly, if this problem were something markets would solve on their own without support and intervention, it would be solved.

And the fact that we continue to see record levels of emissions, we continue to see increasing warming is evidence that this problem isn’t being solved in a way that perhaps we would have desired.

And so seeing this as an informational failure and a market failure, realizing that climate risks are a lot more apparent than many people think, one of the goals was how do we get the markets better information on climate and how do we consider both the risks of companies that aren’t going to be able to transition as well as companies that are going to be impacted by physical risks and the societies in which they operate.

And so out of that came a series of four framework pillars from the taskforce on Climate Related Financial Disclosures.

So the FSB had convened this group known as the TCFD, to put together those recommendations, which came out is 11 recommendations based on those four pillars of governance, strategy, risk management and metrics and targets.

And that work really catalyzed the industry when it was finally released in 2017 as a voluntary standard, but one that came out to get people to start disclosing what climate risks they faced.

Even in the intervening few years before this ISSB work that you mentioned, there were a number of supervisors in the UK and Canada, in New Zealand, in other jurisdictions that very readily and rapidly adopted this as part of their own disclosure expectations.

And one of the big things to note there was that was moving from the voluntary space of the TCFD to now a mandatory and regulatory regime.

However, TCFD didn’t exist in a vacuum.

You also had disclosures on emissions which had been going on for many years that the Carbon Disclosure Project now just called CDP had been collecting.

You had other initiatives around sustainability, the Sustainability Accounting Standards Board or SASB, the GRI, the Global Reporting Initiative.

All of these pieces providing standards that in many cases were complementary, but also somewhat interlocking.

And so now you had this profusion of both voluntary and mandatory standards in the marketplace.

And if we know one thing about business, we know it’s typically that there is often a high fear, justifiably so of regulatory fragmentation of different standards.

And what this looks like more than anything else is a big party where we’re all trying to communicate, but we’re all beginning to speak different languages.

And so in 2021 at COP26 in Glasgow, the IFRS Foundation launched the International Sustainability Standards Board.

And the vision there was really to bring together under a voluntary framework all of the different existing voluntary standards related to sustainability and more specifically to climate change.

And so they adopted the TCFD framework, those four pillars I mentioned in 11 disclosures really as the starting point and said the strength of TCFD has been in its adoption.

That’s been really powerful.

The challenge has been in comparability, in transparency and in completeness.

And this is an area where supervisors are really important in moving that playing field forward.

But to give those supervisors a stronger baseline to to start from.

This work of the ISSB, was really to further elaborate on TCFD to explore what this meant in the context of sustainability by taking some of the great work that had been done by some of those other organizations I mentioned.

And either have those organizations feed in their standards, actually directly absorb them, in the case of the Climate Disclosure Standards Board and in doing so, put together a series of voluntary recommendations that could be relatively easily syndicated by securities regulators.

So there’s been work with IOSCO, which is a group of over 140 securities regulators, but also with supervisors across the world in a number of different contexts.

So that move from voluntary to mandatory could take place.

But what came out of that wouldn’t be 140 or the number of countries 200 different standards, but rather a common and interoperable one.

And so that really has been the journey that we’re on.

And I think everyone has been very, very impressed with the speed.

When people think about standard setting, they don’t associate that term with with fast moving and dynamic.

But I think to the credit of the IFRS Foundation and those directly involved in the ISSB, there’s been a tremendous move toward a greater and and more comprehensive view on what interoperable standards are about the types of emissions that need to be captured and disclosed, about the use of scenario analysis, about questions of how to integrate risk and climate related topics into governance and into risk management processes.

And so providing that I think is really about providing that common language.

And so now you’re seeing supervisors adopting or connecting to this, whether in Europe, whether in North America, in Asia and around the world.

And so that’s kind of where we are.

And obviously we’re only a few days into these new standards, but they’re both impressive, but also unsurprising in the sense that we’ve been fortunate to have amendments to them.

The fundamental ideas here of trying to be comprehensive about the climate journey that a firm or a organization is on still remains at the center of what ISB is doing on climate and in extending that to broader sustainability as well.

Philip

I was really taken by reading through the standard, and I quote it here in the opening, it says this requires an entity to disclose information about climate related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium and long term.

Now, that’s quite a broad sweep of things, and I assume there’s more detail.

Well, I mean, there’s a lot more detail because it’s many, many pages.

But the essence of reasonable in there and that kind of affects something.

I mean, there’s almost an existential question that looms over this about, well, surely all of climate is an existential threat to the businesses operations and how far out do you go with assessing this kind of thing?

And I wonder about the compliance with that sort of requirement to disclose.

Do you have any thoughts on that about the like sort of the burden on business and then back again to that voluntary vs mandatory.

Is this an offensive tool to get on the front foot with access to further capital to create change in the world?

If you are using the standard to disclose to your investment partners?

David

To answer that second piece first, it certainly is.

And I think that one of the places where this actually has been not discussed enough is in emerging markets.

We know that their are data challenges in those places.

But I’ve spoken with a number of institutions in those emerging markets, and they recognize both the desire to scale what they’re doing, but also the need to provide greater information and transparency, because this is expected by those that will be their financial stakeholders.

And so I think there’s been very strong interest and uptake there.

I think likewise within that, this first question of what perhaps does materiality mean?

I think this is where supervisors and mandatory standards become so important because it’s about helping to set those expectations in a clear way.

Unlike some of the work in Europe on the European Sustainability Reporting Standards, the ESRS, as well as some of the guidance that is coming out around their mandatory expectations.

This isn’t necessarily a chapter and verse of go to Article 39, item two, to see; ‘we mean 1 million USD when we say materiality’ those kind of definitions are going to be a little bit more free flowing and a little bit more devolved to the individual supervisors as well as to the marketplace.

And I think if we think of the best analogy to this, it really is financial reporting.

And I think part of the terminal state of this is to really see climate integrated into that financial reporting.

I think what we’re doing right now is an interim phase of this, which is we need to bring climate, we need to bring sustainability out in the open so we can begin to gather the information we need.

But ultimately, similar to financial statements where interpretability still is a area that that people spend a lot of time trying to assess with a single piece of information, whether that is is it positive or negative or neutral piece of information.

I think this is where it’s not about any one thing, whether it’s one scope, three emissions or whether it’s one’s losses under scenario A or B, but really a whole of the the firm perspective.

And that I think is where we’re going, which is to begin integrating this into financial statements.

We shouldn’t have adjusted and unadjusted financial statements for climate change.

You should have ones that take it into account in the same way that a company that is a major polluter will have line items for potential lawsuits.

We’ll have line items for the reserves for remediation.

And so those that are financing big emitters that are big emitters are going to need to begin to think about what does that mean, what does it refer to for the useful life of assets if there’s potential risk of stranding?

And right now, I think what we’re seeing is trying to bring those things out in the open and seeing where decision useful information comes from.

But I think in the longer run the goal is to have this information be really something that somebody at a glance should see together in terms of other risks that the firm is facing because climate doesn’t necessarily sit alone.

I think the incremental idea of it, of ‘here’s my risk plus climate’ actually kind of misses the main points as well as misses the main risk, which is this is what and I like the term that the U.S. Pentagon used of a threat multiplier.

But what I would I would say is it’s a volatility multiplier for markets and for actors to say it’s not just about what your incremental climate losses are, but how does that change your cost of capital if it is going to be negatively impacted by the fact that you are a high emitting company?

Or how is this going to change the costs?

And in terms of income, if your insurance policies are changing significantly because coverage is becoming harder to get or more expensive?

So these are the kinds of places where we see these intersection points, and I think that is ultimately the road that we’re on is if we really want to work this information in, it’s to work it in through the financials at the same time.

That is still a market based solution.

I think governments are also going to very much need this information and this is why these questions, as you said before, of materiality, of what these things mean, need to be defined by those that are using this information to get a sum total view of the risks that their societies, that their supervisee, that their financial systems are facing.

So I see both a kind of market based view, which I spent most of the time talking about, but also a real supervisory view of how this information can and will be further defined.

Philip

The work I do when I’m not having conversations with leaders like yourself is running a strategic communications firm.

And I was doing some positioning work and interviews with a leader of one of Australia’s biggest impact research houses.

And I asked, what’s her hope for the industry?

And she was saying, well, I hope we become extinct.

That risk, return and impact are simply all of the things that are considered.

And impact isn’t this additionality or other consideration.

It’s just what happens when you put money into things.

David

Yeah, absolutely. I think that’s the terminal state is that this information matters and it matters so much that it’s directly considered in anything that you’re doing, not as an on top adjustment, but really woven into the fabric in the same way that we’d love to see companies take these challenges and weave them into their operational strategies, into their business.

If it’s simply an exercise that generates a large stack of papers, we’re going to fall well short of any of our goals.

And I think that this is where firms need to be thinking in two minds one as a a reporter and generator of this information, but also as a user of it.

Sometimes we think that that’s confined to supervisors or maybe to the financial sector, but internally, if you’re a materials firm, understanding your emissions, understanding the potential disruptions to supply chains, these are things that are going to matter to you.

And it’s only if you’re using that information and acting on it will it have any impact.

If there’s a parallel process for climate modeling, for climate reporting, we’re going to end up just with a big stack of papers, and that’s not going to necessarily be to anyone’s interests, whether in terms of the additional burden it provides or in terms of the the usefulness of the outputs.

Philip

And now that we have awareness of the interoperability between digital systems and we can easily share knowledge, we can probably move beyond having information silos and repeating the same work again and again.

As you said, if somebody has already done the test, do we need to do the same test?

And recently you were speaking at the ESG Investors Inaugural Stewardship Summit and you were discussing the lack of transition finance going to developing and emerging economies whilst it was business as usual for fossil fuel financing and this huge demand for building out traditional energy infrastructure, I quote you as saying “..even if we are successful in our US and European Net Zero objectives for 2050, that’s not going to get us there as a planet if we don’t take everyone with us.”

And I was wondering what you think is missing and how do we get there?

How do we give them what’s missing?

David

What’s missing, unfortunately, is really an awareness of how the ground has already shifted, as well as how the ground will continue to shift.

And I think that if we start with the Paris Agreement, there’s a lot of really important focus in there that isn’t just about the 1.

5 degrees, but really is in this article 2.1 C about making financial flows consistent.

And when you dig deeper into that, that really becomes a question of financial support from the industrialised and developed world that bears most of the historical responsibility for emissions to emerging economies that are still growing, their footprint, still growing, the energy needs that they have, also technology transfer.

And really to say that one’s Net Zero target, one’s decarbonization goals can’t end at their border and they really need be doing more.

I sometimes make the view of, okay, if decarbonisation is your objective, to actually get the world there, what we need to be doing if you’re a Western nation, is either moving a good deal faster than you are because 2050 is a global goal for getting to net zero carbon emissions or CO2 emissions.

And so you as someone who is either on the downslope of deindustrialization or on a point of saturation with energy demand needs to move a lot faster because there are other parts of the world that aren’t.

And that’s really just a question of equity, but also feasibility.

It’s going to be a lot harder for Bangladesh to get to net zero than Belgium.

And so when we consider that, it means that we either need to up our efforts to move faster, we need to secondarily help the other parts of the world that are decarbonising to avoid the lock-in of a sort of 20th century energy system, that is heavily dependent on fossil fuels and long lived capital assets that are continuing to generate emissions into the 2040s, fifties and beyond, and ideally do both, which means move faster than we are and provide that support both technologically and financially.

And this isn’t compensation.

This is really about a view of we all are going to succeed or fail together.

