In a recent Q&A event, the Oxford Sustainable Finance Student Society brought together a panel of experts to discuss how institutional actors contribute to and influence climate change strategies. The panel featured three distinguished speakers, each representing a unique perspective within the sustainable finance landscape.
Tess Sokol, Head of Climate & Environmental Policy at State Street, provided insights on how asset managers can impact the path towards decarbonization through their capital allocation decisions. Mira Torres, a Senior Climate Analyst at the Children's Investment Fund Foundation (CIFF), offered a unique angle on the role of philanthropy in addressing climate change, highlighting the importance of philanthropic efforts in filling gaps and driving accountability in the fight against climate change. Phillip Marks, Ph.D., Founder and CTO at Dovetail, emphasized the important role of data in shaping sustainable financial strategies. His discussion on transition risk in finance and the importance of accurate and democratized data provided a compelling look at how businesses can navigate the economic shifts brought about by climate change.
This blog post summarizes the insights shared by our panelists, exploring how asset managers, philanthropic foundations, and data providers are uniquely positioned to influence and accelerate our collective response to climate change.
The Indirect Influence of Asset Managers on Climate Change
Tess highlighted the indirect but significant impact of financial institutions on climate change through their capital allocation decisions. She explained that unlike direct economy actors such as manufacturers, financial institutions influence climate change mostly indirectly. This influence manifests in the way they allocate capital, whether it be in investment banking, commercial lending, or shareholder activism. Tess pointed out that these allocation decisions can either accelerate or impede decarbonization in the real economy. For instance, a bank's investment in a high-emitting sector directly influences the emissions profile of that sector. This indirect impact necessitates a nuanced understanding of each financial actor's role in climate change.
She highlighted that each financial institution, from commercial banks to asset managers, plays a distinct role in the financial ecosystem, impacting the decarbonization pathway differently. For example, commercial banks have a more direct link to high-emitting activities through their lending practices, while asset managers exert influence through mechanisms like proxy voting and shareholder activism. Tess stressed the importance of dissecting the underlying financial activities of these institutions to truly comprehend their climate performance and impact. This understanding is crucial for investors and NGOs to make informed decisions and hold these institutions accountable for their role in climate change.
Philanthropy's Role in Filling Gaps and Driving Accountability
On the other hand, Mira elaborated on CIFF’s unique philanthropic approach to climate change, particularly in the context of children's needs. She explained that as a global private philanthropy, CIFF is focused on addressing various children's needs such as nutrition and reproductive rights. Mira emphasized that addressing the climate crisis is inherently about safeguarding future generations. Most of CIFF's climate-related work indirectly benefits children by funding projects that have a broader effect on climate change. This includes managing portfolios related to European climate initiatives, city planning, air quality, and youth engagement. This broader perspective in CIFF's approach strategically positions them in the larger sphere of global climate policy and action.
Mira stressed the significance of supporting catalytic projects across various sectors such as research, climate finance, litigation, advocacy, and communications. She detailed CIFF's strategic approach to philanthropy, which is not limited to direct environmental conservation but extends to empowering projects and organizations that can catalytically influence the broader climate agenda. One example is CIFF's funding for the UN Secretary-General's high-level expert group on non-state actors' net-zero commitments. This initiative, launched at COP 26, aimed to establish a gold standard for net-zero targets for non-state actors, including the private sector and local governments. The group set out to define what an effective net-zero target should encompass, thereby shaping global standards and practices in climate commitment. To summarize her talk, Mira highlighted that philanthropy has three main purposes in the climate space: filling gaps where government or private sectors fall short, holding various actors accountable in their climate actions, and accelerating existing climate initiatives.
The Role of Data in Shaping Sustainable Financial Strategies
Lastly, Phillip emphasized the concept of transition risk in finance, a critical aspect of sustainable investing. He distinguished between physical risks, like natural disasters affecting physical assets, and transition risks, which are related to how a business adapts to climate change-related economic shifts. Transition risks are about assessing whether a business can remain viable as the world moves towards a more sustainable economy. Phillip’s work at Dovetail involves analyzing large macroeconomic trends and their impact on businesses. This involves translating complex academic models into practical and quantifiable data that asset managers can use to evaluate the sustainability of their investments. Phillip’s focus on transition risk underlines the importance of considering how climate change will impact the financial value of businesses and their operations. Expanding on this concept, Phillip then delved into the role of data quality and democratization in shaping more informed and sustainable financial strategies.
He stressed the need for accurate and accessible data to understand current states and future goals, particularly in achieving net-zero targets. Democratized data enables partnerships by leading to better accountability and collaboration among businesses. Phillip highlighted that having a comprehensive data network allows for a deeper understanding of the supply chain and its impact on businesses.
In conclusion, our panel presented a comprehensive review highlighting the importance of different institutional actors in fighting against climate change. Asset managers, like State Street, influence the decarbonization pathway through strategic capital allocations, while philanthropic organizations like CIFF fill crucial gaps in climate action. Meanwhile, the role of data is instrumental in informing sustainable investment decisions and managing transition risks. Together, these diverse perspectives give an important message: combating climate change requires a collaborative effort across various sectors and disciplines.
Yunus Isik, VP (Academics), Chief Editor