Directing capital toward better results for the planet requires that companies and investors have clear information about how environmental, social and governance issues translate to real business risks and opportunities. Of the many groups today that are looking to standardize how companies report on sustainability issues, the Sustainability Accounting Standards Board (SASB) takes a distinct approach by zeroing in on what publically traded U.S. companies should disclose in their filings to the Securities and Exchange Commission (SEC). When I attended a recent workshop the organization hosted in Boston as part of Sustainable Brands’ New Metrics conference, I learned more about what SASB is up to and what impact the group’s work could have.
Guest post by Chris Pinney, President, High Meadows Institute
While it may seem that increasing progress is being made on integrating sustainability in the financial sector, the recent UN Principles for Responsible Investment (PRI) conference in Montreal was a sobering reminder of the challenges that still need to be addressed.
On the one hand, we have seen a rapid growth of financial firms subscribing to the UNPRI, with firms now representing $45 trillion in assets under management. At the same time, as UNPRI’s Managing Director Fiona Reynolds reported in Montreal, only 6% of asset owners committed to the UNPRI report that their performance management and compensation systems for senior executives include metrics that recognize and reward sustainability performance. As she noted, “What gets measured gets managed. If responsible investment is to become truly mainstream, it must start at the very top of every organization, with the right incentives.”
Prior to joining EDF, I worked in a variety of finance-related roles, from building the alternative energy franchise at an investment bank to pioneering investment in rural communities in the developing world at Root Capital. As part of my work at EDF, I’m investigating what financing mechanisms can drive investment in projects with big environmental returns, as well as financial ones. This post is the start of a new series looking at the green bond market, and in the future, I’ll be delving into other areas of impact investing.
Eighteen months ago, you might have never heard of a green bond. The market averaged less than $3 billion per year, but that is quickly changing. $14 billion in green bonds were issued in 2013 and Bloomberg New Energy Finance projects as much as $45 billion to be issued this year. One expert even sees the market climbing to $100 billion in 2015.
Flexible financing for sustainability projects
So what are green bonds, and what is driving this market growth? Simply put, they’re a debt instrument that can be linked to an environmental benefit. One compelling aspect of green bonds is their flexibility. While some may be tied to energy efficiency and renewable energy projects, others are used for projects around climate resiliency, water infrastructure and a growing list of other high-priority sustainability areas.
As countries experience the mounting impacts of climate change, there is an increasing global demand for capital in these critical infrastructure categories. At the same time, funds that are integrating environmental, social and governance criteria in their investment decisions are looking for these types of instruments to add to their portfolios.
Last month, twelve major corporations announced a combined goal of buying 8.4 million megawatt hours of renewable energy each year and called for market changes to make these large-scale purchases possible. Their commitment shows that demand for renewables has reached the big time.
We're proud that eight of the twelve are EDF Climate Corps host organizations: Bloomberg, Facebook, General Motors, Hewlett Packard, Proctor & Gamble, REI, Sprint and Walmart. The coalition, brought together by the World Wildlife Fund and World Resources Institute, is demanding enough renewable energy to power 800,000 homes a year. And while it's great to see these big names in the headlines, they're not alone in calling for clean energy: 60 percent of the largest U.S. businesses have set public goals to increase their use of renewables, cut carbon pollution or both.
Companies want renewable energy because it makes good business sense: it’s clean, diversifies their energy supply, helps them hedge against fuel price volatility and furthers their greenhouse gas reduction goals. Renewables are now the fastest-growing power generation sector, and by 2018, they’re expected to make up almost a quarter of the global power mix. Prices of solar panels have dropped 75 percent since 2008, and in some parts of the country, wind is already cost-competitive with coal and gas.
Summer at EDF is always an exciting time as EDF Climate Corps fellows fan out and begin their placements at organizations across the country. This year we're thrilled to see a dozen fellows working with private equity firms and their portfolio companies, the highest number of such placements in a single summer. In total, EDF has now placed 44 EDF Climate Corps fellows in the private equity sector to date.
