“What is the most practical business solution with the largest potential impact in the race to net zero carbon?”

In exploring this question we reached out to leading experts in the ESG investing industry to find out their responses, and this is what we found…

QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?

ANSWERKristin Barbato, CEO & Founder of Build Edison, Co-Founder of Dynamo Energy Hub

ANSWERWe have the technology for clean energy, air, water, and food. What we don’t have are clear paths to unstopper their promulgation at scale. The largest obstacle to scaled implementation is mostly due to a combination of lack of accessible capital and a patchwork of complex regulatory rules. Therefore, I believe the path to scaling clean solution implementation is streamlined capital and permitting.

QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?

ANSWERSarah Adams, Chief Sutainability Officer, Vert Asset Management

ANSWERGlobally, physical assets and supply chains are facing increasing risks from climate change.  The investment community is more closely evaluating the role of science-based emissions reduction targets in corporate strategy to keep global warming to 1.5°C above pre-industrial levels. We believe all companies will need to plan for net-zero pathways.  

ANSWERAs investors in real estate, for us “net-zero energy” or “net-zero carbon” is about getting buildings to only consume as much energy as they procure from renewable sources. Buildings can achieve net zero through a combination of energy efficiency, electrification, and renewables procurement, and many have done so already and are saving money by doing so.

ANSWERBuildings consume 40% of the world’s energy and create 33% of global greenhouse gas emissions. Real estate owners can look at the transition to a low-carbon economy as an opportunity to both lower their carbon footprint and their utility bill.

QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?

ANSWERTodd Arthur Bridges, Partner & Global Head of Sustainable Investing and ESG Research at Arabesque

ANSWERBased on scientific observational data and future scenarios, achieving net-zero emissions – the balancing of anthropogenic (human-induced) emissions with the carbon removal of GHGs already in atmosphere over a given period – will require fundamental shifts in how our economies, societies, and political systems operate. An unprecedented global collaboration across all stakeholders – countries, states, cities, companies, and investors – is needed if we are to achieve net-zero by 2050. Arabesque believes there are significant opportunities associated with a zero-carbon future and that we can play our part in helping clients with data, research, advisory, and technology solutions. As one small actor in this global stakeholder collaboration, we will do our best to create value by designing solutions such as the S-Ray Temperature Score that can help corporations make long-term strategic plans and investors to make sustainable strategic allocations aligned with the net-zero target.

QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?

ANSWERIyassu Essayas, Director of ESG Research, Parnassus Investments

ANSWERNet Zero Carbon is an emissions target where the same amount of human-caused GHG emissions are removed from the atmosphere. It is possible to achieve but will take the international community to agree on decarbonizing their economies. The Paris Climate Agreement was the first international agreement with widespread support and commitments to do so. It is also a good example of what nations can do together to combat the effects of climate change.  

QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?

ANSWERDesmond Wheatley is President and CEO and Chairman of the Board at BEAM Global

ANSWERTo achieve global carbon neutrality we must capture the global imagination. Big, easy to see and easy to understand wins are essential. At Beam Global we are focused entirely on the intersection of clean energy and transportation. Why? 70% of US greenhouse gas emissions come from transportation and the generation of electricity. Our products eliminate both sources. To fully electrify transportation we need rapidly deployed, highly scalable infrastructure solutions which are independent of the centralized vulnerabilities of the grid. Our products are the fastest deployed, most scalable EV charging infrastructure solutions in the world and they are powered entirely with locally generated and stored renewable energy. Driving on Sunshine delivers. Beam Global – Clean Mobility For All. (NASDAQ: BEEM).

QUESTIONQUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?

ANSWERPeter Fusaro, Partner, and Head, ESG and Impact AV Group Limited.

ANSWERNet Zero Carbon is technically possible but it will take a long-term time horizon. Realistically, 2050 is the date to achieve that goal through three market drivers: energy efficiency i.e. not consuming as much energy, and that means efficiency in the 80+% range which is doable in both buildings and transportation. A much more global deployment of renewable energy and energy storage to replace most of fossil energy in all its forms including natural gas. Finally, a robust deployment of hydrogen for both transportation and electric power generation. This means marrying hydrogen to solar and wind farms to make green hydrogen for both charging electric vehicles and running power stations, trains, and ships.

Net Zero Carbon

Before the breathing air is gone

Before the sun is just a bright spot in the night-time

Out where the rivers like to run

I stand alone and take back something’ worth rememberin

– Out in the country – Three Dog Night

By now you’re probably aware of considerable ads from companies that proudly boast they are well on their way to “net zero carbon” by 2030, or 2040, or 2050, or even now are already there, or maybe claim they have always been – and some of these proclaimers may surprise you.

