Author: Sureita Hockley

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. 

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.

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)

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

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