There’s something that is perhaps a little bit poetic or kind of beautiful in the fungibility of carbon, that it doesn’t really matter where it’s coming from in terms of the global impact.

And so as a result, we don’t benefit at all from another country’s emissions, in the same way that they haven’t benefited from our historic emissions.

And so there’s really a need not to kind of increase the recriminations, but really increase the scale of our responsibility to include not just our own local goals.

Because if we really want to talk about being consistent with the science, if you look at any institution that set a net zero target and even any country that set one, that isn’t the goal.

That’s not the science.

The science is global CO2 at net zero around 2050.

That is a very different point than individualizing or reducing that down.

And it means that you may need to be net negative.

You may need to be there at 2035.

And if we don’t allow for that possibility and we pretend that each country is simply a world in miniature, we’re going to end up in a place either of recrimination of countries that are developing their energy needs today who are going to be left behind, or we’re going to see a greater division where we don’t hit our goals and these effects worsen.

So now we’re dealing with both the need to continue mitigating in an increasingly warming world, because just if we hit 1.

5 degrees or just if we aren’t at net zero by 2050, the clock doesn’t stop, as I like to say, 2051 is better than 2052 1.6 degrees is better than 1.7 degrees.

And so this is a continuous function where you keep adding the inputs in just like water in a bathtub.

It will keep rising until we balance the tap and the drain.

And this is the point that it doesn’t necessarily matter who’s turning on the tap as much as the water level is rising for everyone.

And so I think seeing collective responsibility is; Paris talked about common but differentiated responsibilities.

This to me is where transition finance becomes so key because the rates and returns are really prohibitive in many of these countries for renewable energy.

The need to support both parallel resiliency efforts in countries that are most affected by climate change, as well as the ones that are fastest growing and need the most energy.

These things have to happen in parallel, and I think what we see here is just massively inefficient markets.

We see spreads of in some cases over a thousand basis points between institutions looking at the same project.

And to me that smacks of nothing other than market inefficiency.

And so there is a huge opportunity for someone and some institutions to drive away some of that spread and to really get to a level where maybe we need to rethink risk, maybe our models of risk that have been predicated on a sort of post global financial crisis Western economy, need to consider things differently.

We’re going to be looking at younger companies.

In many cases, we’re going to be looking at markets we haven’t looked at.

How do we think about that in terms of risk?

And I think those are questions not enough people are asking.

And as a result, we’re not seeing enough finance flowing, but we need to really tackle those blockers because of the scientific imperative, because of the moral imperative, but also fundamentally because from a positive side, there is just such a huge opportunity in getting this right.

Philip

That collective responsibility for scope three emissions, no matter who’s making them, contrasted against the fact that we actually really need to remove GDP as the measure of growth because that doesn’t factor in our ability to survive as a biosphere –

I want to play a few quick thought experiments with you, before we get there, the net zero banking alliance.

What is your take in a nutshell?

What is your synopsis?

David

The Net Zero Banking Alliance, and I say this in a non unbiased way as a technical advisor to much of the work that they’re doing around sectors and sector pathways, really is the largest collection of banks in the world that are committed to net zero and working on how do we do this better and faster.

And so it’s trying to establish clarity around what does a net zero commitment mean through their target setting protocol?

What does a science based target mean, and how do we create the right incentives for both overall decarbonisation but also sector by sector?

What are the challenges and tension points, both in the fact that we have institutions operating in different markets, in different sectors, that the pathway is not necessarily going to be a smooth and straight line, but is going to be a bumpy and nonlinear one.

And so the goal there really is to build institutional capacity to share challenges and experiences and think about where synergies can be created.

But part of that goal is in doing so, it’s not as a regulator, it’s not as a standards setter per se, but really as a place both to maintain the high integrity of commitments but also to provide the resources, provide the connection points that will help people move faster and be more effective, and to take also a holistic view, I think one thing that gets overlooked when we talk about many of the decarbonisation alliances is the interest they have both in transition planning, in transition finance, and in recognising that one’s work is not simply done by dumping previous clients that are high emitters, but really by thinking of the whole of the economy transformation.

And so what role can banking play in that across different sectors from steel to the energy sector or to agriculture?

And I think that role will look different.

But this is where the engagement with climate modelers is so important.

This is where the engagement with other parts of the financial system are key.

And I think that’s very much what you’re seeing here in terms of the dynamics around the Net-Zero Banking Alliance.

Clearly it’s a challenge because it’s an unprecedented step many of these institutions are taking, and it’s on a topic that many are not familiar with and many I sometimes joke, have jumped into the pool and not necessarily known whether they can swim or not.

And that question of what does it mean to be net zero?

What does it mean not just to make a sustainability commitment, but to really turn one’s organisation toward this?

The scale and scope of that commitment, I think is only becoming apparent now to some institutions, and I think it’s one of those things that is a bigger challenge than just making an announcement.

Having your CEO stand with the Secretary-General.

And now that we’re seeing the rubber does hit the road when it comes to these real steps of making not only the long term commitment which we all know about of 2050, but the interim steps for the sectors that you’re engaged in, for the market you’re involved in, the support for transition finance these are the pieces that I think will make this happen.

But they’re also the ones that show that this is a lot more of a comprehensive approach when you’re committing to net zero.

And the goal really of the banking alliance, if I could say it in a word is to help.

To make this process smoother and easier.

So institutions aren’t trying to do this on their own, but are doing this in a place that also will make it easier when supervisors come in, when laws get passed, as we saw just a couple of weeks ago in Switzerland, about getting a law to mandate net zero.

When that comes in, these institutions who are involved in this work will be in a lot better position to play that constructive role and not need to backtrack on what they’re doing.

Philip

And the Swiss thing you mentioned is fascinating and I’ve got that just a little up here in my notes.

And because when I think about the Net zero banking alliance for listeners, I’d say look up your local banks to check what I’m about to share.

As I’m mostly based in Australia and I see the signatures on it of our Big four, the ANZ, Commonwealth, National Australia Bank and Westpac.

Though when I look at MarketForces.org.au, since the Paris Agreement, they’ve tipped in around $60 billion AUD and in the last year alone they increased their spend in fossil fuel funding by 15%.

And when I think about the activist side of me or even the scientist or the emergency response volunteer; if somebody was on fire and somebody was standing there pouring petrol on them, I would say stop pouring petrol on them.

And it’s not a very nuanced view, but it is a practical way to reduce things.

How does that stack up in your mind when we see this accelerating pace?

Emerging economies, need energy – So we’re going to do fossil fuel intensive energy production.

They need financing – the banks say ‘well, they need the energy’ who calls it quits?

Maybe it’s the Swiss regulating law which says we’ve got to get there.

How does it land for you?

David

I think that this is getting very rapidly into the realm, not just of the decarbonisation commitments, but of transition risk as well.

We know markets have the tendency I was going to say the possibility, but really the tendency to move in very rapid and volatile ways.

And I think what we’re doing is hanging this Carbon Sword of Damocles as it were, above our heads and sort of waiting.

And the firms that are beginning to decarbonise are beginning to at least sort of take that off and away from themselves, because I think government policy is going to be a big role here, which is net zero has been a commitment many firms have made, but it’s not yet really a law of the land in many places.

And I think as that becomes the normative policy of institutions because their governments are following it and pushing for it, it’s going to be a much bigger issue in terms of what is valuable, what is worthwhile, what clients are going to continue to be viable.

And so doing that work now I think becomes so key to to your point, though, about fuel on the fire, continued fossil fuel investments is a really important topic to explore more deeply because there’s been such a change just in the last couple of years with the windfall profits that the finance that the fossil fuel sector has made, just in the last couple of years with the windfall profits that the fossil fuel sector has made.

And in some ways I think it’s reduced some of the dependency on traditional bank lending.

The capital markets are so much bigger nowadays and the ability of these big companies to raise money, they look as if they are banks in and of themselves with the cash hoards that they they hold.

So I think one of the big questions is we had a thesis about transitioning of if there is a significant disruption and transition finance is adequate, will the transition then take place at a faster rate?

And I think what we saw here the last couple of years is that that alone is not sufficient.

Just giving more money to companies that need to transition doesn’t necessarily make them transition.

And so while I did talk about a absolute need for more transition finance globally, in some cases, it’s not just as simple as big energy company A is a fossil fuel producer.

They need more in the way of transition finance because transition is expensive.

Just giving them that funding may mean that they take the least cost and shortest action to continuing fossil fuel investment.

And so I think we’ve helped to at least if not disconfirm this, then at least make that theory more problematic, that it’s purely transition finance without nuance.

I think there’s a lot more to it.

And what we’re seeing here is institutions themselves in the financial sector.

If you look at what the IEA has said, if you look at what almost all the net zero pathways have said, it’s not that there is no fossil fuels used tomorrow, we’re not shutting off the tap.

But the idea of continued expansion really is inconsistent with 1.5.

This has been said for a number of years now, but I think it’s been thrown into starker and starker relief as our budget continues to dwindle for remaining emissions.

And so thinking about what kind of responsible investment goes into closing fields, what does early retirement look like?

What does maintaining energy stability look like, and how does that reduce some of the demand and pressure on fossil fuels?

All of these are questions and it’s not going to be so straightforward.

But the idea is that that new greenfield development really isn’t consistent.

And certainly expansion of production is going to be very much out of line with any of the goals that we want to hit.

And certainly with balancing that level of atmospheric CO2, that will then obviously stop our rising of the temperature.

Philip

I’ve seen reports of essentially board movement where energy companies are doing their last dash to expand production.

Before we get to ten years from now, where it will be impossible to expand those fields because people just won’t let them.

It’s sort of this ‘do we have enough room to lean in?

And I want to just keep going at a little clip here and we were talking about Switzerland, fascinatingly, their approach to direct democracy.

So they allow citizens to trigger a nationwide referendum on proposals when they gain more than 100,000 signatures.

And last Sunday, 59% of them voted to put into law that they reach net zero by 2050.

So I thought that was fascinating.

When we’re talking about the Swiss and as the Founder & CEO of Cambium Global what’s the mix like of companies and governments coming to you in disaster mitigation mode versus those coming to you from a strategic future planning mode?

David

I am consistently impressed with the number of institutions that come to me that are really looking to move faster and be leaders, and certainly there is a little bit of wanting to start off on the right foot, but there’s a really high number that want to not only do this well, but really be leaders in it.

It’s not just say, hey, we want to sit at the back of the class and keep our head down, but we want to show what we can do here.

To your kind of division, I would say in some ways, maybe it’s a bit of a false division in the sense that both, companies are realising that this needs to happen, but also that there’s opportunity within it.

And same with governments of saying we are behind.

We don’t have a climate regulation as of yet, but we really want a good one.

We want one and maybe to be the best in that region that we’re operating in.

Maybe it’s to be innovative because we’re the first ones that have done physical risk assessment in this way.

And so there’s both a ‘we’re behind, but we want to get ahead.’ So I see fewer companies, fewer governments that say we’re already ahead.

We just want to press the advantage.

There are a few of those, but for the most part, many of these are how do we catch up quickly and then how do we reach a level of quality in our sustainability strategy of of innovation, in the supervision?

If you’re talking about governments or in the in the strategy that we’re following, if we’re a company how do we do that in a way that that really positions us well.

So I think it isn’t just kind of getting over the line, but the speed and scope of this is really pretty profound.

And that’s something that also does come across of ‘we don’t know anything, but we want to go from 0 to hero’.

And hearing that both is very heartening, but it’s also shows that there’s very few companies out there that aren’t going to need to make a big journey there.

Very few governments out there that aren’t going to need to really retool their incentives.