Challenge accepted and victory within our grasp?  We’re going to be just fine, right?

We focus our 6th issue of the Socially Inspired Investor digest/podcast on one of the most important aspects of the Paris Climate Agreement and a founding principle of the United Nation’s sustainable development goals, the Net Zero Carbon initiative.

Carbon neutrality, or having a net zero carbon footprint, refers to achieving net zero carbon dioxide emissions by balancing carbon dioxide emissions with carbon removal – not necessarily ceasing to produce carbon dioxide entirely, but offsetting its deleterious effect on the environment with actions that will help the environment 

Can we get there? Will it work? What does it mean if we do get there? What would have to change? What is the downside? Does it mean loss of jobs? Is it bad for business or good for business? Bad for investors or good for investors? We thought it was important to shine light on all these questions as we continue to coach you through the journey of becoming a socially inspired investor.

We are happy to include for this issue two podcasts.

Co-author of the new book, “Smart Cities, Smart Future: Showcasing Tomorrow” Cornelia Levy-Bencheton describes fascinating ways some localities around the world are taking on the challenges of both reducing carbon footprint while increasing live-ability.

We also hear from Mark Campanale Founder of Carbon Tracker, a London based think-tank researching the impact of climate change on financial markets. His assessment is that the net zero carbon revolution has already achieved an unstoppable momentum.  Winners and losers are becoming easier to define.  But of course the question is will it be fast enough? 

Our Spotlight On section poses this question to experts in the field:

What is the most practical business solution with the largest potential impact in the race to net zero carbon?

As you will see, the answers seem to depend more on will and commitment, rather than the need for more funding or expanding beyond existing technology, both encouraging and surely befuddling. Please enjoy this issue of the Socially Inspired Investor digest/podcast and pass it along. When it comes to investing for the future remember it’s your money and your choice

“What progress in ESG investing inspires you today?

In exploring this question we reached out to leading experts in the ESG investing industry to find out their responses, and this is what we found…

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERPeter Fusaro, Partner & Head of ESG and Impact AV Group and Founder, Wall Street Green Summit

ANSWERThe Covid crisis has created a unique opportunity to rebuild society where human health and welfare come first. I am particularly inspired by the hundreds of thousands of young people throughout the world who are ready and capable of helping to do the heavy lifting required to accelerate sustainibility in clean energy, sustainable agriculture, clean water, a regenerative economy, and social justice. ESG investors get read for this inflection point!

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERBob Dannahuser, CFA, FRM, CAIA & Senior Advisor, The Investment Integration Project

I’ve had a front-row seat to sustainable investing over the course of my career and have seen it evolve from something driven more by marketing to something beginning to become rooted in investment analysis and strategy. And while cynical voices remain (and are well worth listening to, for they make us better), I’m gratified that environmental issues in particular are much more mainstream.  The pandemic, an awful episode with catastrophic impact for so many, offers an opportunity for social issues to join that trajectory to become a more routine component of what drives investor decisions, as the systemic, disruptive effects of income inequality, worker rights, and a fragile healthcare system become more prominent to more of us.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERChris Stearns, CFP & Financial Advisor at Conte Wealth Advisors, LLC

ANSWER”The welfare of any segment of humanity is inextricably bound up with the welfare of the whole. Humanity’s collective life suffers when any one group thinks of its own well-being in isolation from that of its neighbours…” – The Universal House of Justice.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERDr. Gillian Marcelle, Resilience Capital Ventures 

ANSWERESG investing has great potential to contribute to sustainable development and improved livelihoods for persons living in communities with high climate risk and vulnerability. I am seeing slow movement in mainstream and alternative financial institutions, understanding how an ESG investment philosophy can be good for both the bottom line and society. Finding ways to accelerate these changes keeps me motivated and inspired.   

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERJeffrey Gitterman, Co-Founding Partner and creator of Sustainable and Impact Investing Services at Gitterman Wealth Management, LLC

ANSWEROne of the things lacking in ESG data has been information on racial inequality at the corporate level for both pay equity and management opportunities, as well as board seats. George Floyd protests have exposed this lack of disclosure and we are starting to shed some light on better corporate disclosure. You can’t manage what you don’t measure.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERWilliam Burckart, Co-Founder and President, The Investment Integration Project; co-author of 21st Century Investing: Redirecting Financial Strategies to Drive Systems Change (2021)

ANSWERMore and more, investors—big and small, individual and institutional—are beginning to extend their embrace of ESG investing to include the context (or systems) in which they operate. In doing so, these investors are charting a path forward for the financial community to better manage and solve the complex and interconnected social and environmental challenges like income inequality and climate change that are increasingly threatening returns across all asset classes.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERDorri McWhorter, CEO, YWCA Metropolitan Chicago

