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Why Standards Would Benefit the Green Finance Industry

The SSC Team July 26, 2018 Tags: , , , , , , , , , , , , , , , Strategic Sustainability Consulting No comments
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It’s safe to say we all agree that green efforts in any industry should be applauded and the same is true when it comes to finance. But while a desire for green finance continues to grow worldwide, how can investors and issuers best identify and evaluate risk when the industry has no standards?

It’s clear that the industry is seeing major growth. In 2017 the issuance of labeled green bonds (PDF) jumped to nearly $160 billion and the self-labeled U.S. green bond market more than doubled, powered by a mix of municipalities, states and large corporations. But as these new and innovative financing options are being established, it seems increasingly important that some mandatory standards be created to guide those working in the industry.

Standards in the world of green finance would be beneficial for both investors and for issuers. For investors who are building their green portfolios and need assurances of best practice and reliable ways to monitor the quality of green instruments — regardless of which geographies or industries they invest in — a sense of best practices and who is meeting them would clearly help with decision making. When it comes to issuers, common standards would clarify options in terms of issuance while also ensuring that deals are being appropriately structured and reaching the right investors for each project.

Standardization also serves to enable innovation because it establishes a level playing field. While ING was first to issue a sustainability rating-linked loan, they have since observed that other banks have embraced different set-ups. Five years ago, Climate Bonds Initiative (CBI) and the International Capital Markets Association (ICMA) both set out to establish a voluntary set of guiding principles for participants.

The framework from both organizations was focused on the process that needed to be followed when issuing green bonds: how issuers should describe the allocation of proceeds to investors; how a second opinion should be obtained; and how they should set about reporting in a transparent way.

And as a way to help kick-start the market, these served as helpful principles that could reassure investors and facilitate the uptake of green bonds, without being overly prescriptive about the use of the finance.

But the market has greatly expanded since 2013 and questions related to the use of green bond proceeds — their so-called "content" — have inevitably arisen: Which projects will qualify in specific sectors? Where should the boundaries be set? Where should classifications lean towards green or social bonds?

While CBI and ICMA with the input of other banks and stakeholders have continuously refined their earlier standards, the fact that the principles remain voluntary means that issuers do not need to follow them. On the flip side, if the standards around the industry become too settled, it will be difficult for the market to support the wide range of investor who would like to participate.

Who are these investors? Well the green finance industry has groups coming from varying green backgrounds, including investors with dedicated mandates for green bonds, investors with diversified portfolios that include pockets of green, and investors who find green bonds attractive but don’t have a dedicated mandate in place.

Because of their varying levels of commitment to being green, the investors might have different standards. Those with a dedicated green mandate are going to put potential issuers under much higher scrutiny than others.

And this is where there is a fine line to maintain between what investors want and expect, and what issuers want and need. It’s simply a fact that different industries are moving at different speeds when it comes to sustainability and different industries will face distinct challenges along the way. Within the investor community, there are a range of perceptions about standards and the various investment opportunities available.

Chief executive of the Loan Market Association, Clare Dawson, summed up the need for green finance standards perfectly, "With any new market, establishing a general framework for the product such as the Green Loan Principles (GLPs), which we recently launched, is beneficial as it helps create a common understanding of what people are looking at. We will be seeking to develop the GLP further to accommodate a wider range of loan structures, including revolving credit facilities, to maximize the number of borrowers able to take out green loans."

While issuers and investors have managed admirably with a voluntary patchwork of existing guidelines this far, a fresh set of commonly adopted standards will be the key to allowing green markets to expand. If these standards put the emphasis on process over content, it should create better conditions for green markets to thrive in future. And that’s great news for everyone.

If Your Investors Are Assessing Your Climate Risk, Shouldn’t You Be?

The SSC Team June 7, 2018 Tags: , , , , , , Strategic Sustainability Consulting No comments
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Enjoy this post from the SSC Archives. 

 

A few summer ago, the World Resources Institute and the UNEP Finance Initiative consulted with more than 100 energy, climate, and finance experts to create a discussion framework for investors to weigh exposure to the risks of climate change.

Essentially, it is a toolkit for investors to evaluate a company based on climate risk factors not directly related to physical risk. Most investors can already pick out obvious physical risks, i.e. investing in coastal property as sea levels rise. But non-physical, climate-change effected risks are also important.

The WRI discussion framework addresses those risks, called carbon-asset risks. They include public policy, regulation, technology, unpredictable market conditions, and shifting public opinion.