And so these are big changes, as we talked about at the beginning.

And I think they’re ones that really do have a big meaning for these institutions and who they are.

I think that’s something that is key, is this is going to get into your bones, into your DNA if you’re doing it right and doing it well.

Philip

And the work I do as a Strategy & Communications Advisor is working with people who are at that point who are implementing these sort of visions you’re talking about and communicating that to their stakeholders and the broader marketplace.

But usually just to some of the key decision makers, because I find people often get wrapped up in this idea that we have to tell the public, we have to let everybody know what we’re doing.

And really that doesn’t influence outcomes.

It’s a key group of stakeholders who are going to create change.

How do you feel people go in communicating that effectively?

Are they knocking it out of the park or..?

David

Communication’s still really a challenge and now I think it’s a more complex challenge than it’s been before because of justifiable concerns around greenwashing as well as justifiable scrutiny around greenwashing.

And so previously I think I joked that the first stage of of climate and sustainability was putting a picture on your website of your employees gardening or doing something out in a green space.

And that then advanced to a level of complexity of we are going to be getting our emissions to zero but wait, those were only our operational emissions and we’re a big financial institution.

So that’s really just buying renewable energy for our branches.

Good, but not really more than surface level.

And now we’re talking about the full scale commitments being made that really do get at that 100% of what your impact is and I think the challenge has been that there is a need to connect commitment to impact.

And I think when it comes to spaces like ESG funds, this has been one of the big problems; money has absolutely flowed into those funds.

But the question of what difference that has made not even about active mislabeling, obviously there’s a whole separate topic there to cover, but just about is this really driving change, is challenging.

And I think you see now institutions who have perhaps been overly enthusiastic in the past are ones that are really continuing to now figure out, okay, well, we got burned last time because we said too much.

And the goal not is to be totally silent.

This what we’ve heard is greenhushing and sometimes I, I don’t particularly love these neologisms.

I think they’re more confusing than anything else.

But this idea of we don’t want to share our commitments, I actually think that part of that is if you’re not clear on what you’re doing internally, then announcing it externally is not necessarily the best way to do it.

I was a Management Consultant for many years with a big firm and we talk about client ready, and public ready, I think is is another thing too.

I think what we saw was in many cases that cart getting ahead of the horse of people making commitments without actually thinking about what they mean.

The goal isn’t to be the first to make a commitment.

The goal is to know how that commitment will affect your organisation and to be able to successfully act on the commitment.

If the first guy who made the commitment doesn’t reach that commitment, that’s not going to be better than the second one he does.

And so it’s not about doing nothing.

It’s not about being silent with these, but it’s about really doing the hard work internally on what does this mean for us.

It doesn’t mean you have to have the answers.

We operate in a space of uncertainty.

The future is always uncertain.

That’s almost by inherent condition.

And so now I think it’s less of that uncertainty and more of doing the planning, doing the thinking, what may this mean for us, and then also really using impact as an anchor to say if we’re making a difference, we should be able to see it in certain ways.

And it may be that those ways are non-linear.

It may be that those waves are second order.

So it may not be in our total emissions.

It may be initially in our use of renewable energy, then it may be in our emissions after that.

But the point is, if you don’t have a sense of what you’re trying to measure and what you’re trying to track, then having the commitments be out there, I think only results in that confusion.

And it’s a good thing more than anything else, but the public civil society and now supervisors are, I think, more attuned to these things than ever before.

They’re savvier than they have ever been.

And they understand these issues in a way that they haven’t previously.

So I think that there’s a real need to be clear on what you’re committing to, what you’re doing about it, and whether it’s having any positive impact.

Otherwise, I think you will face the scrutiny that is well-deserved.

Philip

And a plug here for a recent paper we did on No More Greenwashing, because there is a whole plethora of impact frameworks out there and understanding where you want to be and where you are on the impact spectrum in relation to your stakeholders and how you’re going about things is really important.

Download it at http://bit.ly/nomoregreenwashing

There’s a whole industry set up around how you can measure and manage impact that will support you being able to figure out whether or not you actually are generating outcomes and not going to the public with it.

But figuring out internally are we creating impact is probably a great place to start.

David

The point you said about no more greenwashing, it is kind of the anti greenwashing. It we say what is the opposite of greenwashing because firms don’t want to greenwash, it’s having impact.

And I think that that’s a place to start.

Rather than thinking about getting back to what we started with at the beginning about offence and defence, rather than saying ‘let’s try to avoid greenwashing’, that that should be a given.

And in the same way, we don’t give people medals for not robbing banks – The goal is to drive impact and I think avoiding greenwashing means that what you’re saying and what you’re doing is consistent and those things are having that impact.

Philip

A bit of fun now.

A quick thought experiment – you can be as conscientious of existing stakeholders as you like.

And you may need to consider that this is the autocracy of David, if you will.

If you had half the resources you do now and you were asked to get double the results, say net zero by 2035, how would you do it?

David

Is that for the whole world?

Is it for a single company?

Philip

If you were to think about the whole world, at surface level?

What’s the first thing that comes to mind?

What would you knock off?

David

I think there are probably two just massive areas.

One is on power generation and really electrifying and I would say even over electrifying, creating sources of clean energy that are perhaps even overbuilt relative to the need where energy becomes both free flowing and an enabler.

If we think about today’s society being one driven by financial transactions, I think energy is kind of the secret key underpinning so much of modern society.

And if that is readily accessible, it’s a game changer for quality of life.

It’s a game changer for the other types of innovations we can do.

So really doubling down on that, it’s also builds the base that all of this other activity is going to need whether it’s;

• How do we charge our electric vehicles?
• How do we consider where storage should take place?

If you’re generating more, it takes some of the pressure off some of that storage.

It reduces intermittencies.

So I think that place – Power Generation – is huge the other is land use and I think the two tied together.

But just the sheer scope of land that we’re using and that we’re changing is so massive that, whether it’s through efforts to change our agricultural system, to be more efficient, to produce more nutritious and less impactful food, we just use such a staggering amount of land.

And many of us speaking about this topic are urbanites.

We live in our small apartments.

We kind of are in these densely packed cities, and that is the global trend.

More and more people are moving to urban areas.

They talk about a New York City’s worth of new urban residents per month going on in much of the world.

And this is something that because of that rate of movement is changing people’s perceptions as well.

But if you look around, most land is not given over to cities.

And in some ways, cities actually are wonderful from a sustainability standpoint because while they use more on a overall basis, the overall footprint shrinks significantly.

And so the question is how do we feed our cities?

How do we feed people globally?

This is something that was staggering to me, that when we consider all of the animal feed and grazing land that is needed globally, we’re talking about an area nearly the size of the Americas, both North and South America together.

It’s just absolutely staggering.

And if you don’t believe that anytime you take a drive in the countryside, take a look, see how much land is being used for agriculture, for grazing, and you’ll be staggered that from a overall efficiency standpoint, we’re letting so much land not go to waste, but using it actually in a way that is perhaps actively unproductive for the things that we want to achieve.

So whether it’s our biodiversity goals, whether it’s using reforestation to help take some of the emissions out of the air, these are really places where I think change needs to occur.

And also once that change happens, it really catalyses everything else because I think energy and land are two quantities.

Energy can be one that we make nearly limitless Land is one that’s inherently limited.

And the two together, all of the other technologies, developments around transportation, around industry, all kind of flow as what I would say, subsidiary developments of those two.

Philip

Yeah wonderful. And my final question in relation to the work you do, what have you changed your mind about recently?

David

So I mentioned one thing a little bit earlier maybe that I would come back to; it really is always important when you have a theory to ensure that it’s testable.

And it’s not that we’re inherently doing science in working with these companies.

We’re using science, we’re trying to stick with the science.

But I think the scientific method is invaluable.

And that means having hypotheses, testing them and seeing where they’re confirmed and where they’re disconfirmed.

And I think one of the ones that has been more disconfirmed just over the last year has been this one of transition finance.

As I said, transition finance itself is absolutely critical, simply the theory that it is a capital shortage that is inhibiting the transition for big energy companies.

That has really not necessarily been borne out.

What we’ve seen is windfall profits have, if anything, allowed companies to step away, one from their dependency on financial actors, but two from their commitments to decarbonise.

And I think that shows that more is needed.

We’ve always known that this is a whole of the economy, a whole of society approach.

But really seeing that there are other levers, whether it’s through governmental policy, whether it’s through the will of the people, as you saw in Switzerland, or whether it’s through changes in the marketplace due to the replacement of that generation capacity with renewables, more is going to have to change.

It’s not simply a ‘give us the money and we’ll solve it ourselves’.

And I think that, that, while disappointing, is an important thing to test out and an important thing also to go back to the plans of institutions and say, hey, are we still using that outdated theory?

And if we are, I think it’s time that we update it.

Philip

I really appreciate your time, your knowledge and your deep expertise in bringing this together.

So thanks so much for the conversation.

David

Yeah, Philip, it’s been a pleasure.

It’s really always fun talking about these topics and it feels like we could have a different conversation every week because of the speed that these things are happening and the comprehensiveness.

It’s been really great to talk with you and thanks a lot for for the insightful questions and know I hope this will be interesting and entertaining for those listening.

“.. If you are an investor, business leader, board member, or someone keen to bring about positive social or environmental change, and you see the role of capital and investment as an essential driver of this change, you are likely well aware of the need to make simple statements that people can understand and get behind.​

When it comes to company performance, these statements can be about the past or the future, and they can be based on a whole variety of measurement variables or simply made up, which is a problem..”

Read more in my article published by Impact Entrepreneur!

This is a transcript of my recent interview with Dr. Jodi York, as the final contributor conversation in our report No More Greenwashing – Driving evidence-based practice in ESG & Impact Investing.

You can also listen to both parts of the interview on all good podcasts via this link, or watch it on YouTube.

Transcript follows

Philip Bateman:

Thanks for tuning in. It’s Philip Bateman here with Dr. Jodi York, who is the Chief Impact Officer for Kilara Capital. And we’re talking about “Driving evidence-based practice in ESG and impact investing”. Jodi, real pleasure to have you here. Thanks so much for joining us.

Jodi York:

Lovely to be here, Philip, thank you.

PB:

Your contribution in the whitepaper is quite significant, as I see you as one of the world leaders in impact measurement with the work you’re doing at Kilara. And I wanted to check for you what constitutes a successful “theory of change”?

JY:

The beauty of a theory of change is it actually underpins really everything you’re doing. And so it serves as the foundation. It’s the groundwork of good impact management, because I can’t tell you what to measure if you don’t know what you’re trying to do and how it’s going to happen. So a good theory of change actually then gives you a roadmap.

I mean, it is a roadmap in a sense. It tells you where you’re going, what you expect to see along the way. How do you know if you’re on the right path. And it gives you information you can share with your various stakeholders at those stages to help them understand the journey that they’re on and where they’re at within that journey to manage expectations, to indicate what should be measured, what’s actually material.

The other thing I really like about it: a well done theory of change will also surface the assumptions that underpin the relationships between A and B. And obviously, if your theory of change is somewhat complex, there’s a lot more than A and B. So the assumptions under which those things should be true, being able to articulate those really allows you to demonstrate with your stakeholders internally and externally, what has to hold for that to be true.

And so it allows you to surface risks as well as look at what evidence would be material and why.

PB:

And so what’s the difference between an investment thesis and a theory of change in your experience? Pretty sure everybody’s got a good investment thesis. That’s why they’re doing their thing.

JY:

So a theory of change is an evidence-based map of the relationships between the steps you’re going to go through along the way to a destination. So it’s based on evidence of how change happens in the world rather than underpants, gnomes and “Step 4: Profit”.