ANSWERIt is inspiring to see investors actively seeking new impact investing strategies across different asset classes. At the same time, we are witnessing social impact organizations actively creating new vehicles and strategies! I am excited that engagement is coming from both the finance industry and social impact organizations with the objective to use finance as a tool to accelerate the pace of change.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWERPhil Kirshman, CFA, CFP & Founder at Impact Metropolis

ANSWERI’m inspired by the energy of the next generation, which seems to be significantly more thoughtful about how investment capital will be deployed in the future than their parents and grandparents were. I’m inspired by the rigor with which many are approaching the field today, in terms of evaluation, analysis, and impact measurement of the investable universe. Finally, I’m inspired by the authenticity and commitment of many of the practitioners of the impact investment field, older and younger, who are seeking ways to make a measurable positive difference in the world.

QUESTIONWhat progress in ESG investing inspires you today?

ANSWER Aisha Williams – ESG Investment Advisor, RJK Associates

ANSWERI’m inspired by the continuing shift in attitudes towards investing sustainably as awareness is increasing among younger investors of the source of investment returns, which in turn is prompting a shift towards ESG mandates such as the European Commission’s Action Plan on Sustainable Finance. In The UK, climate risk concerns have prompted the Financial Conduct Authority to consult on proposals that will require financial firms to disclose how they handle climate risk and other ESG criteria. The continual progress in ESG investing, supported by institutional mandates, clearly shows the realization that the adoption of ESG investing needs to be proactive in order to aid in the reshaping of the investment landscape towards responsible and sustainable investing.   

Why We Should Be Inspired

I’m starting with the man in the mirror

I’m asking him to change his ways

And no message could have been clearer

If you want to make the world a better place

Take a look at yourself then make a change

– Man in the Mirror – Michael Jackson

The Socially Inspired Investor in this issue focuses on the very inspiring ways the investment community has come together to make the world a better place.

Socially inspired investing has made a difference.

Why we are finally moving in the right direction.

We know because in this, our 5th issue, we are told by the pros why they are optimistic, inspired, and more empowered than ever before – and why we should be as well.

Our Spotlight On section poses the question to leaders in the investment community, “What progress in ESG investing inspires you today?”.

Surely there is a lot of agreement. They cite changing social attitudes passionately fueled by newer generations, the recognition from authoritative sources that companies that lean toward social and environmental awareness tend to do better. And then of course there is a myriad of technologoical advancements that now allow the world to operate on a lower carbon footprint.

In our SII podcast hosted by Pat O’Neill, we hear from Mr. Georg Kell himself, a pioneer in the ESG world and author of the upcoming book Sustainable Investing: A pathway to a new horizon definitely shares his inspiration. Georg, brings to life the maturation of the socially inspired investing movement.

No doubt daunting challenges still lie ahead. But we can face them, not with exasperation from what still needs to be done, but with satisfaction from what we have been able to accomplish so far. Let’s keep the faith together.

Thank you for spending time with us and feel free to share the Socially Inspired Investor with others you think may be interested.

Investing for Social Advocacy and Gender Diversification

Every generation leaves behind a legacy. What that legacy will be is determined by the people of that generation. What legacy do you want to leave behind?

― John Lewis, Across That Bridge: A Vision for Change and the Future of America

For this issue we set out to explore the performance of investments that have been filtered for social advocacy and gender diversity, both predictably complex issues. Many in this country are struggling to find ways to advance reforms in these areas and the Socially Inspired Investor supports efforts to level opportunities for everyone. 

When it comes to diversity, we are seeing more and more evidence moving from anecdotal to scientific that companies that embrace diversity in leadership are beginning to differentiate themselves.

Harvard Business Review cites at least two studies that show women score higher than men in most leadership skills 1. So why then does this continue to be a challenge?  These days don’t we need more competent leadership more than ever.

In the SII podcast for this issue you will hear from Eric Glass of AlianceBernstein and Patrick Drum of Saturna Capital, on the topic of Investing for Social Advocacy and Gender Diversification, with some pretty convincing stats for us to consider.

“What inspires you that ESG investing can help us make progress on social justice and gender diversification?”

We posed this question to leaders in the ESG investing community. Their responses were fascinating and enlightening. Check out the responses in our Spotlight On article. Clearly reforms are needed across virtually every segment of our society, including the investing community. 

We learn that businesses are more willing these days to use their capital and governance to contribute to real change. All efforts need be applauded. And in real definable ways, we can see this commitment will pay dividends worthy the efforts. But buyer beware.

