Sonja Gibbs, CFA, Managing Director of Global Policy Initiatives, Institute of International Finance
Please give us a bit of background on yourself and how your organization plays a leadership role in the impact investing space.
I’ve been working in financial markets for over 20 years in a wide variety of roles, including strategy, economics, banking and asset management. Across all these disciplines, it’s been remarkable to see how environmental, social and governance issues have moved from niche to mainstream. I’m particularly gratified to see how many new jobs are being created in the sustainable finance arena, and impressed by the caliber of professionals stepping up to shape the field going forward.
At the Institute of International Finance—a global association representing over 450 financial firms worldwide including banks, institutional investors and professional service firms—we fully recognize the growing relevance of ESG concerns to our industry. Seeking to align private-sector efforts with policy and regulatory initiatives intended to foster a more sustainable financial system, the IIF has made sustainable finance and impact investing a strategic priority. We work closely with official sector bodies including the G20/B20, the Network for Greening the Financial System (NGFS), the World Bank/IFC and other multilaterals, and the regulatory community to help channel private sector funding towards sustainable development goals.
What will you be discussing at The Economist's Impact Investing event in New York on February 12? In what ways is impact investing making headway, and where is it lagging?
What I’d like to focus on is very practical. The need for impact investing is perfectly clear; to meet the UN Sustainable Development Goals (SDGs) would require an astronomical $11.5 trillion. Just for the first SDG (ending poverty for 700 million people), we would need some $1.4 trillion annually through 2030. Though these are obviously “public goods,” they’re going to require private sector funding. Governments, multilaterals and development finance institutions simply don’t have the resources to do this, not least because government debt in so many countries has risen to very high levels. But a lot of steps are needed to help channel private sector funding—aligning standards in different parts of the world, figuring out ways to measure climate-related financial risks, and making sure that what we call impact investing really is having an impact. Towards that end we think it would be much better to have fewer sustainable investing terms—counting them all, like “values-based,” “ethical,” “climate-friendly,” and so on, there are well over a hundred. If we had fewer such categories, it would really help fully mainstream impact investing.
Can you really tell when businesses are “being good”?
So I think this really boils down to the need to transition to better disclosure. I would highlight here the work of the Task Force on Climate-Related Financial Disclosures, or TCFD. The TCFD is a great example of public-private sector collaboration—led by the private sector, but under the auspices of the Financial Stability Board. The TCFD is developing voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. You can’t understand how businesses are “being good” without good disclosure; the task we’re grappling with now is, what does good disclosure look like? How can we get it to be comparable across sectors and geographies, so we’re comparing apples to apples?
Since so many ESG risks are on a long-term horizon, what’s the best way to analyze different scenarios of how these risks might evolve? We must also realize that companies and their investments are not binary (green/not green); it is also important to recognize that there is a transition process. It’s vital to build in time for this transition, and to make sure companies are supported in the journey. We’ve got a long way to go, but I’d argue that over the next few years we will have a much better sense of which businesses are being good, how much good they’re doing, and how to measure the impact.
What are the payoffs and costs associated with impact investing for all parties?
In terms of costs, some still argue that impact investing means accepting lower returns as the price of doing good. Yet in reality this is true only for a very small slice of the impact investing world – specifically, philanthropy—where the goal is not to maximize returns. The rest of the broad spectrum—whether that’s negative screening, ESG integration, positive screening or impact investment—is inhabited by investors looking to enhance returns and strengthen risk management, as well as to align strategies with the priorities of their beneficiaries and stakeholders. While there are clearly costs involved in the transition—building new platforms for impact investment, integrating ESG strategies, compliance etc., fulfilling these goals will offer big payoffs over time.
Where have you seen impact investing make the biggest strides in recent years?
Clearly the growth in sustainable investment products— green bonds, blue bonds, social bonds, green lending and so on—has had a big impact. By some measures, something like a quarter of all assets under management globally can be classified as sustainably invested. The growth has been driven from bottom up—by strong demand from investors, not least the millennials who will be inheriting something like $30 trillion in wealth over the next 30 years. But it’s also been in some sense “top down,” as policymakers turn their attention to ways to scale up impact investing and sustainable finance more broadly. It will truly take all hands on deck to come anywhere close to meeting the funding needs for sustainable development, particularly when you factor in emerging and developing economies which are in dire need of funding for a whole range of priorities. But I’d argue that the biggest strides have been made in mindset. There has been a sea change in attitude in the financial services community over the past decade—reflected most recently in discussions during the WEF annual meeting in Davos this year—from viewing impact investing as a niche market to seeking to integrate ESG considerations across disciplines and investment platforms.
Lastly, we would like to know if you might be available for media interview opportunities both pre-event and onsite.
I am happy to work with the media; please feel free to reach out with copy to our Head of Communications, Dylan Riddle (firstname.lastname@example.org).