PB:

And you think that applies to a lot of investment theses? Underpants, gnomes and profit?

JY:

Yes. But that’s okay. You know, there’s lots of ways to make money.

PB:

So is it a mechanism and a process to take an investment thesis and extrapolate it into a theory of change? Is that operationally how you would then create a structure through which you deploy capital and then test it in the market, if you will?

JY:

Personally I’d start with the theory of change first. Figure out what you want to change in the world, what you want to achieve in the world, and then allow that to dictate what appropriate resources are for that. Maybe that some asset classes are more appropriate than others. The bridge between the investment thesis and the theory of change is a term we don’t use very often.

But you can think about that as a theory of action, which is.. theory of change is on the evidence of how things change in the world. So if we want to help have better outcomes in the social space for people with disabilities, one of the things we need is housing, right?

Here’s a bunch of evidence, rigorous, peer-reviewed, of why that is true, so that you know when things aren’t working out according to your theory of change, that either you have a bad assumption, bad evidence, or bad execution. And the execution piece, that’s actually the theory of action. How do we as a particular set of investors with a particular set of resources, work that theory of change?

How do you implement it, how do we operationalise it? And that then bridges to the investment thesis. So we are going to invest X amount of money in Y types of instruments for Z types of outcomes.

PB:

So my understanding is we’ve just sort of kicked over globally a trillion dollars in impact, if you will, compared to 120 trillion in the overall market. So there’s quite a lot more room for this.. Though, for the people in 98% of the market, are they looking for ways to make money and it will better serve them considering the sort of shifting tides of social license to operate and UN sustainability goals and essentially the environmental collapse facing society if we don’t do better things from a circular economic perspective, and just generally look at the sort of unchecked capitalism growing eternally.. I might be getting a bit deep there.. So do those people go and try and apply a theory of change to their existing funds to get in line with all of that? Or do they really need to pull way back and be like, “Okay, with the power vested in us, what are we actually going to do with our wealth, with our money?”

JY:

I think it’s more the latter. Generally you wouldn’t look at an investment portfolio and say, “I’m going to slap a theory of change on top of this”, because the relationship goes the other way around. But if you have things you want to change in the world or even if you want to.. You look at the evidence and say, “Well, actually it’s good business to be behaving in a more sustainable and more impactful way”.

There’s a lot of benefits to it. There’s also a lot of risk avoidance associated with it. So I think sometimes people who don’t operate in the impact space think of it as risky or non-lucrative. That’s generally because they’re not engaging with evidence. That’s a very outdated assumption unless what you’re comparing it to are some of the things that are causing some pretty hideous environmental and social harms, in which case that is what you’re buying with your dollars.

And I guess it’s personal choice to say whether or not you’re okay with that, whether or not your investors are okay with that. But those things are also.. there is unpriced risk in those things. As our sense of social license to operate changes, and those things can change pretty hard.

And in a world of increased transparency, that can bite really quickly.

PB:

Yeah, that is sort of the core of what I’m sort of presenting here in this work, with this research paper we’re doing, around the regulatory change across Australia, the UK and Europe that’s coming to really clamp down on this kind of thing because skeletons in the closet in an age of transparency is not where you want to be, and potentially you can turn around to your clients and say, “Hey, what areas are important to you?

Because we look after all of your money”. The idea that people are getting 10% of everybody’s wages every month, or every week, and need to do something with it.. There’s a point to be made there about finding out what those people would like you to be doing with their money.

JY:

Yeah, I mean, the most influential decisions you will make are decisions that most people don’t actually make, they just sort of happen, which is where your money is invested.

And so as we talk about impact, what should people understand about the power of impact measurement?

Even as a measurement professional, I’m just not interested in measurement for measurement’s sake. We could be here all day with those things. That becomes how many angels dance on the head of a pin? What I want to know is, is it material, and is it decision worthy? So if you’re not measuring things that will make a difference to decisions, then you probably need to rethink measurement.

But this is also true in financial information. PB: And business execution. JY: Exactly. If it’s not decision worthy, don’t do it. So impact performance information is just performance information, like any other kind of performance information. And right now, if an organisation is not doing it and making decisions, what are you making that decision on the basis of? You’re obviously making it on the basis of something.

Is it a hunch? Is it the “vibe”?

PB:

Is it preferences for working in the space you know, so you think less is going to go wrong?

JY:

Yes. And as we know, past performance is not an indication of future performance. Things can go badly really quickly.

PB:

How does one do it properly? At the top level, it’s great if you do it and don’t measure stuff you don’t need to measure. But how do you do it properly?

JY:

So thinking through a theory of change will actually give you a blueprint of most of the things that you will want to measure, to figure out whether you’re, on a short, medium and long term, actually getting the results that you want to get. The other things that matter are things that your stakeholders need.

So whether that’s regulatory stakeholders, whether that’s your investors, other key stakeholders.. That’s the exception to, if you’re not using it to make a decision, is somebody else using it to make a decision or is someone just collecting it, that has power over you? But then within that, figure out what you can measure well, and it’s okay, be realistic.

It’s okay to say, “I’d really like to understand..” For instance, I’ve got an investment in some Internet of Things device, a company making Internet of Things devices that help monitor electricity. Now, what I would really like to know as an investment manager is how many people receiving energy monitoring information are then able to have net zero energy use.

That’s what I want. I can’t have that because they don’t have that data. Maybe in the future we’ll help them build out that data. But figure out what ideally you’d like and then be able to back up from that and say, “Well, what is a reasonable proxy and why do I think it’s a reasonable proxy?

What’s realistic to measure? How frequently do I need to measure?” There’s some things I measure quarterly and there’s some things I measure annually, because the fact is they don’t change that quickly.

PB:

And do these factors bolt on top of how you would measure an investment from a perspective of profitability and sustainability and growth?

JY:

They enhance that measurement actually because they surface opportunities for expanding in different customer segments or different products. They also identify risks that you might not have on strictly a financial basis. One of my colleagues talks about the “Harvey Weinstein effect”, and launching the MeToo movement, it talks about that in terms of risks that were already on the balance sheet.

If that was a bad asset that needed to be written off, you’d have that change on your balance sheet. But the social risk in that case, lots of people knew it was there, nobody was pricing it in. So having that impact information allows you to identify risks and opportunities that can affect your financial performance as well.

So we could think of those as kind of double materiality, so it’s both the financial affects the impact, but also the impact affects the financial.

PB:

And as the CIO of Kilara, when you come to investees, do you say to them “Right, you guys all need to do this, this and this if you want to play with us”? Or do you say, “Right, we’re going to turn up and do this, this and this with you to help you go this way”? Where’s the burden of.. not the burden of compliance.. but where does the extra effort and hours come from?

JY:

It’s somewhere in the middle between those. There are certain things.. We do a fairly extensive getting to know you process with a potential investee, in which we try to ascertain their.. We want a founder that is strongly aligned, and even if they don’t have evidence, believe in evidence and have the capacity within their organisation, and the drive to develop evidence if they don’t already have it.

There are a few things. We are a climate focused investment manager and there are things that we are specifically interested in measuring from the perspective of our own strategy. But after that, it’s looking at, where do you have measurement currently, how is it being used in decision making? How can we help you make better decisions, use evidence better, measure things that are more material, strategise and prioritise which additions you want to make.

So really working with how impact information fits into your business strategy and helps you deliver better, because then everybody wins. And the fact is, you’ve come to an investor with significant impact expertise so you don’t have to flounder around in the dark because there is somebody you can call. I’m not going to necessarily sit down with you and rewrite your systems.

Although we probably know somebody who could do that. But we can talk about what.. Actually, if you’d have a ratio of that number to that number, it would be a strong indication of these particular outcomes, for instance. Just ways of using information that you might not be familiar with.

PB:

And so as far as I’m aware, there’s a real lack of people who can do this sort of work in the broader industry, who could do impact measurement and verification and things. There are people providing the service, though, when I think about that 98% of the market whose people may be clamouring for investments that are more “ethically aligned” for want of a better nomenclature; how do these people go about finding the resources and capacities to do it?

Because I think there’s this real push-pull with the greenwashing idea, in that people are trying to respond to a market force but at the same time don’t have the capacities to actually do it. And this comes down to we were talking before this about intention versus simply ignorance when it comes to greenwashing. So do you have any thoughts on that?

JY:

So the lack of skilled labour, if you will, the lack of skills and capacity in the field, has been identified year after year, in the GIIN investor surveys, the Global Impact Investment Network, as a real limitation. And I can say that the University that I sometimes teach for has just last year put up a class in sustainable investing. That is the first offering in the finance department that has to do with this.

So in the institutions there’s going to be a lag. But the institutions that are generating this, you’re seeing a lot of demand from the student side and institutions are now starting to respond to this because unfortunately, a fresh graduate with some of that knowledge is maybe better. They may not have the nous and field-tested quantitative reasoning that a senior analyst would have.

But they’ve got the domain knowledge. And so I’m hoping that one of things we’re going to see in more organisations is a bit of almost reverse shadowing, where you bring in someone that has the specific knowledge, if not the the career placement, and actually using those to cross-train each other.

PB:

And to cut straight to it for those watching, if you don’t have a theory of change and you’re not doing impact measurement and you don’t have the resources and the labour perspective to do this effectively, the easiest way not to greenwash is not to make claims that are greenwashing. That’s kind of the point of what we’re talking about here.

So is the easiest way to not be in trouble is to not make stuff up that could be potentially misleading. That isn’t evidence-based. Which brings us to impact verification, such as BlueMark and Tideline’s work. Could you talk on verification for me?

JY:

So obviously in conventional finance third party verification is an important part of credibility, and just being able to play at a certain level. Of course your accounts are audited. Now, the capacity limitations that we’re seeing in other parts of the fields, getting in-house measurement done, is also true for for auditing and verification.

So right now, there’s limited verification available in the field, which basically says “We don’t think you did anything actively wrong..” Which is not the same as a higher standard of verification, which is that we’ve gone in and double-checked your figures, and your math and we can say with our hand on our heart that we believe this is true.

Which is easier in an area where you’ve got fungible outcomes. So you’ve got school kids. How many completions was that? If we imagine that one is mostly like another, that’s somewhat easier than some of the really bespoke stuff that happens in the social space. How do you get women out of domestic violence situations and re-embedded in the community, for instance, or returning prisoners.

Same question. Those things are very complex, very personal. Now in conventional finance verification is a really important form of credibility. And the theory from the folks who have come into the impact space out of that part is that in order to move more capital.. And boy, do we need to move a lot more capital to impact.. In order to move more capital, in order to open the doors for institutional investors at scale, we need to have verification. That that is the expected form of credibility, particularly at a distance and at speed.

We use certifications and verifications as a as a heuristic for who we can and can’t trust for particular things. So that’s an emerging part of the field. It’s not that common yet.

PB:

Last two questions. You have just read through the entirety of the report that you are contributing to. And I was wondering what’s your take on it for people out there?

JY:

I think it is a very readable and condensed version of what greenwashing is, what’s available out there on the market, what the regulatory and statutory changes are that are happening in various domains. And even if you’re not.. For instance, I’m an investor in Australia, but if I want to bring in European capital, I need to know what’s going on in the EU.

And they’re driving a lot of changes that have had a real effect on the market and trying to strip out greenwashing. Australia’s a little further behind that, but I think the report is illuminating and confidence inspiring. You feel like you are up to the state of play in a variety of aspects.