The fervor may also cause average investors to let their guard down.  In the zest to support the critically important Black Lives Matter and other diversity goals, we also see instances that perhaps investors may be too willing to overlook the fundamentals of sound investing. Remember all investments must adhere to basic investing principles. So, we have added some more reference material to keep you sharp in our Investing Basics section. Unfortunately, some emerging trends do indicate investors may be allowing their passions to overshadow these rules. Rules are rules regardless of the passion.

Our contributors this month speak to all these questions and begin to frame for us how complex the landscape has become.  Perhaps the timing is finally right for significant change. 

Thank you for being part of the Socially Inspired InvestorSM Digest/Podcast family.  Please share this digest with others who are interested in becoming a more informed Socially Inspired Investor.

1 HBR June 23, 2019, Jack Zenger and Joseph Folkman article  

“What inspires you that ESG investing can help us make progress on social justice and gender diversification?”

In exploring this question we reached out to leading experts in the ESG investing industry to find out their responses, and this is what we found…

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERYusuf George Managing Director, Corporate Engagement, JUST CAPITAL

ANSWERJUST Capital’s polling shows that Americans are calling on corporate leaders to create equitable companies, and our data shows that companies that prioritize their workforces outperform industry peers. The companies that prioritize diversity, equity, and inclusion tend to have stronger and more engaged workers, which in turn leads to better performance for shareholders. 

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERPeter Krull. CEO & Director of Investments. Earth Equity Advisors

ANSWERSocial justice is intimately connected to environmental justice. Every time we make a conscious choice to invest sustainably and with our progressive values, we’re helping to make the world a better place for everyone.

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWEREsther Pan Sloane, Head Partnerships, Policy & Communications, UNCDF

ANSWERInvesting in businesses owned by minorities and women can help previously excluded groups create jobs, build wealth, lift their families out of poverty and build their communities.  There are many currently overlooked opportunities that can deliver both social impact and financial returns that we encourage investors to consider as part of a diversified impact investment portfolio.

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERMartina Macpherson, SVP ESG Engagement, Moody’s & President, Network for Sustainable Financial Markets

ANSWERSocial justice and equality is an ongoing process. It entails respect, care, and equity; with a consciousness on the impact of race and ethnicity, class, gender, age, sexual orientation, family responsibility or family status, religious or political conviction, pregnancy, and disability. Social justice and equality recognize inclusive behaviours in the construction of institutional, corporate and governance policies and practices, and seeks ownership, accountability and responsibility for these behaviours. By recognizing human rights, and the dignity of each individual as a categorical imperative, investors, corporations and public institutions should seek to establish a global community of respect, resilience and purpose. This approach in turn is a fundamental part of the social agenda in ESG, and its philosophy for long-term value creation.

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERJed Emerson, Independent Strategic Advisor to Impact Investors, Blended Value Group

ANSWERWhat inspires me regarding ESG’s potential as a vehicle for the advancement of social and gender justice is that ESG is all about the illusion of separation—the idea that it is wrong to think that one can consider economics in the absence of considering social and environmental factors—and social/gender justice is, at its core, a question of our understanding the links between Self and Other, between who we are as individuals and who we are as communities and society. Just as diversity makes for strong eco-systems and viewing the firm as part of the stakeholder whole and commons makes for stronger companies, for each of us to fulfill our own individual potentials all of us must be supported in attaining our individuals possibilities, which at its core is what social and gender justice offers.

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERChristina Shim, Managing Director, Commercial Innovation Palladium

ANSWERIn this world rife with ramifications – both positive and negative – from COVID and the BLM movement, now is the time for real change – if not simply because it’s the right thing to do, then because people are demanding it. The business world has made statements and committed funds, but their efforts ring hollow in the ears of stakeholders who have become disillusioned by posturing without progress. Same with ESG investing, with many investors considering socially responsible investing tied to the SDGs or ESGs as public relations issues. Investors and the trillions of dollars of available capital can touch every facet of our lives – that amount of deployed capital is too immense not to play a meaningful role. Focusing on investing through an ESG lens – by focusing on impact to communities (as partners rather than beneficiaries) and moving beyond the box-ticking – can have serious catalytic consequences on social justice and gender diversification. It’s inspiring to think that we’ve started to see different worlds coming together to create these catalytic changes, which require a focused assessment of the current state, a targeted outcome of what the investments want to achieve, and a roadmap for realization. Social justice and gender diversification is for all of us to solve – and in particular, those groups, organizations, and investors that have historically enjoyed a position of relative power in society.  

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERMegan Fielding, Senior Director, Responsible Investing at Nuveen & Head of Strategic Partnerships

ANSWERThere is a clear connection between the integration of ESG issues and financial performance. This includes strong evidence supporting the benefits of gender and racial diversity, and conversely, penalties when these issues are not prioritized. We are now experiencing a cultural and economic alignment that is rapidly driving progress–financial materiality, performance results and investor demand—and this convergence will likely lead to positive change for both investors and society at large.

