Organizational Governance Organizational Governance

The Big Short Meets The Big Bang:
Can Wall Street Win in Sustainable Investments?

Nearly 12 months ago, I dove into the investment ecosystem to survey from the inside the dynamics of the ‘sustainable investing’ trend. I was moved to do so by the much ballyhooed transfer of investable wealth to values-seeking millennials (estimated at $30 trillion) and to women (estimated at $22 trillion). How prepared was Wall Street to meet this imminent and perhaps pent up demand for well-performing investment vehicles that enhance the sustained well-being of people and the planet?

By Elsie Maio | Published 8 years ago | About a 8 minute read

Much of that inquiry was sponsored by and published in a series of articles in The GreenMoney Journal. After months of attending industry conferences, sharing with fellow experts on a day long panel discussion at the CFA Institute, and scores of interviews with insiders, I’ve learned a lot.

In short: While Wall Street is standing in its own way on this one, it is poised to break through to create a whole new marketplace. But it will require concerted change. Right now, an amorphous collection of investment offerings, certain significant asset pools and a lot of disparate initiatives and shiny marketing communications are indeed growing, apparently willy nilly. And for it to emerge as a thriving marketplace requires leadership and some new skills.

Here are five highlights, including a call to action to those who would take a leading position in the emergent marketplace for those estimated $50+ trillion in investable assets:

Call to Action: Step Into the Vacuum in Three Ways

The market for so-called responsible Investing, or sustainable investing is waiting for Wall Street to step forward with:

1. Authentic Leadership.
A business as usual approach will continue to retard the development of the sustainability-, responsible-, and impact- investing markets until leader(s):

Step into the vacuum of confusion to galvanize momentum:
Sort out the effects of the Tower of Babel: Product categories, performance characteristics, verified data, contradictory information owing to a lack on shared definitions;
Sustainability Accounting Standards Board (SASB) is a step toward that, gaining consensus from the issuer side on definitions of risk and opportunity factors such as ESG and their expression in different industries, but that mandate is not enough.
With confidence and courage. That’s both a public stance and an internal stance, often requiring greater coordination among internal business units at the large firms. So that, when marketing promises sustainable investment options, the pipeline of product sourcing and product development is ready to deliver.
And externally, organizations that put a stake in the ground and define their role in contributing to planetary sustainability and social wellbeing, like NORDEA, have momentum in the market and the ear of influencers.
Reach out and engage with the larger investing public:
Build awareness of the new opportunities in their language; and
Extend a halo of trust for the entire financial services sector by setting a new standard of transparency with down to earth engagement with the public.

2. Clarity.

Confusion is a drag on financial advisors’ effectiveness, as well as general investors’ understanding. And that impact is compounded in the already trust-deficient financial services sector.
Nuanced discipline, vs. another flavor of ‘irrational exuberance.’ The issues are systems issues and warrant careful examination and discourse.

3. Co-opetition.
See the sector for what it is: an interdependent ecosystem. The ectoplasm – or marketplace – cannot nourish the parts because it is dilute and fractionated. Players will all benefit from collaborating to build the market for sustainable investments. That is build demand, supply, and access. Precedents abound in other industry sectors, including the Dairy and the PC industries. At different points in time, the companies in each of those industries formed consortia to promote clarity and generate demand for their product category, rather than their proprietary products. The ‘high tide raises all boats’ strategy can help at critical inflection points in the evolution of an industry.
Those that do step up and add value by helping to clarify, convene and cooperate will enjoy the halo of leadership. In turn, that will redound to their corporate image and reputation.

Why Those Three Actions?

The Responsible Investor – RI Conference held in New York last December is the latest group-barometer in my hands-on survey. Simultaneous with the Paris Climate talks, this gathering had a broad swath of international players in the ecosystem: asset managers, issuers, analysts, funds, foundations, advisers, as well as the public sector and policy leaders.

The sector is even more confident and marketing more assertively. Ben Bingham, founder and CEO of 3Sisters Sustainable Management reflected after the RI Conference, “It seems as though most of the skeptics are no longer in the room. There is a new comfort level, perhaps a result of COP21’s global consensus, but more simply a matter of time as ideas like climate change move from the category of ‘insane’ to ‘debatable’ to ‘accepted’. At 3Sisters we are not changing our decision process in approaching the millennial goals, but we will be sure to be less shy about it.”
The Tower of Babel is getting louder; lacks the shared framework for language and communication. Growing confidence is raising voices but without a common vocabulary or even nomenclature that sorts product categories, the voice of the sector is an intimidating cacophony. Lots of proprietary varieties of trees and shrubs but no clearly defined forest(s). It’s harder than ever to discern how the sector and its offerings aggregate – what they add up to – and therefore, how to approach them – as an financial advisors or investor. And as corporate issuers consider how they might respond to investor interest in the category, they choose on a one-off basis what to emphasize in their positioning, their business strategy and their reporting conventions. That inhibits understanding and therefore confidence and trust among the mainstream.

SASB is helping corporates bring some order and continuity by co-creating industry conventions with issuers. But still they are left to create their own context for stakeholders, including investors and the investment professionals. The onus is on the observer to see the benefit and the access points to/of ‘sustainable investing.’ In our experience, it’s worth the effort to help not hinder understanding among stakeholders.

Right now, only dogged diligence will reveal the overall pattern of what’s available and suitable for different investment objectives. For example, one speaker at RI Conference in New York, citing her experience with the City of Buenos Aires in Argentina, Delfina Lopez Freijido, cofounder of Acrux Partners, said they’d found greater participation in responsible investing there than was apparent from what was reported – after personal conversations helped them penetrate the ambiguous language: "What is impact investing to one person is socially responsible investing to another and sustainable investing to another."

There’s the opportunity for the sector to update the strategic marketing and communication framework that will focus demand in this marketplace.

Material nuances are easily obscured in the emergent marketplace, to the detriment of what sustainability investors seek. The sources include:
The politicization of underlying issues such as climate change, women’s rights, and gender diversity;
Inconsistent analytical lenses; inconsistent ways of interpreting data;
Limited data; and
Emotional ‘memes.’

Here’s one example of nuanced understanding that opened my eyes. I had come to the topic of fossil fuel divestment enthused by the campus activism that reminded me of the South African Apartheid actions taken in the 1960s and 70s as part of the student movement of my boomer youth.

And I was lucky to have the opportunity to follow up with Cary Krosinsky to explore his nuanced take on one ‘hot’ topic he moderated at the RI Conference, titled “Fossil Free Campaign and Institutional Carbon Divestment.” Cary takes a systems view of these issues, and was early to bring disciplined tools to the conversation, for instance, with the Carbon Tracker research.

So, regarding the ‘divestment’ meme, Cary’s overall point of view is that “divesting from oil is complicated. It’s not really a strategy to foster climate change solutions…for example, oil-producing countries like Saudi Arabia are happy to continue to pump oil. So, if the use/consumption, demand side of the equation doesn’t change nothing will change.”

Moreover, “university investing tends not to be focused on public equity investments. Instead, the question should be what can an academic institution do to have meaningful effect? Do research, drive innovation, engage with companies as a responsible investor, as Yale has said they will do.”

Clearly, the momentum is here for investments that merge personal sustainability and planetary sustainability. The investment community has the power to meet that demand and cultivate it. Let the leaders, clear thinkers and speakers, and co-operators emerge.

This article was originally published in the February 2016 edition of The GreenMoney Journal.