Managing investment dollars equivalent to roughly 8 percent of U.S. GDP, the private equity sector is critical to sharing, replicating and advancing corporate environmental best practices, so it's gratifying to see the level of activity continue to build. New hosts this year include portfolio companies Associated Materials, Avaya, Floor & Décor, Philadelphia Energy Solutions and Taylor Morrison. Private equity firms KKR and Warburg Pincus are also hosting fellows this year, as they have previously.
Too often, environmental performance gets labeled as the responsibility of one team within a company – whether that of a dedicated sustainability staff, external or public affairs, legal or compliance, etc. As a result, a company’s staff can often think of environmental and social governance (ESG) issues as what Douglas Adams once famously termed an SEP – Somebody Else’s Problem.
With the release of its 2013 ESG and Citizenship Report, private equity firm Kravis Kohlberg & Roberts (KKR) shows it’s taking a different approach: KKR has adopted a new global policy that makes identifying and addressing ESG risks in both the pre-investment and investment phases, for its staff, everyone’s problem.
Notably, KKR’s private equity investment professionals are being integrated into the ESG risk assessment process: first, in assessing risks during the diligence phase, and second, working with portfolio companies, consultants and subject matter experts to set performance goals and measure against them during the typical five to seven years a company remains part of its portfolio.
Environmental concerns about methane emissions continue to grow as more people understand the negative climate implications of this incredibly potent greenhouse gas. Now the financial community is taking note of not only the environmental risks but the impact of methane emissions on the oil and gas industry’s bottom line. Methane leaks not only pollute the atmosphere, but every thousand cubic feet lost represents actual dollars being leaked into thin air—bad business any way you look at it.
Last week the Sustainability Accounting Standards Board (SASB)—a collaborative effort aimed at improving corporate performance on environmental, social and government issues—released their provisional accounting standards for the non-renewable resources sector, which includes oil and gas production.
These accounting standards guide companies on how to measure and disclose environmental, social, and governance (ESG) risks that impact a company’s financial performance. Their work highlights the growing demand amongst investors and stakeholders for companies to report information beyond mere financial metrics in order to provide a more holistic view of a company’s position.
Environmental Defense Fund (EDF) is honored to be ranked by GreenBiz as one of the three trusted leaders among environmental nonprofits, along with World Wildlife Fund (WWF) and The Nature Conservancy (TNC) – truly excellent company.
In its inaugural NGO Report, GreenBiz asked hundreds of sustainability executives from large corporations to rate and rank 30 leading NGOs in terms of influence, credibility and effectiveness. GreenBiz charted the responses and grouped the NGOs in four categories:
- Trusted Partners – Corporate-friendly, highly credible, long-term partners with easy-to-find public success stories
- Useful Resources – Highly credible organizations known for creating helpful frameworks and services for corporate partners
- Brand Challenged – Credible, but not influential, organizations
- The Uninvited – Less broadly known groups, or those viewed more as critics than partners Read more
Environmental Defense Fund unveiled today the first group of participating organizations to sign on for EDF Climate Corps 2014, along with a revamped list of smart energy management offerings the program will provide for them. New host organizations including Starwood Hotels & Resorts Worldwide, Dow Chemical Company and Jackson Family Wines join veteran participants like AT&T, Shorenstein Properties, PepsiCo, Caesars Entertainment and McDonald’s in choosing EDF Climate Corps as a cost-effective resource to advance organizational energy management. Read more
O.K. not a bar, but into the Manhattan Center’s Hammerstein Ballroom for the TechCrunch Disrupt Hackathon. Never heard of a Hackathon? Well, until recently, I hadn’t either. It’s an event where teams of coders compete over a very short period of time to develop an app. As I learned, the “Hacking Dream Team” is to have a Hacker to do the guts of the app, the Hipster to focus on the look and feel of the app, and the Hustler to hold the project and team together. According to the event organizers, this was the best attended Hackathon TechCrunch has sponsored yet. Over 160 teams of coders competed to develop apps in less than 24 hours.
Attending the Hackathon was like getting a glimpse into the future and included demonstrations of 3-D printing and drones. Hundreds of coders hunched over their keyboards to crank out apps that ranged from the whimsical—such as the music app Game of Tones to the practical—like an app to help you with your job search called Career Hound—to those that combined the whimsical/practical such as RoboKeg.