There’s a clear understanding of what are the material things to think about if I was going down this path, and why it’s valuable to do so, and the role of organisations like Bravo Charlie in making that possible.

PB:

Great, thanks. And last question. What’s something you’ve changed your mind about recently?

JY:

I don’t know how long your definition of recent is, but I was writing something this morning around circular economy and waste, and I was reflecting at the time – and it wasn’t that long ago – that I thought of waste as an aesthetic issue that was localised rather than the “real work” that we have to do to slow climate change, when in fact waste is a big piece of the real work broadly defined and throughout the whole value chain.

Minimising waste would make a big difference to a whole lot of things.

PB:

Great. Thank you so much.

JY:

Pleasure.

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For the latest insights on leadership, impact investing, global challenges, business strategy and storytelling, make sure to join my weekly newsletter, Smarter Impact – Every Thursday!

This is a transcript of my recent interview with Terence Jeyaretnam, as part of my contributor conversation series for our latest report, which you can get for free by clicking below:

You can also listen to the full interview on all good podcasts via the link below

https://smarterimpact.buzzsprout.com/1168484/12105146

Transcript follows

Philip Bateman: Greetings folks, Philip Bateman here from Bravo Charlie and I’m here with Terence Jeyaretnam, who is the APAC leader and partner for Climate Change and Sustainability Services at EY, and Terence, thanks so much for joining me today. I really appreciate your contribution.

Terence Jeyaretnam: Thanks for having me, Philip.

PB: And we’re talking about “A Better Way Forwards”, which is the recent research report we’re putting together on taking the greenwashing out of ESG and impact investing. And it’s an overview of the regulatory initiatives in Australia, the UK and Europe and how you can effectively communicate in consideration of those.

Terence, looking at your LinkedIn profile you’ve got an amazing list of things you’re working on. I don’t actually understand how you have time to do all of them. Is it all current, like the ten or twelve positions you currently work on?

TJ: A number of them are current and I guess I get them done because I don’t watch as much TV and I’m really boring!

PB: Fair enough! Well, I’m not sure you’re that boring because what I’ve got here is you’re the Non Executive Director for Global Citizen, which focuses on ending extreme poverty, you’re with Fairtrade Australia and New Zealand. And I know I’ve seen those Fairtrade logos on so many of the things I buy, though that may be an indication of my consumption habits.. Food Frontier, looking at how we sustainably feed the world, things like plant-based proteins and cell-grown meats. You’re also on the Sustainability Accounting Standards Board, SASB, which features in our documents, and your monthly column in Pro Bono Australia: “All the ESG News that’s Fit to Print”. How is that, getting across the ESG space every week? Is it a positive thing? Is it a negative thing? How do you..?

TJ: Yes, the monthly column’s a really interesting point, in that about 18 months ago I sort of thought even I can’t- and I’ve been working in this space for 30 odd years- and I can’t seem to keep in touch with all the things that are happening, both negative and positive. And I thought, well, at least for myself, I’m going to try and look through the feeds and look at what are the top ten things that happened that month and document them. And I thought, well, if I’m going to document them, I’ll publish it so that everyone else gets to read it and get something out of it. So that’s how those began. And then Pro Bono picked it up and have started publishing it. And you’re right, there’s lots of positives, but there’s still lots of bad news. And the bad news seems to be coming in tsunami-like forms at us and everything from the latest WWF report on loss of biodiversity, through to the extreme events that we’re having, particularly in Australia, but all around the world. We seem to be experiencing effects of climate change and other environmental impacts at a much greater rate than we thought we would, already.

PB: And I think that’s one of the main motivators for why I’ve basically commissioned my team and myself to do this work and in seeking your involvement, because I’ve seen this hold up of sustainable finance or impact investing as the way to take capitalism, which arguably is the mechanism through which we are experiencing this biodiversity loss, and reorientate it towards the UN Sustainable Development Goals or for purpose investments, and as there’s been this massive goldrush essentially, for climate or sustainability aligned funds, there has also been the rise of what’s been called semantically ‚’greenwashing’. Which brings us to today, and I was curious from your perspective, what is greenwashing? If we were to break it down as semantic density.

TJ: I guess greenwashing originated as a term about 20 years ago, essentially pointing to claims that were being made that were inauthentic in terms of their environmental credentials, and particularly corporate claims when it came to, for example, labelling, and that’s where the term originated and eco-labelling became a thing. And products, and I guess marketers sought to put labels on to give some sort of positive attribute to a product that may not necessarily have a lot going for it. And that’s really where things originated. The ACCC picked it up about a decade ago in Australia.

And said, “well, we’re going to come after greenwashing claims”, and there were a couple of cases.

But it has started to become again an issue, as you said, as the world starts to move towards sustainable funds, impact investing, and most corporates needing to be socially responsible and needing to show to their customers or B2B clients that they are good corporate citizens and they’re abiding by regulations when it comes to environment and climate. And that we’re now starting to talk about whether ESG, in a broad context, has enough guardrails to ensure that the greenwashing is limited, and that outcomes are maximised.

So greenwashing could occur as I said, in a corporate context, with products or services, with the labelling and the claims that might be made. Greenwashing could happen in a financing context. So we’ve got funds, debt and capital starting to move to sustainable finance. That’s one of the mechanisms that banks themselves and financial institutions can become Net Zero over time, is to move all of their capital and debt to Net Zero. And if the taxonomy around it isn’t consistent, and there’s inconsistent use of sustainable finance terminology, there could be greenwashing claims there. There was a classic case of one of the ports having a sustainability linked loan, but lots of coal going through that particular port, and that became a news story.

And the third area could be that funds themselves could be greenwashing, in that one fund could have one negative screen versus another fund, could be a comprehensive impact focused fund with negative and positive screens. And so as you can see, there’s inconsistency, and the market might not see the difference, but one fund might be having a very light touch and others could be doing it properly.

PB: And I think that’s one of the main reasons why, as you said, there’s so much going on in this space, why I’ve been pushing to get this report out, because as we look across the different measurement frameworks and standards and push towards some sort of way people can harmonise their reporting, there is just tremendous activity in the space. And, I’ve spent my life around corporate marketing departments and and fund-related marketing departments. And I’m not going to say people are out there trying to ‘pull a swift one’. There’s this tension between, “Where’s the market going? What can the comms and the marketing department say on our behalf? What do the the corporate and the institutional leaders want to be communicating? And what are the customers wanting?” And you have this rolling discussion or at least mechanism trying to meet all of these requirements, at the same time as develop global reporting frameworks. And the speed at which the market operates these days due to ubiquitous internet is just phenomenal. So, it’s like the perfect storm for misreporting and saying things on Twitter that then get blown up and and 10,000 people are on your doorstep saying, “hang on..” So I give due to people who are actually putting the work into to chip away at the coalface of this stuff. Or the sustainable, eco, solar-power face, if we’re going to call it that.. I digress.

So what is the impact of continued greenwashing to the climate change and sustainability challenges we face? This is as countries, as companies, as a species, essentially.

TJ: Yeah.. it’s a very deep question. I guess referring back to my previous comments about how there’s so many impacts that are increasing at a scale that we didn’t envisage, so quickly. I do get worried about how fast companies and financial markets are moving to prevent the loss of species and the climate change impacts that we’re seeing. So in that context, I don’t think greenwashing is helping. But that’s not necessarily.. I don’t think we can blame any particular stakeholder in that chain. I think there’s got to be strong regulation around greenwashing, and that’s got to be strong guidance and guardrails and standards around claims and around taxonomy.

If we think about how you tackle it as a company or an entity, you would think that corporate counsel would have some concern about greenwashing claims, and you would think, though, that the communications and media folk would like to say the best things possible about a company or a fund. And it’s that natural tension between, can we say as much as we can versus what’s allowable. And that’s where companies need to be authentic in terms of the claims that they make and ensure that directors and management are not held liable in the future in terms of these claims, because all of these claims can be retrospectively reviewed. And that’s one of the things that I think is under-tested, still.

****

Some of the regulatory issues that are forming around us.. There are standards coming. So there’s accounting standards that are being developed through the International Sustainability Standards Board, which I think will increase rigour around potential greenwashing. There is a standard being developed for Australian sustainable finance taxonomy and that’s going to help the sustainable finance work. And there’s opinions in a legal context out there around greenwashing within say Net Zero plans, and how directors could be held liable. So there’s a range of mechanisms and guardrails that are coming, and I think it will be harder to greenwash, but we’re going through that journey at the moment.

PB: One thing I’ve noticed is that punitive regulatory compliance, whilst it may be sporadic, it doesn’t drive change, it is retrospective. And usually the speed at which markets operate, things are well done and dusted by the time we get to the punitive regulatory response. And within that, what we’re putting together here is really a call to action. What you highlight there in relation to director liability is very important because that also goes with this corporate governance perspective that, they will come and take your house in the future, if you knowingly or unknowingly, because ignorance isn’t an excuse in Australia, or potentially around the world.

TJ: And that itself is both positive and negative, because you then see directors going back into their shell to say, “Hang on, let’s not make any Net Zero claims because we could be held liable”. So, these things.. we are a bit of a journey between doing as much as we can from a climate and environmental context, through to ensuring the claims are right, through to ensuring that you’re protected in making those claims.

PB: And there is a distinction in the report around regulatory environments in Australia, the UK and Europe, because I think the risk avoidance of Australian directors related to our directors and officers liability insurance lack of ‘ceiling’ on that, if you will, as you were stating, is inherent in why we’ve been a bit risk averse for quite a long time. And those things said, the document paints a picture of the regulatory environment and what’s developing and then it speaks to theory of change and impact measurement as a way to make legitimate claims about things because they’re being measured. And I was wondering, what would you encourage firms to consider from across the ESG space? And that’s both single and double materiality, the theory of change, the impact measurement perspectives, in how they go about day-to-day business.

TJ: Well, firms should ensure that their compliance requirements are met around ESG and broader environmental and social and governance issues. They should then move toward what might be coming our way and what needs to be adhered to. So that could be the ISSB standards, the carbon border adjustment tax.. these things that are coming at Australian companies, how do we start to prepare ourselves so that we are ready for these changes and the transition that’s underway.

And then you start to think about, “What are our stakeholders wanting from us? What are our investors wanting, what are our investors telling us, employees telling us?” through to customer pulse surveys and what customers and suppliers are telling us. And beyond which you then need to look at, and this is what Tim Collins is saying, you want to be the best at what you do. And in order to be the best at what you do, you should be internalising external impacts and having some progress as you move forward. So you should be comparing yourself to other peers, but locally and globally, and ensuring that you are getting as good at making widgets, as ensuring that you’re as good on climate change and environmental issues.

PB: I noticed something in listening to that, the assumption that everybody wants to go from good to great, because when institutional super funds divest their fossil fuel interests, those get picked up. And I don’t know if the people who pick them up are excited about going from good to great from a measurement framework perspective. What do we say to those people?

TJ: I guess what we say to those people is, “Have you considered climate risk in the way you should really be looking at climate risk?” We are already starting to see write downs, big write downs globally and in Australia. So we’ve had WA and Queensland bring forward coal exits, we’ve had AGL and Origin talk about accelerating coal exit. That is a write down on balance sheets, unless it’s already written down, which is unlikely with some of those stations like Bluewaters. So the question then is, are you seeing the change as quickly as it might be coming at you? I remember this photo of one of the avenues in New York in I think it was 1901 through to 1903 when it was full of horse carriages and one car, around the early 1900s. And a decade later, it was full of cars and one horse carriage. And that’s how quickly the shift occurred. And I say to friends and colleagues that by 2030, we’re all going to be driving electric cars. You just can’t see that yet. That transition is coming very quickly.