This discussion framework is an excellent tool for investors to weigh risks as they choose to make investments, but we argue that companies themselves should be looking at this tool to discover their own carbon asset risks and then engaging in some deeper-level analyses and audits.

For example, the assessment recommends that investors look beyond carbon footprinting and delve deeper into company supply chain audits that may uncover risks. For example:

  • Geographic location (are too many of your suppliers in the path of a super-typhoon?),
  • Local regulations (are the countries your source your raw materials from looking to legislate and increase your costs?),
  • Diversification in operations or production (are your products and services too dependent on fossil fuels?).

This discussion framework, while absolutely useful for investors, can also be used as a cheat sheet for your own business. Next step: Start auditing and taking action now to mitigate your climate risk.

Reducing exposure to risk is crucial, not only to become more attractive to investors, but also to become a more sustainable organization overall!

If you’re ready to start looking more deeply at your carbon asset risk, contact us to learn more about sustainability assessment and supply chain analysis

Webinar of the Month: How to Eliminate the Redundancies and Inefficiencies of Independent EHS Systems

The SSC Team February 23, 2017 Tags: , , Strategic Sustainability Consulting No comments

Webinars are great for catching up on general topics, or delving into a specific thread. For our EHS professionals, this webinar is a great one for helping you look critically at your EHS systems and consider how integrating them will save the company time and money, as well as improve performance on environmental, safety, and health metrics.

Using sustainability to avoid risk

The SSC Team February 21, 2017 Tags: , , , Strategic Sustainability Consulting No comments

The evidence that sustainability can be good for business is overwhelming. Most of the case studies, examples, and analysis that has been done show positive links between a sustainable approach to environmental and social issues, and corporate profits, Thus far, the research has been primarily focused on direct operational efficiencies (like retrofitting your office lighting to save money and reduce your carbon footprint), innovation (using biomimicry to drive new product development), and productivity (ie. more engaged employees take less sick leave).

Over the past few years, there has been an increasing amount of discussion about the nexus between sustainability and risk management. And for corporations operating in complex supply chains in a globally-connected economy -- well -- effective risk management can be the difference between success and failure. Below, we take a look at three articles that shed light on why companies still struggle to incorporate sustainability into their risk management practices (and vice versa).

Has sustainability become a risky business? This GreenBiz article by John Davies reviews a report by Ernst & Young. The key takeaway: While more companies are concerned about increased risk and the proximity of natural resource shortages, corporate risk response appears to be inadequate to address the scope and scale of some of these challenges. The free report looks at six corporate sustainability trends with a strong focus on the internal influencers of corporate performance (CEOs and boards), as well as external forces ranging from governments to shareholders and investors.

Playing It Safe Is Riskier than You Think by Bill Taylor in the Harvard Business Review makes the case that "difficult and uncertain times are often the best times for organizations to separate themselves from the pack, so long as their leaders are prepared not to stand pat." While not directly about sustainability, this article certainly supports the notion that economic turmoil is no reason not to be ambitious about tackling big sustainability challenges.

Research: Why Companies Keep Getting Blind-Sided by Risk by Mary Driscoll in the Harvard Business Review presents fascinating insight into why companies (and their executives) are not succeeding at identifying and mitigating risk. Survey findings indicate that most organizations’ leaders did indeed express concern about the impact of political turmoil, natural disasters, or extreme weather. But the findings also show that the people at the front lines of the business were hamstrung by a lack of visibility into risk. Nearly half said they lacked the resources needed to adequately assess business continuity programs at supplier sites. Many relied on the suppliers filling out perfunctory, unreliable checklists. There are some big lessons here for sustainability practitioners! 

We are focused on helping companies use a "lens of sustainability" to spot risk earlier, broaden risk response options, and more effectively mitigate risk within their operations and all along their supply chain. If this work strikes a chord with you, please get in touch with us. We'd love to hear from you!

 

White Paper Profile: Shifting the Focus from End-of-Life Recycling to Continuous Product Lifecycles

The SSC Team June 21, 2016 Tags: , , , , Strategic Sustainability Consulting No comments

Just because a product is recyclable, doesn't mean it is going to be recycled by the end user, nor does it mean that the organization can write off any responsibility of the management of products at their end-of-life. 

End-of-life issues present an important challenge to organizations, from facilitation of recycling and measuring effectiveness of recycling programs, to shifting to continuous use models. 

"Recycling should not be looked at in a vacuum but as part of a larger system where costs and the release of greenhouse gases and toxics, among others, inhabit."