QUESTIONWhat inspires you that ESG investing can help us make progress on social justice and gender diversification?

ANSWERKesi Gibson CEO/Founder – Club Debut

It is terrific that considerations of environmental, social and governance issues are now being incorporated into institutional investors’ decision calculus. This will go a long way, particularly on the environmental front, where there are tangible metrics to report on. Gender diversification will also continue to be a priority for companies, as investors respond to the demands of the feminist movement and other diversity related campaigns, making women in leadership a prerequisite for investing.  When it comes to social justice, I am honestly in no way inspired that the widespread approach to ESG investing will do much to engender lasting change. I would go as far as to say that it is disingenuous to tie the two together. Definitionally, social justice relates to the  distribution of wealth, opportunities, and privileges within a society. For social justice to be relevant in any discourse on ESG investing, the accepted metrics around ESGs would have to, at a minimum, address access to capital for underserved entrepreneurs, and businesses owned and operated by people of color. That said, I am inspired by the conversations around race, class and privilege that are now happening among the people (particularly the investor class) who truly have the power to make progress on social justice, beyond words. 

What needs to be done? Who is going to pay for it?

Americans long thought that nature could take care of itself — or that if it did not, the consequences were someone else’s problem. As we know now, that assumption was wrong; none of us is a stranger to environmental problems. Industrial workers, for example, are exposed to disproportionate risks from toxic substances in their surroundings. The urban poor, many of whom have never had the chance to canoe a river or hike a mountain trail, must nevertheless endure each day the hazardous effects of lead and other pollutants in the air.

– President Jimmy Carter in a May 3, 1977 message to Congress

Hello and welcome again to the latest edition of the Socially Inspired InvestorSM.  In this edition we turn our focus to an investment option that really hasn’t been around for a long time – Green Bonds. 

According to State Street Global Advisors, “ESG considerations are becoming increasingly relevant in fixed income investment portfolios. While ESG is [now] at the top of many institutional investor’s agendas, the focus has primarily been on the equity portion of their investments; but this is changing.  Investors are now putting more thought into how to successfully embed ESG into their fixed income investments.”

This is so true. Without a doubt articles written on the subject of ESG investing today – and we read a lot of them – mostly feature equity solutions, which tend to be broad and aspirational but are only part of the solution and opportunity. Bonds – green, social, sustainable – are more targeted to address specific problems that exist today. They are also a critical component of a balanced portfolio. We have chosen this critical area to explore in this issue because of their unique applications and the dearth of objective information available to the average investor.  

When it comes to exploring the ins and outs of socially responsible investing in bonds, SII has brought together content from experts in the field. We will hear from Heather Lang, executive director, sustainable finance at Sustainalytics, a Morningstar company.   We also feature insights from Greg Hasevlat, sustainability research analyst at IMPAX Asset Management. In addition, as always, we have curated for you relevant articles you can find in our ESG in the news section.

“None of us is a stranger to environmental problems” – Pres. Carter said that over 40 years ago!

But we do see today and continue to be inspired by, the coming together of vast intellectual resources on a global scale focused on making the future better for ourselves and future generations. We should allow ourselves to be encouraged.

As investment solutions expand and mature, we become more and more inspired that the world will become a better, far more values-focused place to live. Investors are realizing that they can vote their investment dollars without having to disadvantage their return targets.

Our overall message is that we continue to be inspired, and it will take inspiration, and an ever-increasing awareness and commitment of time and treasure. 

Enjoy this issue. We hope you’ll find within it new insights.


QUESTIONQuestions by:
The Socially Inspired Investor Digest

ANSWERInterview with:
Heather Lang – Executive Director at Sustainable Finance Solutions and Sustainalytics.

QUESTIONTell us more about Sustainalytics

ANSWERSustainalytics is a leading environmental, social and governance research and rating firm and we use the acronym ESG throughout. Our clients are among the largest global institutional investors, banks and corporations, and our principal business is really to support our investor clients in incorporating ESG insights into their investment decision making. We have over 25 years of experience in the industry, so in that sense, we’ve really evolved. We participated in the industry’s evolution from niche to mainstream.

QUESTIONAre there bonds that are directly involved in helping us recover from the impact of the coronavirus?

ANSWERYes. Social bonds have really emerged as an important instrument for allocating capital to some of the impacts of Covid-19 and those tend to focus on two key areas. The first is health care and the second is socio-economic impact. For healthcare we might see subsidization of pharmaceuticals for treatment of Covid-19 or research and development for potential vaccines, to name a couple of examples.

QUESTIONTell us a little bit more about green bonds and what types of projects are involved in that?