PB: Yeah. I was really struck by.. not struck by.. it was nice to see your blog where one of the points was about air taxis because I’ve been following those for ages. And then I just saw through one of the crowdfunding.. for the equity crowdfunding platforms for a company who is investing in landing pads all around the place, for when the air taxis get here, and it was just really poignant because I was saying to my partner “Yeah, well we’ll just have an electric air taxi that takes us around places..” I think Melbourne’s one of the Uber Air test locations. 

TJ: Yeah totally.

PB: But I think Uber Air then sold their interest in somebody because the pandemic hit and they were like “argh!” so I was like “I’m not going to name names because it’ll seem like I’m spruiking for them and I don’t offer investment advice based on my own passion for..”

TJ: One of the sharing economy things I’ve done for a while is Car Next Door, and they’ve been bought by Uber. So it’s become Uber Carshare. 

PB: Yeah? Wow. And the Good Car Company just got a bucketload of cash from the company backed by Mike Cannon-Brookes. It’s good times. The change is rapid. Though the tension here is that for you and I, sitting in the middle of Melbourne in a very, very prosperous nation, is how this then flows out to the rest of the world. And we take that change and create.. there’s a lot to be discussed.. 

TJ: There’s a lot to educate the developing world, so they can leapfrog and not go through all the pain that we’ve had. And I don’t think that message is taken by the DFATs of this world as well as it could be. 

PB: Yeah, definitely. The micro-finance leap with cell phones to Africa is tremendous to me. We don’t need.. we didn’t even learn that, we could have just gone to 5G and not had the NBN, or had the NBN Fibre to the Premises.. Or go straight to renewables. And avoid the next power player coal fired power station. It’s a fascinating time. And if there was one thing you wanted people to know about the challenge ahead of us from an economic transition perspective, what would you tell them? 

TJ: This is not a corporate message, but having grappled with this for a long time, I do think that personal responsibility has a lot to do with where we need to go. And I think that if people could shift their patterns, particularly in terms of what they eat, and I’m a huge believer with my board role at Food Frontier and so on, that plant-based eating is both healthy as well as good for the planet and good for the animals. And that is a shift that we’ve got to make, as David Attenborough would say. But beyond that, just thinking about consumption generally, and electrifying your home, because these things are going to help yourself, with personal transition, but also the world at the same time. 

PB: And it’s an emanation as well. If you do those things and you share about them and then the people around you notice and they go, “Hey, well, Terrence has done that, Jeffrey’s done that, Sarah has done that. Why can’t we do it?” 

TJ: It’s infectious.

PB: Yeah, and especially for corporate leaders. I mean, if we’re talking about this stuff and you aren’t doing it, well, then you’re just talking about it. You’re not leading. So probably good to lead if you’re a leader. Thanks so much for your time and your contribution. I really appreciate it.

TJ: Great.

This is a transcript of my recent interview with Kristin Siegel, Head of EMEA for Toniic, as part of my contributor conversation series for our latest report, which you can get for free by clicking below:

You can also listen to the full interview on all good podcasts via the link below

https://smarterimpact.buzzsprout.com/1168484/12012196

Transcript follows

Philip Bateman: Greetings and thanks for joining me. I’m here with Kristin Siegel, who is the head of Europe, Middle East and Africa for the Toniic Network. And we’re here to talk about “Driving evidence-based practice in ESG and Impact Investing”, which is the document that’s just come out from Bravo Charlie. And Kristin, wonderful to have you here. Thanks so much for your time.

Kristin Siegel: Thank you, Philip. Great to be here.

PB: Could you give us a little intro to what is the Toniic Network?

KS: Yeah, absolutely. The Toniic Network is a global network of mostly private impact investors. Currently we have 500 members worldwide, and really it is mostly high net-wealth individuals, family offices, foundations across the continent. Certainly North America, and Europe, Middle East and Africa, which I represent, are the two biggest regions. Though we are also growing quite a bit in APAC, also including Australia.

PB: And are you getting a difference in the different regions, like what’s really motivating for people? Or is it fairly spread across the board? Is everybody got an awareness of, “We need to be doing these things in these areas?”

KS: It is really interesting because I actually lived in San Francisco for five years and worked also for Toniic there. So I kind of got into the impact ecosystem over there and I would say probably specifically San Francisco, but maybe also the US in general, is really a little bit more driven by social entrepreneurship. While when I came back to Europe, specifically now to Germany three years ago, it’s really interesting that a lot of things have actually been covered by the social system, so there wasn’t as much social entrepreneurship needed. And so that was one really interesting difference.

Also, I guess generally in thinking about how do we think about entrepreneurship, I would say the US, certainly specifically the Bay Area, are very entrepreneurial-minded. Also in terms of, how do we see “failure”? When a startup doesn’t quite work out, then it’s rather like “Great, you learned a lot!” And here in Germany or in Europe, it’s still a little bit like, “Ooh, this didn’t work out. This is a failure.” So I think that’s certainly a difference in mindset, which is really interesting between North America and Europe.

And I guess also what I see in differences in terms of impact investing, is that maybe Europe was a little bit behind in the whole social entrepreneurship startup. But now everything around the EU taxonomy, that actually the governments are pushing forward in terms of regulation. I think they’re now in Europe a little bit ahead, and trying to avoid greenwashing, impact washing and things like that. Where maybe in, let’s say specifically the US there’s more private people, individuals or also private companies pushing a little bit more for impact.

PB: And I think that fascinates me in relation to the scale of impact investing over the overall investment landscape and, where the larger investment landscape is probably more into large infrastructure plays and things like that. They just have much more capacity to wield large amounts of capital for transformational projects, whether or not they are socially orientated or focused on an impact lens.

KS: Yeah, I guess that’s also interesting about Toniic, because I mentioned we mostly work with private investors, so really not with institutional investors. And in that specific role they are aware “We as investors don’t have the biggest capital.” That certainly lies with the institutions, like pension funds and asset managers and so on. But also our investors know they have probably the most flexible capital in terms of “This is my capital, I don’t have to go through a CIO or a big decision tree. But if I want to do this, try this out, then I can do it.” So this pioneering work almost, and trying alternative financing structures, or ways to measure impact and things like that. That’s really what our investors are trying out using their capital for, then getting the feedback, the learnings, and sharing that out. And we also, as Toniic, want to support them with that. So we actually are a membership network, but we also do quite a bit in terms of building up the impact ecosystem, using a lot of the learnings from our members that we then package up into reports that we publish publicly for others to read.

PB: And that catapulting those proof of concepts into scale is the beautiful thing about it. It’s because you’ve got the flexibility to do it as small teams with private capital that institutional people can then go, “Well, we can measure it, we can see it works, we’ll take that, and now we can use our pension funds with our mandates to legally actually put the money into these places and scale them.” And it’s such an exciting thing in that regard.

KS: Exactly. Having some data available, right? This is often what is needed for the investment offices to prove “This has already worked, so let’s try to scale it now.”

PB: And you mentioned the EU taxonomy, and that’s essentially what this is all about. What challenges do you see being created by greenwashing and impact washing, as a first thing, and then the regulatory.. “it’s coming.. the regulation is coming.” But I think inadvertently people don’t.. a lot of people aren’t trying to greenwash, it just might be happening through a lack of data or a lack of rigor or a lack of process. You wave the flag, “We’re going to.. this is good for everything!”, and it’s like “Oh yeah, prove it.”

KS: So I’ve been in the impact space now for about eight years. And the first four to five years, it was still beating the bushes and saying, “We also can do impact investing, right? You can have financial returns and have a positive impact.” So that was the first years where it was really more in the persuasive mode and finding others who are thinking the same way. I would say the last three to four years, this thing really which maybe was a trend, absolutely became a movement. And at least here in Europe, it feels like everybody is talking about it. And what I see is, this is something that sometimes I think it definitely is genuine that we see the issues in the world and also realising we can do something with our capital. And I think that’s where greenwashing comes in, as you say. I think for a lot of people, it’s not on purpose that they want to greenwash, but it’s a little bit the risk that I see.

And really, Toniic and I myself stand for deeper impact, real impact that helps, or real solutions that help solve the problems that we have in the world and not like, “Ooh, it sounds good.” I guess that is the biggest problem with greenwashing that especially with investors who, maybe are not so much into.. so deep in the issue and generally about impact investing, that then they feel like, “Oh great, I invested in a sustainable fund and now I’m doing a lot of good”, which I guess a lot of the products that partially that are out there suggest that they’re really sustainable in the long term and are really contributing to solutions, but in the end, it’s maybe just doing a tiny little bit, but not enough for what we need. And that is currently what I see is the risk.

My background is actually in banking. So I used to be a portfolio manager at a bank and I still am in contact with some of my former colleagues and also asset managers who manage bigger funds, be it ETFs or also mutual funds. And I met them recently and it was really interesting because they certainly are also now pushed by the EU regulation, the SFDR, Sustainable Finance Disclosure Regulation which is intact since March, where the asset managers have to actually disclose what they are doing in terms of sustainability. And there are these three kind of articles that you often hear now, it’s Article Six, Eight and Nine. And let’s say when you have an “Article Six fund”, it’s not as sustainable. It is more like, “Okay, you do this and this and this, but it’s not yet sustainable.”

So everybody is pushing for this Article Eight, which is a little bit around sustainability, really making it super easy right now. And obviously there’s a lot more regulation around it. But then Article Nine is really maybe what we would rather call a little bit more impactful. And I heard from a lot of asset managers “We tried Article Nine, way too difficult, we’d rather not do that.” But still everybody is pushing for this Article Eight. And also, something that maybe to me feels like it wouldn’t actually fit into that, this Article Six is not good enough.

There is also this pressure from society like “Oh no, Article Six funds, I don’t invest in anymore. I definitely want to do something in terms of sustainability.” Which I guess is generally a good movement, but we are just not yet there. also to maybe have all the products or it just also takes a little bit of transition time to adjust them. So now I guess the asset managers are like, “We don’t really want to greenwash, but somehow we also want to offer that.” So it’s an interesting dynamic. Plus that maybe you also do have a few people who maybe in the beginning weren’t maybe quite as genuine about general creating impact and rather like, “Great, okay, we can fit it in here. It sounds good. It’s a good marketing tool. Let’s do that.” So I guess that’s what I see currently on the market.

PB: And at scale. I was talking earlier with an asset manager earlier this morning about the process of divestment, and simply whilst it’s a good thing, arguably from a social license to operate, it moves it onto operators who may not be as ethically minded around acquiring assets that aren’t having the best impact in the world. So it’s a “wicked problem”, this idea that we’re using money within the constraints of a capitalistic system built on growth, to effect change that arguably has been created by that system in the first place. It’s quite a..

KS: No, absolutely it is. And there also have been a few academic studies that, like this part about “divesting”, it has a certain signalling effect. But actually, the academic studies have found that the effect or that the impact of that divestment and signalling thing is not as big as if you actually actively engaged, for example, with companies.

So, for example, you keep actually your shares with a, let’s say, fossil fuel supplier and work with them, push for them to actually come up with an almost a new identity. Certainly with a fossil fuel provider, it’s a little bit difficult to say “We are creating energy.” So in terms of like, with an oil producer, you would need to move your whole mission around like “We are actually creating energy.” And it doesn’t have to be oil, right? It can also be something else. So that certainly doesn’t happen overnight.

And obviously also, these big corporations need time and support, and starting their thinking and evolving their thinking to “How can we as a company potentially still survive but provide something better for the world?” Because certainly also, maybe a tobacco company, telling them “You’re actually not needed anymore.” I mean, how’s that going to unfold?