Learn more about the challenges of product lifecycle management at product end-of-life in this white paper by Call2Recycle.

Life cycle assessments are an important way to view the full impact of your product's sourcing, production, distribution, and disposal, often leading to the discovery of hidden opportunities to reduce waste or mitigate risk as a result the process. Contact us to get started on your LCA. 

 

White Paper Profile: Shifting the Focus from End-of-Life Recycling to Continuous Product Lifecycles

The SSC Team June 21, 2016 Tags: , , , , Strategic Sustainability Consulting No comments

Just because a product is recyclable, doesn't mean it is going to be recycled by the end user, nor does it mean that the organization can write off any responsibility of the management of products at their end-of-life. 

End-of-life issues present an important challenge to organizations, from facilitation of recycling and measuring effectiveness of recycling programs, to shifting to continuous use models. 

"Recycling should not be looked at in a vacuum but as part of a larger system where costs and the release of greenhouse gases and toxics, among others, inhabit."

Learn more about the challenges of product lifecycle management at product end-of-life in this white paper by Call2Recycle.

Life cycle assessments are an important way to view the full impact of your product's sourcing, production, distribution, and disposal, often leading to the discovery of hidden opportunities to reduce waste or mitigate risk as a result the process. Contact us to get started on your LCA. 

 

Can You Attract Low-Carbon-Focused Clients and Investors?

The SSC Team June 7, 2016 Tags: , , , , Strategic Sustainability Consulting No comments

From the Fortune 500 to retail investors, corporations and individuals are looking to fund green companies and projects. Additionally, B2B companies are increasingly setting sustainability thresholds for suppliers. 

You can make your company attractive to the low-carbon marketplace in a number of ways:

Start reporting: One of the simplest ways to start on the path of attracting the green investment community is to clearly communicate your sustainability efforts and their results. If you aren’t generating a transparent, comprehensive sustainability report, then you are communicating that you do not and have not acknowledged your impact or risk in the face of climate change. By simply reporting on sustainability metrics, you are communicating that your organization is “on it.”

Seek certifications: Look to third-party certifications, in your industry or in a wider industry role, to begin building a validated sustainability strategy that follows best practices. From B-Corp certification to Energy Star (for electronics and appliances) to LEED to ….there are dozens of certifications that signal that your company is serious about following accepted sustainability standards.

Get on “a list:” There are a number of index funds put together based on corporate qualifications and certifications, or you can be added to a green stock listing. Of course, your sustainability efforts or products must be robust to qualify.

Issue green bonds: Starbucks recently made the news for issuing $500 billion in green bonds to fund its sustainability programs. Offering green bonds to investors to fund your sustainability efforts can serve two purposes: generate capital to fund larger-scale sustainability efforts and signal that you’re serious about the investment in the program.

Are you looking to improve your supplier scorecard performance and attract more green business? We have experience with dozens of supplier scorecard metrics and reporting standards to help open doors for your company.

 

Can You Attract Low-Carbon-Focused Clients and Investors?

The SSC Team June 7, 2016 Tags: , , , , Strategic Sustainability Consulting No comments

From the Fortune 500 to retail investors, corporations and individuals are looking to fund green companies and projects. Additionally, B2B companies are increasingly setting sustainability thresholds for suppliers. 

You can make your company attractive to the low-carbon marketplace in a number of ways:

Start reporting: One of the simplest ways to start on the path of attracting the green investment community is to clearly communicate your sustainability efforts and their results. If you aren’t generating a transparent, comprehensive sustainability report, then you are communicating that you do not and have not acknowledged your impact or risk in the face of climate change. By simply reporting on sustainability metrics, you are communicating that your organization is “on it.”

Seek certifications: Look to third-party certifications, in your industry or in a wider industry role, to begin building a validated sustainability strategy that follows best practices. From B-Corp certification to Energy Star (for electronics and appliances) to LEED to ….there are dozens of certifications that signal that your company is serious about following accepted sustainability standards.

Get on “a list:” There are a number of index funds put together based on corporate qualifications and certifications, or you can be added to a green stock listing. Of course, your sustainability efforts or products must be robust to qualify.

Issue green bonds: Starbucks recently made the news for issuing $500 billion in green bonds to fund its sustainability programs. Offering green bonds to investors to fund your sustainability efforts can serve two purposes: generate capital to fund larger-scale sustainability efforts and signal that you’re serious about the investment in the program.

Are you looking to improve your supplier scorecard performance and attract more green business? We have experience with dozens of supplier scorecard metrics and reporting standards to help open doors for your company.

