Finance has a long way to go to achieve sustainability

Arendal: Funding has finally put in place regulations on sustainability, and there will be huge regulatory packages in the region going forward. The sustainability reporting rules were very important, as the purpose was to make this area more transparent and easier to understand for the investor, says Heidi Vincasas, with the wonderful title of “VP of Corporate Responsibility” at KLP. We are at Finansforbundet and Care’s event entitled “A Niche in Sustainable Investments: How We Can Fund a Sustainable Future.” during Arendal week. Finskas has been tasked with telling us about the state of sustainability in the financial industry and they see challenges in the current regulations.

– There is a lot of ambiguity in the regulations and a lot of room for the individual to decide how to report. At the same time, the regulations put sustainability firmly on the agenda and helped discipline the actors. This area has also received more attention from key roles, such as portfolio managers, auditors, and management.

immature models

Going forward, there will also be a requirement to incorporate sustainability into business management and risk assessments. One should be able to say something about what the actual sustainability risks are in the portfolio.

Today, models related to sustainability are immature and difficult to use as a basis for decision-making. We must have such models in place. It shouldn’t take that long. There’s a lot of interest around the field, says Finskas, and professional development is happening quickly.

Through the interaction of public and private capital, the new can be created

Heidi Vincas

Internally, KLP has created its own models that are slightly modified each year to make them as accurate as possible.

– Last year we underestimated physical climate change. We now use a model that takes this into account more and therefore gives a different result. We will develop this further to make it better.

Little profitable

The financial industry must be a significant contributor

Vigdis Mathisen

Currently, sustainable investments have low profitability.

– The lack of adequate framework conditions contributing to the restructuring. Only 46 countries in the world have some form of carbon dioxide pricing. Taxes and fees should be used to a much greater extent. Profitability and sustainability must be linked more closely. Today, for example, there are still plenty of subsidies for the fossil fuel industry. Finskas says creating predictable framework conditions that facilitate investment in sustainability is important.

Don’t you dare take the risk

We are going through a major restructuring in the future and then we need capital. So far, the big money hasn’t rolled in a sustainable direction.

– In many cases, the risk of the new is so high that the industry dares not take risks. Shows how important frame conditions are. Through the interaction of public and private capital, the new can be created, says Finskas.

Today, there are also some political risks associated with change.

There is a lot of uncertainty about the future and how politicians deal with things like hydrogen, wind power and pollution. In order to reduce political risks, the financial industry must be more aware of political influence in order to obtain bolder decisions from politicians.

total nutrition?

The global financial industry as a whole has set its goal of achieving net zero emissions in 2050. Now that this is starting to have practical consequences, the consensus is starting to crack.

– Real changes and reorganizations are now expected in the portfolio. It creates dilemmas and the question is whether we will be able to move in the same direction after that. At the same time, we see many Republican politicians in the US working against ESG in many markets. This has put pressure on investors and many of them are now writing net zero. This makes it uncertain whether the industry will be able to go in the same direction. The most effective thing, says Finskas, is if the capital market can get this together.

Customers demand sustainability

In recent years, it has also been observed that customers expect sustainability.

– 42% of fund clients state that sustainability is very or somewhat important. That’s the trend we’re seeing, sustainability being emphasized more and more. Both individuals and investors have this on the map.

This is happening now

Big changes should come in the coming years. The question is how do we achieve this?

Industry must come up with evidence. We must have a change of breadth and then the cooperation of the investors is very necessary. Today, only one percent of investments are in impact funds. There is a huge lack of risk capital for the green transition in Norway. In finance, we can do a lot to bring more innovation to the region. At the same time, one must not forget about the facility, where a lot of innovation and restructuring has to happen. Active owners who push for a show change are also important. ESG covers a wide range. It also needs the financing it needs. We have to work along all axes. Let’s move capital, find new investments and influence policy, Vincasas says.

Money is not neutral, it is power

Cage Martin Georgesen

More important than ever

The organizers Finansforbundet and Care were represented by union leader Vigdis Mathiesen and general secretary Kage Martin Jorgesen, respectively.

Goals and ambitions in this field are more important than ever. Now we need politicians who make brave decisions and dare to set priorities. In addition, we need capital. This transformation requires significant investment, from both the public and private sectors. The financial industry must be a significant contributor. That’s why we got into this thread, says Mattisen, who points out two things that need to be in place.

– We’ve been hearing a lot about efficiency, collaboration and interaction around Arendal this week. We have to get better here.

The question is why is Care involved in sustainability?

Welfare works for the rights of women and girls. It is an important part of the United Nations sustainability goals. This task is big and we have to mobilize good forces, including capital. Money is not neutral, it is power. 2.4 billion women around the world do not have the same opportunities as men. In many countries there are legal obstacles to equality. We lose a lot financially because women do not have the same opportunities as men. We have to work to reduce these differences and this is where finance needs to be able to step up and drive that part of sustainability as well. It’s about taking the leadership shirt and doing things, says Jorgesen, not just being good at reporting.