PB: Yeah, that never does. People and Directors aren’t going to give up the legacy of their grandchildren because somebody is saying “You should shut down because we don’t agree with you.” And they got us here in the first place. We’ve got the society we do because of these energy assets that have got us here to this level of technology and quality of life. So it is a “wicked problem” per se.

And the argument for actually even bothering to measure things? I mean, if people have got money and they’re out there creating impact in their hearts and in the faces of the people, their shareholders or their stakeholders who their lives are improving through the businesses and the services that are being provided. Do people even need to measure that? Or put any frameworks around it? Should they just not bother?

Because the whole point of this paper really is to get people quickly up to speed with the massive amount of regulatory change coming across Europe, the UK, Australia, and I even say in the title “evidence-based progress in ESG and Impact Investing”, and they’re fundamentally different things, around single and double materiality, and one’s looking at risks to the business and the others looking at impact on a societal level.. There’s so much complexity here in what’s going on.. Yeah, why bother?

KS: Absolutely. It is really an interesting conversation that also we have a lot within the community and certainly also that thinking is evolving quite a lot. I guess several thoughts.

In terms of when you think about ESG mostly or let’s say big capital, probably you do need some data. When we got started, and I certainly got started more on the social entrepreneur side, where maybe you also had a lot of storytelling to see how have the lives of people improved, for example, who got access to education or to basic services, things like that. There is still the ongoing conversation “Did we put too much of it on the entrepreneurs, that they are just measuring impact but not actually doing their actual work anymore?”

So I guess there is really this conversation between the investor and investee of saying “Okay, what are you measuring maybe already? And if impact is inherent in your business model, then probably a general business KPI is already also an impact KPI”. So it makes it easy. So I think there, investors are a little bit cautious to say “Yes, to measure it on the one hand is important, but let’s also not overdo it, so that they can still also focus on building their company”. I guess in bigger companies there it currently feels like you have a huge team, so it would be good if some resources you actually dedicate to measuring what are you doing, or what harm maybe are you also doing? Where there may be there let’s say, “feel good stories” are not good enough anymore, because saying, “Well, it’s nice that you have solar panels maybe on your roof and you recycle your waste and things like that”, so how you do your business, that’s one part. But it’s also about what you do, right? And what impact do you have with that?

And I think this whole conversation’s about also measuring Scope One, Two and Three and certainly Scope Three is super difficult, right? in terms of just focusing now on the greenhouse gas emissions. Obviously, there are way more impact metrics. So I guess that is important. To get a little bit of an idea, because obviously also for the big companies investing in more greener or sustainable processes, that costs money. And currently while we are still in this capitalistic system and measuring in money, I think there also it needs to be a fair comparison of which company really does try to change something, and then also show the outcomes of that, or maybe rather the outputs, versus another company who is maybe just saying they’re doing it, but not really proving it. So I think in that regard, I personally think that yes, we should bother. Also measuring the positive and the negative impact that is coming out.

PB: It was put to me during the initial research I was doing anecdotally that, if you don’t have a theory of change, then you are greenwashing. And I went “Ooh! That’s the point”. If you don’t know why you’re setting out to do things and you just say, “We’re doing it for good”, then.. And it got me wondering. It’s like, are you seeing families investing based on a succinct theory of change, or are they more saying, “We’ve got wealth, we need to not burn everything down, let’s go do something good with it”?

KS: Yeah, I guess it’s interesting when you say “theory of change”. I would say it definitely is a journey. It starts generally with the awareness of “Hey, we have to do something different and we also can do something with our capital”. To have a real, distinct written-out theory of change we see takes some time, and that often can hinder people to even get started to do something.

So sometimes we say “Yes, you do definitely want to have an intention and think about what are your values, what is important to you”. Maybe also research what is the biggest issue right now in the world and where should we put our capital? I think that’s mostly where at least the private investors are coming from, either from something like, a paediatrician really wants to work on alleviating pain in children, for example. Then often they invest in that theme, but maybe others come from more like evidence-based, maybe Project Drawdown. So what are the bigger solutions to our problems? Let’s invest in them. So I think these are the two ways often private investors commit, and we say, “Yes, you do want to think about your theory of change, but maybe also particularly in a family context, the individual people who have, you know, their passion areas and yes, theory of changes maybe. But then how do you bring that together in a family context?”

So that can be a process over potentially years and where we say, absolutely, you need to start with your values and what’s important to you, and think about that. But maybe you don’t need to have a detailed investment policy statement that includes impact right from the start, but also you can learn by doing, a little bit.

But yes, definitely you do want to get to that part, like “Why are you actually doing what you are doing?”

PB: It must be extremely overwhelming to think that we’ve got to do something and then the opportunity cost of spending two years doing something that potentially isn’t as good as something else you could be doing. And it’s that sort of..

KS: And obviously the impact space is evolving quite rapidly. Something that was really impactful three years ago, maybe now there is something else, another product that is better and then we’ll adapt. So that is maybe also for the traditional finance world, really difficult to grasp because it used to be those two metrics, return and risk, and now all of a sudden also with impact measurement, we have different impact metrics. So obviously that is a little bit overwhelming to grasp.

PB: And what’s your sphere of influence that you’re measuring against? Is it individual, community, city, state, world? Demographic? Specific group? Yeah, it’s just huge. And how would you gauge their interest to measure their impact? And how they’re going about it if they are?

KS: When you say “they” who do you mean?

PB: The families you work with. They’re on the journey, they’re investing, they’ve gone “Right, we’re going to do this. Let’s try that”. Do they see measuring their impact as par for the course and they’re just going for it and grabbing systems and trying it out? Or is it a bit like, “Oh, let’s get some traction first”?

KS: I think there also it varies depending on maybe where they are in their journey. If they’re just getting started, maybe this might be a little bit overwhelming. The ones who are little further down the path may also see this is actually important to do.

So there are over the last years a bunch of movements, or also projects, for example, the Impact Management Project from the UK, has really helped to become a little bit of a standard, where especially private investors, those families really appreciate using some of those standards and applying them to their own portfolio, while again, others are then cautioning, especially when they work with entrepreneurs, “Let’s not overdo it. We can also measure too much”.

So I guess in that regard, probably mostly with the entrepreneurs where they have a direct influence, they try to push a little bit for impact. With the ESG, big corporations, I think there it is actually appreciated what the regulation is coming up with, to create a bigger data set. There’s also data providers that are collecting that now. So where also there, the private investors have realised “We don’t have the capacity to do all that”. And actually it is good that also this movement is going there, or that there are organizations and companies who are doing that for them.

PB: So for people watching, what’s the quick start guide to getting into this? Is it: Join Toniic, turn up to some member events, get in touch, we’ll sort you out. Is that..?

KS: Absolutely. I think it’s really starting about thinking what is important to you, talking to peers and other impact investors definitely is a really good thing. That can be Toniic, that can be Pymwymic in the Netherlands, NEXUS or The ImPact. So there are several organisations out there, find one that fits for you. But definitely talking to others is really important. And then I guess also figuring out, do you want to do this alone? Do you want to do it with your family? Do you maybe want to do it with a financial advisor? Also really important part, if maybe you’re not so much into investing yourself.

And, then we always say, don’t get discouraged, but also do get started maybe, dip your toe into the water with one investment that you try out. If it doesn’t work out that’s okay, you definitely learn a lot by doing it.

PB: And what’s something you’ve changed your mind about recently in relation to your role in this whole industry?

KS: I would say generally, probably, the role, or the purpose of capital. I think that certainly something, me coming from a more financial background, and very structured and so on, and let’s say maybe a little bit more of a philosophical conversation around “What is actually the role of capital?” Maybe the capital in itself is not the system that we need.

Also thinking about maybe measuring our economy in GDP is certainly not the right way to do it. Maybe, you know, global happiness, rather, something like that would be the way to do it. And I’m educating myself a little bit more in these theories around systems change also now, and to see which role can impact investors and I as an intermediary and facilitator, play in this system.

PB: Yeah. Wonderful. It’s the evolution of self and the evolution of the world, right? Ideally, we’re all transcending up to a higher level of consciousness, essentially. And thank you so much for your time. For those watching at home, do download the new booklet, have a look at all the regulatory changes that are going on. It’s a good idea to get yourself up to speed and pick something, put that first step forward and go for it. If you need any help in communicating what you’re doing, we build investor engagement systems for your brand and your business and your impact fund. And it’s just a really exciting time. There’s so much to do in the world if you’re an optimist, because the alternative is not being an optimist. And that’ll get you down quick.

KS: Yeah. Thank you very much. Fully agree. Thank you so much, Philip.

For those who prefer to read rather than watch, this is a transcript of my recent interview with Cliff Prior, CEO of The Global Steering Group for Impact Investment (GSG), as part of my contributor conversation series for our latest report, which you can get for free by clicking below:

You can also listen to the full interview on all good podcasts via the link below

https://smarterimpact.buzzsprout.com/1168484/11832380

Transcript follows

Philip:

Greetings, Cliff. Thanks for joining us to contribute to “A Better Way Forwards”, our work on taking the greenwashing out of ESG and Impact Investing. Pleasure to have you here.

Cliff:

Delighted to be joining with you from right across the world.

Philip:

If people don’t know about you, they can look you up because the work you guys are all doing is tremendous. I just want to get straight into it. What’s your take on greenwashing, anecdotally, or personally and professionally?

Cliff:

Well, the greenwashing is mainly around ESG-framed investments, and that’s 36 point something trillion. And that has raced up. ESG started off at least ten years ago. But with small scale, small scale, small scale. And then just in the last few years, it’s jumped right up. The consequences of that: one is that there aren’t enough skilled, trained, talented people to handle all the metrics and reporting and so on. There’s a desperate shortage of people in that field. If you’re thinking of entering that field, now is the time to sign up for sure. So that’s one part of it. 

Another part of it is that ESG is actually two quite different things. The part of ESG, which is risk-reduction for the investors and the companies, and that’s absolutely fine. There’s another piece that is trying to be about sustainability, maybe even claiming impact. And because those two things are together, it’s a right mush, and really, we need two labels for that. And then you’ve got a further question about the balance between burden of regulation and systems and the point at which you lose credibility. And that is a very narrow line. 

Just as an example, if you’re in an ESG investment going into an emerging economy, do you really want to have a whole great list of regulatory requirements, reporting requirements? You’re going to make the small companies in that emerging economy just have such a big burden. So you can get too much burden of regulation. 

On the other hand, you just flip the needle over a little bit and it’s no longer credible. So the third part is standards. Almost every asset management firm, company, etc., has created their own sets of standards. That really does lead to a lack of credibility. Fortunately, we’ve now got a system that’s coming along for global harmonised sets of standards. That’s the International Sustainability Standards Board (ISSB). It’s only just been started. It’s going to be a few years before that comes out fully.

But we really do need that single system of standards to get the credibility to train staff to be able to work towards that standard. 

Just imagine, if you were building railroads and every railroad company has a different gauge, so you couldn’t take a train from one to another. It is like that. There was that crazy thing where NASA ordered some materials from the UK. The UK made them in centimetres, and NASA had wanted them in inches. You’ve got to have single standards. So that’s where I would say… I don’t want to lose the opportunity of 36 trillion dollars doing things that are at least somewhere towards impact. We don’t want to lose that, through… So we want to bolster it. We want that credibility. We want those standards. We want the staffing, and we want the clarity about what kind of ESG you’re doing.