 

3 Sustainability Tools that got our Attention in 2015

The SSC Team January 7, 2016 Tags: , , , , , Strategic Sustainability Consulting No comments

We appreciate good calculation tools. We are constantly looking for the most comprehensive or best combinations of calculation tools to cross check and ensure our clients are getting the best possible data. 

Here were three tools that got our attention in 2015:

GCSP-ITC Quick Scan Tool – Launched in June, this open-source tool allows companies to compare their compliance policies against best practices in order to inform improvements in supply-chain management. Provided by the Global Social Compliance Programme (GCSP), it is open to GCSP members and others free of charge.

  • How it works: Buying companies can identify standards others use in purchasing. Suppliers can create a self-assessment, benchmark the assessment against peers, and identify immediate steps to move toward best practice.
  • Who should use it: Anyone with a medium to lengthy supply chain or who is a supplier.

Water Risk Valuation Tool – Launched in September by Bloomberg ESG Data and Tols, this calculator illustrates how water risk can be valuated in corporate mining valuation models. Based on the gold and copper mining industries, this tool can inform all mining companies on how water risk might effect earnings and operations.

  • How it works: The tool models potential “asset stranding” based on estimated future water scarcity and risk factors related to that scarcity.
  • Who should use it: Mining companies, especially in precious metals

RiskHorizon – Launched in October by Anthesis Group, this web-based toold quantifies and monetizes environmental, social, and governance risk over 25 political, economic, social, and environmental areas, aggregating 100 different datasets.

  • How it works: The tool is designed to help “futurecast” risks and opportunities in assets, supply chain, and business model and then quantify and prioritize the value of that risk. A big job.
  • Who should use it: Investors, risk management professionals, supply chain managers, and strategic leaders should all be interested in a company’s risk profile.

One thing to remember - data out of context or too generalized really won't do anyone any good. Ensure you're working with a sustainability professional that can help validate and contextualize your data in your reporting process and sustainability planning programs.  

Have you used a calculator, but aren’t quite sure how to take action on results? Let us know. We can help assess your findings and customize a plan to help your company align with best practice in sustainability.

Using Sustainability to Avoid Risk

The SSC Team August 25, 2015 Tags: , , , , , , , , , , , Strategic Sustainability Consulting No comments
Enjoy this blog from the SSC archives: The evidence that sustainability can be good for business is overwhelming. Most of the case studies, examples, and analysis that has been done show positive links between a sustainable approach to environmental and social issues, and corporate profits, Thus far, the research has been primarily focused on direct operational efficiencies (like retrofitting your office lighting to save money and reduce your carbon footprint), innovation (using biomimicry to drive new product development), and productivity (ie. more engaged employees take less sick leave). However, there hasn't been as much talk about the nexus between sustainability and risk management. And for corporations operating in complex supply chains in a globally-connected economy -- well -- effective risk management can be the difference between success and failure. Below, we take a look at three articles that shed light on why companies still struggle to incorporate sustainability into their risk management practices (and vice versa).

Has sustainability become a risky business? 

This GreenBiz article by John Davies reviews a report by Ernst & Young. The key takeaway: While more companies are concerned about increased risk and the proximity of natural resource shortages, corporate risk response appears to be inadequate to address the scope and scale of some of these challenges. The free report looks at six corporate sustainability trends with a strong focus on the internal influencers of corporate performance (CEOs and boards), as well as external forces ranging from governments to shareholders and investors.

Playing It Safe Is Riskier than You Think

This article by Bill Taylor in the Harvard Business Review makes the case that "difficult and uncertain times are often the best times for organizations to separate themselves from the pack, so long as their leaders are prepared not to stand pat." While not directly about sustainability, this article certainly supports the notion that economic turmoil is no reason not to be ambitious about tackling big sustainability challenges.

Research: Why Companies Keep Getting Blind-Sided by Risk

by Mary Driscoll in the Harvard Business Review presents fascinating insight into why companies (and their executives) are not succeeding at identifying and mitigating risk. Survey findings indicate that most organizations’ leaders did indeed express concern about the impact of political turmoil, natural disasters, or extreme weather. But the findings also show that the people at the front lines of the business were hamstrung by a lack of visibility into risk. Nearly half said they lacked the resources needed to adequately assess business continuity programs at supplier sites. Many relied on the suppliers filling out perfunctory, unreliable checklists. There are some big lessons here for sustainability practitioners! Are simple mistakes holding back your sustainability? Find out how to correct those mistakes here!