ANSWERGreen bonds are distinguished from plain vanilla bonds. There are three main areas and one is green buildings. Here we would be looking at companies that would be looking to finance or refinance LEED certified buildings, for example, that meet best practices for energy efficiency. Transport could include investing in a green transit system, or changing fleet from diesel to electric vehicles, or electric trains. The third category, of course, renewables would involve seeing any investments in projects that would support increased use of renewable energies, including solar, wind, biomass and hydroelectric, for example.

ANSWERSo those three categories accounted for about 80 percent of 2019 issuance, and Green bonds constitute the largest segment of the sustainable finance market, accounting for about 260 billion in 2019. But it’s also worth noting that there are other related instruments under the sustainable finance umbrella. Those include social and sustainability bonds, along with green loans and sustainability linked loans. Social bonds though they have a smaller market share, they directly target disadvantaged groups in accessing healthcare, education, affordable housing, gender equality, to name a few; whereas sustainability bonds include both environmental and social projects. And while green bonds really are the market driver, we have seen an uptick in social and sustainability bonds in recent years and particularly a noteworthy uptick in social bonds in the context of the pandemic.

QUESTIONWhat kind of examples are you talking about with Social Bonds? Where is that money going?

ANSWERIt’s largely being targeted towards vulnerable or disadvantaged groups in a variety of contacts, making accessible housing, healthcare, education and transport. Often there’s also an overlap in the sustainability bonds. For example, you invest in transport both on the environmental side and on the accessibility side, to make sure that it’s more available to disadvantaged groups. There’s a lot of focus there under the under the social bonds on small to midsize enterprises and helping them to be more resilient.

QUESTIONOn the subject of Green Bonds, how are U.S. companies participating?

ANSWERBoth financial and non-financial corporates represent about 45 percent of green bond issuance in 2019, and these are large corporates that we know such as, Apple, Starbucks and Pfizer. Financial institutions have played a leading role in this space, both in terms of issuing, and underwriting green bonds. However, we’ve also seen a lot of different sectors come into the green bond space in recent years. There is a lot more diversification now to include tech, telecom and food retail, alongside other traditional issuers like utilities providers and real estate companies as well as corporates.

QUESTIONAre green bonds utilized globally?

ANSWERWe have worked with sovereign insurers over the years and in the last couple of years, Luxembourg, Netherlands, Fiji, Korea; also-sub sovereigns and municipalities. Additionally, development banks have played an important role in the green bond market, especially in the early years, with the World Bank being the first to issue a green bond back in 2008.

QUESTIONSo, government entities are involved in some of these, too?

ANSWERYes, absolutely.

QUESTIONHow do non-government organizations (NGOs) use bonds for social purposes?

ANSWERThey arenot as common as other types of issuers; however, we have seen an increasing amount of nonprofit issuers in the last year or so. A couple of them that Sustainalytics have worked with include the Conservation Fund, the Low-Income investment fund and Century Housing. We’ve also seen recent issuances from a handful of foundations and most notably, including the Ford Foundation, which recently issued its first-time social bond. In doing so, the foundation was able to leverage investment to double its grant making from about half a billion to over a billion, to help stabilize the financial needs for organizations that might otherwise see a funding decrease, due to Covid-19, an associated economic impact.

QUESTIONAre there bonds that are directly involved in helping us recover from the impact of the coronavirus?

ANSWERSocial bonds have really emerged as an important instrument for allocating capital to some of the impacts of Covid-19 and those tend to focus on two key areas. The first is health care and the second is socio-economic impact. For healthcare we might see subsidization of pharmaceuticals for treatment of Covid-19 or research and development for potential vaccines, to name a couple of examples. For socio-economic impact, we’d be looking at loans for small to midsize enterprises at risks, projects to prevent or alleviate unemployment and other financial supports for vulnerable populations.

QUESTIONTell us about how Green Bonds work. Who decides where that money goes?

ANSWERThe project selection for Green Bonds is often a combined effort between sustainability and finance teams and depending on the assets to be financed, they can either choose one or multiple categories. It’s worth noting that there are a set of globally identified guidelines by the International Capital Markets Association and these are called the green bond principles. There are four specific categories that all companies need to align with.

  • The proceeds have to finance or refinance green projects.
  • There needs to be a clear and transparent process for determining project eligibility and any potential material risks.
  • All of the proceeds need to be managed in a separate subaccount or sub portfolio.
  • There’s an expectation from investors that there would be regular reporting, usually on an annual basis on allocations as well as key performance indicators.

QUESTIONAre there some tax advantages to getting the green bonds and investing?

ANSWERThere are several types of tax incentives for investor, there are tax credit bonds through which investors receive tax credits instead of interest payments. That way, issuers don’t have to pay interest on their green bond issuance. There are also tax-exempt bonds where bond investors don’t have to pay income tax on interest from the green bonds they hold and that’s most common in the U.S. muni market.