Philip:

And when you speak about that tremendous growth of the sector or the ESG sector from a funding perspective over the last, it only seems like five or so years maybe. That didn’t come along with measurement frameworks or standardisation. It simply came along like, oh, these funds are now this, which is essentially a marketing, it’s a labelling thing, they’re now this because of the way they labelled them. And that, I think, is really the tension with greenwashing. How do we, with that amount of size, at that scale, that scale up… Is it all really ESG orientated or is it a different label on an existing sector of funds? 

Cliff:

Yeah, a lot of people talk about a ‘framework’. You’ve got ESG ‘framed’ investments. Rather than saying it is ESG. But as I say, there’s this big difference between reducing the risks for your investment in the companies that you’re invested in, versus trying to do something positive. And we have to make that separation. They are completely different things. And again, it creates the credibility. 

Philip:

And I hope with this work we’re putting together is really as we get into ESG and look at single and double materiality, and I heard somebody even talking about triple materiality, and first and second and third stage emissions, when we’re looking at carbon footprints of economies and things like that, there’s so many… I just implore the people watching this who are going out and creating this material to really get into “What do you mean by the thing you say?” Because at least for that as a starting point, it’s going to allow somebody who’s looking at your material to pin it to the wall and go, “okay, well that’s what they’re talking about”, rather than just headlining stuff and carrying on. So, brings me to my next question, which is: what is your experience about the gap between funds wanting to contribute to business projects that are seen as environmentally and socially beneficial, or ‘impacts’ if you will, And the people that are creating those projects and requiring capital?

Cliff:

So almost everybody talks about a mismatch between, depending on which side you’re on, if you’re an investor, you say “there’s just not enough material to invest in”. And if you’re a company, “there’s just not enough investment”. I mean, this is not unusual. Investors are very choosy who they invest in, and companies are very desperate for investment. The majority of, certainly for SME funds, develop without inward investment. They develop through their own profits and reinvesting their own profits. And so if you think of the commercial world rather than the impact world, that is the norm, which sort of.. when the impact movement started, there was this view that somehow magically, every investor could find the right companies and companies could find the right investors. Of course not. Why would it be different to the commercial side?

However, there are some some particular areas because you’re not just looking at risk and return. You’re looking at risk, return and impact. You’ve got three categories that you’re going through to make your choices. You’re very often going into new fields of work. And some investors love that. But most investors like somebody to do it first. And then if it works, they’ll pile in.

And then of course you’ve got the investment which is deliberately into emerging economies, where then you’ve got the risk on the investment, the risk on the country, the risk because you’re doing something new, and in those fields, you’re almost certainly going to need some kind of blended capital, whether that’s partnering up with a DFI, a Development Finance Institute, or with philanthropy or with government support.

If you look at what’s happening in Indonesia right now with the G20 / B20 discussions, it’s all about blended finance, and where can you get that subsidy for investors to be able to take bigger risks, genuinely bigger risks?

Philip:

And it speaks to that axiom of ‘progress, not perfection’ I mean, anybody who’s looking for the perfect solution, even I imagine as we.. we need to develop canon of these measurement frameworks you get what you measure.. What did we measure over the next 2 to 3 years? Did it work? Do we need to change the measurement systems? And we’re only at the foundational moment of having an international standard for it through the ISSB. It’s just such a fascinating time, really.

Cliff:

It is a fascinating time. It’s a fascinating time where big changes are happening. We’ve got the one point.. a bit trillion dollars of impact, but we’ve also got two and a half trillion of sustainability linked bonds and loans. And that’s come out of almost nowhere, very, very rapidly. Obviously bond issuance you can get much bigger scale. But that’s a really interesting move. On the other hand, impact is just about to step in to its first global recession. We are going into a global recession. We are going into a global inflation era.

The impact movement hasn’t had any of those before because the last big recession, 2008, impact was a tiny little field. So we’ve got a lot to learn out of this. Traditionally, if you’re heading into a recession, things like bonds are very difficult. But innovation, that’s where you get the new ideas. If I was outside of the GSG, and just an individual investor, I think I would be going for tech right now. But, hey, everybody would have their own views on this. But it is really important for us to be able to understand how recessions and inflation eras are going to affect impact. 

There are some other big, big changes. People used to be quite distinct between “I’m a climate investor, I’m a social investor”. And I think what’s happened over the last few years, particularly this last year of one environmental catastrophe after another after another after another in Australia, you’ve had plenty of them. You can’t separate anymore, because these catastrophes hit people right now. And that combination of social and environmental is another thing we’re going to see changes for, and capital is going to want to buy into that. It’s going to have to buy into that.

Philip:

I’ve been noticing, as you’ve been talking, what’s coming up for me is that, will people stick to their mandates for positive social outcomes and positive environmental outcomes when faced with a hard recession? Will that stay there? Will the impact on top of the commercial outcomes stay the course?

Cliff:

Yeah, there’s a question about that or that equally, for example.. Well, let’s take oil and gas. Quite a lot of ESG framed funds are giving up the ESG model because you could make a big profit out of oil and gas right now. On the other hand, if you’re a climate and social oriented investor, renewables are way cheaper than oil and gas now.

So what a great opportunity to invest heavily at this point. So there will be different takes, as there always are. And that’s the nature of the investment field and the investment impact field, now that we‚ are big enough and diverse enough to have both positive things happening and some negative things happening.

Philip:

And when, for instance, in the UK, the Green New Deal is essentially a framework for where a tremendous amount of money is going to be invested or aligned with. To me, that paints a picture that investors can get behind or organisations can get behind to do co-financing and things like that.

Cliff:

That can happen. It requires a credible consistency of public priorities and just at the moment the UK has not been that good on that consistency piece, but many other countries are, and I think, what’s happened with the Russian invasion of Ukraine and the consequence on food and fuel and fertiliser etc., is that people are thinking, ‘How do we get energy self-sufficiency?’ One of the quickest ways to do that is through renewables. Okay, the UK has to sort itself out, but there are plenty of other countries where people know exactly now, they can’t rely on oil and gas coming from countries which are not safe to rely on. So I think that’s a positive.

Philip:

And for those interested in taking Impact Investing measurement seriously, what would you tell them about the GSG? What’s the scale of the work you do? 

Cliff:

GSG really does two things. One is a country network, so it’s 35 countries with national advisory boards for Impact Investing, another 25 that are coming along, including some of your near neighbors in Southeast Asia. Big drive there. Hugely important part of the world. So that’s one part of it.

And those national advisory boards, we have a structure that we offer up, but every country has its own opportunities, its own priorities, its own things that it can’t do. And that diversity is actually a huge virtue because we offer out a great amount of knowledge sharing. So you may be in Israel with a problem, but perhaps it’s Colombia that’s had that problem and solved it previously. So that kind of a approach is really important. The other side of what we do is policy and advocacy with, for example, that International Sustainability Standards Board, with impact transparency, with engagement with the G7, with the G20. And trying to get impact, and impact thinking into these big centres of decision making globally.

Philip:

So just one question in closing. What’s something you’ve changed your mind about recently in your role as the CEO of the GSG?

Cliff:

What a great question! I think I’ve moved from being purist to being ‘now; and actually it came from one person, from Elias Masilela, from South Africa. We were in the middle of a quite complex discussion and Elias, he can channel his inner Nelson Mandela. Very clear, slow, confident discussion. And he said, “I would rather have investment with a bit of greenwashing than no investment at all. I have people who need lives.” And you just think, okay, we can’t be purist. We have to achieve enormous amounts. We’ve only got this 1 trillion out of 120 trillion of listed assets. We have to use that where it’s most useful. And then, yeah, ESG is not perfect, but let’s take the best out of it.

Philip:

Thank you so much.

Cliff:

Thank you Philip.

Three reasons storytellers are failing businesses: It was a beautiful idea; you and your colleagues hard at work, a marketing graduate holding their DSLR or iPhone yelling action, the buzz of being a movie star and if they were good – if they were ‘industry professionals’ – when you pressed play a montage of quick, genuinely beautiful scenes flashed up on screen with some subtly irritating looped stock music.

It was neat, briefly; the building exterior began the video, a close up of glassware at your event, a wide angle shot of a pretty room, your clients and stakeholders flashed past, someone from a lectern smiled and gesticulated enthusiastically, a drone shot finished it off and your logo appeared.. you had a video! Job done right? Except deep down, you didn’t care.. what’s with that?

What I just described is your typical corporate video ‘storytelling’ – it may have even been a feel good interview rather than an event recap, though it would generally follow the format and include 30 seconds of someone talking about themselves without answering any kind of leading question that imprints in the viewer a way to commercially engage with you, or introduces the underlying why that represents one of your more significant capabilities.

It was pretty. You were in it. It looked like everything else you’ve seen that was flashy. You paid for it. Though what was missing?

Most content creators are stuck down in Storytelling, which we just described, and the modern audiences you would want as good clients are highly intelligent. They got to the top of the corporate and government game, have a hand in the c-suite or board and people listen to them – they are Sophisticated.

Then we have all the facets of business. From the consistent tumult of moving through Greiner’s Model of Organisational Growth, the nuances of Business Development and effective marketing, strategy and tactics, brand, product and service innovation, regulatory changes, Directors liability, the massive shift to transparent stakeholder engagement related to social license to operate and the movement of investment mandates as we look from ESG to Theories of Change and effective Impact Measurement..

Individually and in aggregate these form lenses through which narrative not only matters, it drives outcomes when used as levers to engage stakeholders, whether they be internal, external, clients, partners or competitors.

When you have storytelling alone you have pretty things that are meaningless for your organisation.

Storytelling and Sophistication without Business create interesting, generally long winded diatribe that struggle to be used as tools by your people.

Sophisticated Business content without the emotional connection to people, ideas and place is dry, unengaging and passes by in the same way maintenance and compliance reports shuffle off down dark hallways.

You need Sophisticated Business Storytelling™

If strategy is a framework through which decisions are made, how confident are you in your framework? In the sequence of Data > Information > Knowledge > Wisdom, are you spending your time on the latter two, or living in Data and Information? Would you consider your current strategy Sentient? Meaning it is a tool you use “In the moment” – able to accommodate disruption, volatility and abrupt change?

Our experience has shown that no pre-pandemic strategy is effective post pandemic, as traditional strategy design isn’t built like that – it takes weeks if not months, is out of date quickly and rarely an ongoing reference during day to day implementation.

And the reasons are simple enough; during my Masters in Innovation and Entrepreneurship 12 or so years ago, Peter Drucker’s definition of strategy and associated tactics was still best practice, and that arrived in the 1960s, though times move on, generally much faster than organisations are traditionally able to do.

To this end, I’m excited about bringing a better way to my clients having completed the week in Brisbane Certified in Sentient Strategy®, shown here with the originator of the approach and process, Alan Weiss, alongside Paula McCarthy, the worlds leading practitioner of Sentient Strategy, and Andrew Hollo, one of the worlds leading strategic advisors for organisations that deliver societal benefit, whom organise systems and are heavily community invested.

Alan developed Sentient as a way to formulate strategy in a matter of days with a focus on a 1 year time horizon, as a tool to serve as an ongoing and daily guide for decision making, not something that sits in a dusty binder, neglected in a shelf.

It’s not an off the shelf template, it’s a flexible discipline allowing for the variations and uniqueness of your enterprise, and with the proper preparation together with your executive team we can complete the formulation process within a week and you can begin to implement immediately.

If you can see a future state your organisation needs to move to, or you can’t and want to identify it, and you don’t have the ability to quickly formulate effective strategy, then rapidly make changes as conditions shift, I’d be happy to have a chat with you about this revolutionary approach.

Happy Friday!