It is often discussed that if all the people in the world consume at the rate that the ‘developed world” consumes, we will need 7 planet earths to be sustainable.
Sadly we only have one earth in near future.
The economic miracle that China has produced in the last 20 years means that a lot more people are achieving developed world life. The internet and its global coverage has also given the full picture of the dream to those that don’t have it. Thomas Friedman wrote “Hot, Flat and Crowded” over 10 years ago. It is coming true. Like it or not, we MUST change habits.
Luckily, the Millennials seem to get it. Many carry their own water bottles; being a veggie is increasingly mainstream and an understanding of issues such as waste is far broader than ever before. The web also is proving to be a great catalyst in improving efficiencies both through sharing ideas but also by allowing the use of Meta data. Car sharing is one small example. It is in the financial markets that perhaps response has been disappointing. Sure, the growth in PRI subscribers, Green Bonds and Impact Investment has been strong but true change is still far short of what is needed.
First, measurement mechanisms of sustainability goals will be driven by demand. If everyone wrote to their pension fund, insurance company and bank asking what their money was doing to benefit, or at least not damage, the world, these institutions would be forced to respond. Perhaps we can get bank statements with not only “interest rate” or “return” on them but also what UN Sustainable Development Goals (SDGs) have been impacted by the institution’s lending or investment practices.
Second, multilateral development banks should be encouraged to sell off portfolios of existing deals. Much of future world growth will originate in so called emerging or frontier countries. Encouraging such growth to be sustainable will be more critical than the modest improvements that can be made in developed countries. The development banks do a great job at pioneering and originating sustainable investment in these areas. They then tend to keep these investments on their balance sheets. By selling down their portfolios, they would broaden awareness, attract new private sector funding, open the door to the private sector more broadly and ultimately lower the cost of capital for new projects.
Third, tax breaks should be given to qualifying sustainable projects, particularly in emerging and frontier markets. The development banks already enjoy this benefit. Finance Ministers seeking new investment for sustainable growth should broaden the exemption by allowing tax breaks for impact-type investments. The need to define what qualifies would also force discussion and understanding relative to what is sustainable.
Fourth, realignment of state subsidies should support, and not hinder, industries and companies whose products (with full lifecycle analysis of benefits) support the attainment of the SDGs.
For our part, at ADM Capital we are shifting gears to encourage the whole firm to look at how our investments encourage sustainability – both from the perspective of the private credit platform in Asia and the London-based Private Equity ADM Cibus Fund
ADM Capital has also teamed up with the ADM Capital Foundation to form the Tropical Landscapes Finance Facility in partnership with UN Environment, BNP Paribas and World Agroforestry Centre (ICRAF).
The focus is Indonesia where deforestation rates are among the highest in Asia and GHG emissions largely from land use conversion are a global challenge, contributing to climate change. TLFF aims to fill a gap by bringing long dated finance to sustainable projects in Indonesia.
The first transaction, a USD 95 million bond issue for a Michelin/Barito Pacific rubber JV on 90,000 hectares in Sumatra and East Kalimantan, will provide up to 16,000 fair wage jobs as well as livelihoods to 7,000 smallholder farmers. Only 34,000 hectares will be planted in commercial rubber while the remaining land will be left for conservation or Community Partnership Programs. In Jambi, the 70,000 hectare concessions will form a buffer zone to help protect the important 143,000 hectare Tigapuluh National park.
The data and experience gathered from this is encouraging others to get involved. Indonesia needs an estimated immediate USD 30 billion equivalent of long dated financing for various projects that will reduce emissions and help the country develop in a more sustainable approach to development. The MDB’s do their part but far more is needed. Capacity and understanding must be developed to attract new private sector finance. TLFF is one small part in helping this to happen.
Outside Indonesia, there are many other urgent needs. We hope that many others will turn their focus to Sustainable Finance and also share their experiences so we can all learn and improve.