QUESTIONTell us about Sustainalytics relationship with Morningstar

ANSWERI’m pleased to announce that Sustainalytics was fully acquired by Morningstar, and that’s after partnering with them for a number of years on sustainable indices and ratings. This collaboration will really support the expansion of ESG more to individual investors, advisors and wealth managers around the world. On the sustainable finance side, which is the team that I’m leading up, we are also the leading global reviewer of green bond frameworks. We work with issuers and underwriters to accelerate capital allocation to sustainable solutions.

For more information go to: Sustainable Finance Solutions at Sustainalytics.

Pandemic Implications Signal a Change for the Future

With the new day comes strength and new thoughts

— Eleanor Roosevelt

And so it is. 

The Socially Inspired Investor (SII) now focuses our new thoughts around post-pandemic investing. If the trend continues, as we see from the articles we have curated for you at the ESG In Focus section, then for the first time, investors may be liberated from the binary choice of deciding whether to do good, according to their values, or compromising their values for investment returns.

The current strong performance of ESG oriented investments has opened the eyes of many of the titans of the investment world including Morgan Stanley, Goldman Sachs, AllianceBernstein and others. CNBC is devoting significantly more segments to ESG investing and shareholders and consumers are demanding increased accountability on a myriad of social values. Of course, defining personal values is well…very personal. Racial injustice, diversity, preferences around energy sources, cannot be just lumped together and be relevant to everyone. In future SII issues we will look to create a framework on how to “customize” your ESG.

ESG investing seems to align very well with post-pandemic investing. Similarities include more focus on technology, inclusive corporate culture, health orientation and a platform to embrace the personal values that support social interaction.

But there most certainly must be tradeoffs to consider as well. It might be that to achieve size and scale, society may have to become more comfortable with centralism, allowing for very large organizations (Amazon, Tesla, Zoom, Beyond Meat, et al) to lead the way. Of course, that could lead to the possibility of free trade manipulation, data misallocation and even enhanced cyber security exposure. Regulatory efforts clearly have not yet evolved. Becoming aware of the new risks ahead is critical as we better understand the new normal. Just something to keep in mind as we go on this journey together. We will also look to dedicate future SII editions to these risks.

The SII SPOTLIGHT ON and the SII PODCAST in this issue focus on a deep dive into the UNCDF activities and their partnership with Impact Shares, an ETF from Brookmont Management. This partnership offers an easy, affordable and accessible way for investors to invest in the ESG space, and in turn donate part of the management fees that they charge to the UNCDF. Esther Pan-Sloane, head of partnerships, policy and communications at the UNCDF and Ethan Powell Principal and CIO from Brookmont discuss their partnership. We also take a deeper look at UNCDF and Esther’s background in the SPOTLIGHT ON section as well. 

You can find more information on Impact Shares at https://impactetfs.org/sdga-etf/.   

For socially inspired investors, where investment returns are simply not enough, we hope we continue to inspire you and invite you to bring others along. Thank you for joining us on this journey.  

Esther Pan Sloane and the United Nations Capital Development Fund (UNCDF)

Originally published: June 17, 2020

QUESTIONQuestions by:
The Socially Inspired Investor Digest

ANSWERInterview with:
Esther Pan Sloane – Head of Partnerships, Policies and Communications at the United Nations Capital Development Fund (UNCDF)

QUESTIONEsther, can you explain briefly what the UNCDF is, and what it’s designed to do?

ANSWEREPS: The United Nations Capital Development Fund is a UN aid agency that was founded in 1966 to fight poverty using finance. It focuses on the 47 poorest countries in the world which are known as the least developed countries and we work mainly in three areas:

ANSWERFinancial inclusion, which is about bringing individuals into the market by giving them access to savings or credit. For example, in many African countries we work to build savings groups for rural women where they each save a small amount of money and lock it in a box. Every week they pool their money, count it, and make loans to each other. Once they’ve done that for a year, we connect them through digital financial services to a bank. For these women who have never had assets before, suddenly they have a savings pot, credit, and they have a different stature in the community because they control assets. That’s one of the examples of what we would do in financial inclusion.

ANSWERIn that area, we also support private sector companies to create goods and services for the poor, to make sure that people at the bottom of the procurement have access to financial services. For example, we’ve worked in eight African countries with banks, to create digital wallets for poor youths to save money in very small amounts. Most of these banks did not think that was a viable profit-making scheme until they saw that in these eight countries, the young people saved 20 million dollars. That’s an example of how we show there is a market for serving the poor.

