Sustainability Has Entered the Business Cycle


Sustainability Has Entered the Business Cycle

Key Takeaways from the Second Dutch FSI Sustainability Round Table

Sustainability is fundamentally changing the financial services industry (FSI). But is change happening fast enough? Or deep and broad enough? During the second FSI Sustainability Round Table, leaders from across the financial services sector discussed how to turbocharge the transition to a more sustainable industry. Deloitte facilitators Vanessa Otto-Mentz and Hesse McKechnie reflect on a collegial and inspiring afternoon. The event was made possible by many contributors — Impact Institute, AFM, RSM, Pymwimic, A4S, UNEP-FI, Real Economy and WWF-NL.

The necessity of sustainability transition

As business leaders, we often feel that we are flying by the seat of our pants with all the change in our daily lives! And the sustainability or "ESG” space seems to be moving particularly fast at this point in time. The round table sessions are thus a welcome safe space for FSI leaders to connect, engage and share both their successes and learning opportunities in taking sustainable finance forward in the Netherlands. This is achieved through peer-to-peer conversations under Chatham House rules, which followed the inputs at the start of the event.

This Second Dutch FSI Sustainability Round Table kicked off with a reflection from Deloitte's executives on the lessons they have learned as they steered Deloitte's sustainability journey. You can read more about that in the Dutch firm's latest Integrated Report published on 29 September '21 here.

Tanya Pieters-Gorissen, Head of Asset Management at AFM, set out the case for (and urgency of the) change. The financial market can mobilise capital for sustainable investments, and thus have a duty and an opportunity in the sustainability transition. The transition is not easy: changes, expectations and valuations are all par for the course. But the bigger picture is clear: if the sector doesn’t take action, they will jeopardise the future of their business and lose customers.

Pieters-Gorissen’s urged her listeners to not wait and see what others will do. Where possible, AFM will help the sector, she said, by providing reports, tools and sector letters. These are drawn up in close consultation with the sector. This way, we can all learn from each other. A few days after the round table, the AFM published an exploratory study saying that the information provided by funds regarding sustainability risks and characteristics is still too general.

The regulator wants to ensure that the asset management market is future-proof. To do that, the AFM will look at controlled business operations, which pose risks because many organisations outsource their critical activities. New regulations are also in AFM’s sights. It will, for example, become more difficult to label a product as sustainable. By being transparent on the underlying information of the activity, asset managers can no longer hide behind only a labelling.

The current business cycle

Next on the agenda was a group of professionals reflecting on the progress made during 2021 in sustainable finance. The panel discussion members were all fairly positive about what is currently happening. They pointed out that many leading asset owners, banks and insurers have recently published commitments to achieve net zero carbon emissions—a positive development. However, much work to make these commitments a reality remained. Eric Usher, head of the UNEP-FI, emphasised the importance of the relationship between governments and the private sector in this process as they need each other to make progress on decarbonisation. The current global Covid experience has actually underscored the urgency of this collaboration and our broader societal vulnerabilities. It is therefore urgent that we renegotiate together how things are done, how we govern them and who should be held accountable. And thus, the global and EU level standard-setting on sustainability accounting standards and climate risk is timely. This report will give you a more detailed perspective on the implications of the Corporate Sustainability Reporting Directive.

Martina Tessari, the CFO Leadership Network Manager for Europe at Accounting for Sustainability (A4S), noted that sustainability is no longer exclusively for disrupters. It has, in fact, become a core part of business strategy and thinking in many of the FSI’s organisations. Tessari expects biodiversity and the social aspect of sustainability to receive more attention during the coming year.

Investing in sustainability – challenges of culture and measurement

Experienced sustainability entrepreneur Maurits Groen made it clear that opportunities galore for investors looking for long-term value creation. The real economy business leader explained that there are already enough innovations that can help us get to net zero, but the start-ups behind those innovations still struggle to find the capital to help them scale. The high cost of due diligence currently makes it easier to find 100 million dollars for an established venture than to find 1 million dollars for an innovation. Investors should put their money in companies that are making the future, Groen said, not in the ones destroying it.

Michel Scholte, director of the Impact Institute, addressed the financial sector’s culture, which he regrets is still predominantly driven by maximising short-term financial revenue instead of by maximising impact. Monique Meulemans, investment manager at Pymwymic, explained how her organisation focuses on creating long-term value through positive impact. As venture capitalist, Pymwymic developed an impact rating tool that tracks and compares the progress of the impact an organisation makes. She emphasised that although everyone is struggling with metrics, that’s no reason to wait to track impact as best you can, and to monitor progress.

We should start, as ordinary matter of course, including social and natural aspects in our business economics, added Professor Dirk Schoenmaker of Erasmus University’s Rotterdam School of Management. They should be seen as assets and liabilities which means they also can impact the capital costs. It is just old-fashioned business economics with a new logic, he said, building on the theme of measuring, this time value creation.

Decreasing biodiversity – a financial risk

Decreasing biodiversity translates directly into risk, Aaron Vermeulen from WWF NL pointed out: material risks, supply chain risks, transitions risks, reputational risks and, of course, financial risks. The evidence of those risks might still be anecdotical, he warned, but eventually there will become a tipping point when all of those risks will hit us hard.

Luckily, some of them can be turned into opportunities if organisations prepare themselves in time, Vermeulen said. Since metrics are an essential part of the preparation, WWF welcomes the Taskforce on Nature-related Financial Disclosures, aiming to build a solid disclosure framework for (financial) organisations to become prepared to nature-related risks. The taskforce consists  of 30 senior executives from financial institutions, corporates and service providers, including Deloitte. It builds on the success of the Task Force on Climate-related Financial Disclosures which is now guiding climate risk assessments across the world.

Biologists and scientists in finance?

You might be sceptical. Yet another framework? More letters added to our alphabet soup? More suitcase words? The round table’s answer was a pragmatic yes: every initiative that’s trying to help organisations translate sustainability into metrics and making it more tangible to guide business decision-making is welcome. Another interesting takeaway? A few banks are already hiring biologists to help them better understand nature and the environment and how changes will affect their business. We salute them: sustainability knowledge must be integrated into operations and bringing on-board differently skilled experienced and younger staff is a great way to do just that.

In summary — it was our pleasure to host the FSI Roundtable and reflect on progress made this year. Leaders meet the challenges of their time and ours is the sustainability transition. So, we all need to take stock and do our bit to shift all finance to sustainable finance. As the Dutch say: aan de slag (get started)!

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