ANSWEROur second main area of work is local development finance which is about helping local government officials manage their public finances effectively, collect taxes and deliver services to their citizens. In this area we would do something like co-finance a bus station in a town in Tanzania that has a bus station that sends buses all around Africa. Before we helped build this project there was a muddy field and when it rained people would miss their buses and buses would get stuck. After the project was finished, there’s a nice paved area where the buses can pull in and people can find their buses in an orderly way.

ANSWERThe last area that we work in is innovative financial instruments. We make loans and guarantees to small businesses in least developed countries, to help them grow and prosper. 

QUESTIONHow do you get the point across to individual investors from your standpoint that it makes sense to include investment vehicles in their overall strategy?

ANSWEREPS: Many investors are facing the questions, “How do I participate?”, “How do I support the issues that I care about?”, “How do I work to make a better world?”, and “What tools are at my disposal?”. 

ANSWERI think many institutional investors are hearing pressure from their shareholders and participants about how their money is invested. The nurses’ union in Sweden for example, mandated that the investments made by that union had to support gender equality and many pension funds are hearing that around the world. People who support family offices are hearing it from the next generation of wealthy individuals, who are very committed to social causes and are looking now at the corpus of their funds and saying, “What can I do with my investments that also reflect my values?”. You are seeing foundations move in this direction as well with PRI investments and looking at how do they invest their endowments.

ANSWERIf you are an individual investor and you care about issues like gun control, minority empowerment, or women’s economic empowerment, this is a new way that you can make decisions with your investment funds that reflect your values. We know for example, that it’s hard for many people to feel like they are engaged with the UN, we are working in many countries around the world. You may not have a direct connection to a woman microfinance entrepreneur in Myanmar, but you could buy certain funds on the stock market, get a market return for your money and know that that fund is supporting our work – UNCDF’s work, directly in the poorest countries. It was a way for us to try to pilot a vehicle that would allow people to connect their investment funds, get a return because we know that’s important for investors and that it’s a fiduciary duty of many fund managers, but also to support social organizations that are working to make the world better.

QUESTIONA part of your job must be raising money, talking to the big people who have the money and convincing them, it must be a big part of it?

ANSWEREPS: As the UNCDF is a UN agency the main focus of my fundraising is with governments. We are funded by donations, by grants from governments and we have a  responsibility to use that tax money effectively. What we are trying to do with these new vehicles, like with this one with Impact Shares is to pilot new instruments that can use taxpayer dollars that we are receiving to catalyze or attract private sector dollars, to areas where they otherwise would not go and have achieved a sustainable development outcome. For example, our biggest donor at UNCDF is Sweden and Sweden has been very creative in their use of grant funding where they will allow us to use their grant money to make loans to small businesses. We are doing that at concessional rates that help small businesses survive but then when the businesses pay their loans back, which they do, we are allowed to keep the income to make new loans. It’s essentially a smart way to do philanthropy because you’re creating a self-regenerating source of finance. 

QUESTIONWith the rise in interest in socially responsible investing in recent years do you think that the COVID-19 experience will actually speed up that trend a bit?

ANSWEREPS: I hope so and that’s been topic of discussion at the UN and in a lot of multilateral forums lately which is the clear evidence that societies that had stronger social safety systems have responded better to the COVID crisis. If you had a strong health network, good access to healthcare and a strong social safety net, businesses would not over-leverage. They had good access to reliable sources of finance and were able to withstand the shocks better. Even in this first stage where governments are really focusing on their response to the health crisis and trying to mitigate the health impacts, it’s very clear that the economic impacts that have come along with things like social distancing and shutdowns are hitting poor and less equal communities harder. And that will be doubly true of poor countries.

ANSWERI heard this morning there are 150,000 confirmed cases of COVID in all of Africa but that’s not because that’s how many cases there are, it’s because that’s their capacity to test. Once it becomes evident that you know that this disease has really hit, you are in societies where there is no reliable access to clean water, the food supply is disrupted, 80% of the economy works in the informal sector, there are weak social safety nets so imagine the health and economic pain we’re going through in the United States or a developing country and then magnify it by a thousand for a poor county.

ANSWERI think many investors and policymakers are realizing that the impacts of a crisis like this really show the effects of the policy choices we’ve made in the past. As societies have chosen to invest in certain aspects of our infrastructure or business cycles or access to public services at the expense of others and now we are seeing the impacts of that in some very negative ways. I think it will accelerate the move towards sustainable development investing or investments that are aligned with ESG principles because It is a terrific opportunity to build a better society, build back better. The fiscal stimulus that has been released now to deal with COVID could go into clean energy investments or water investments or technology of the future, that will really help us get on the right pathway to achieving both the sustainable development goals and the Paris Agreement. It also highlights that choices we’ve made in the past have really negative impacts. 

ANSWERFor more information about UNCDF go to www.UNCDF.org