Eila Kreivi reflects on the learnings – and the tears – after decades of working in sustainable finance
A giant onion – and it just keeps growing. That is the image in my mind when thinking about sustainable finance.
Many years ago, at the beginning – or at the heart of the onion, it was all about green bonds, that new kind of borrowing that saw money earmarked for green capex, usually wind or solar power.
Sometimes it also was energy efficiency or low-carbon transport investments but it was in any case about climate change mitigation, which was probably the easiest choice when no definitions or criteria for greenness exist.
Back in 2013, excitement was palpable when we wrote the first versions of the Green Bond Principles. A little later, defining the 'use of proceeds' was not enough anymore, investors wanted to know the outcome or impact or carbon emissions avoided.
So, we designed impact report templates. We were frustrated when the same project yielded different savings for different finance providers – we did not know that weather data underlying the calculations was not necessarily the same.
Then, many started to ask, how about social purposes, are they not as noble as green? The idea of social bonds was born and soon we also had best practices for them, the Social Bond Principles and the mix of the two, the Sustainability Bond.
We saw volumes grow, geographical expansion into all continents, issuer type expansion - but the belittlement continued, "green bonds are only x% of global bond issuance, it is a niche". Just you wait 'enry 'iggins...
For years we discussed many 'what about' questions: what if that green train only transports coal or what if solar panels contain toxic elements or if they are produced with child labour? What about windmills killing thousands of migrating birds? Is it then sustainable?
Common sense said: "No, this is not sustainable", but we did not yet have the non-case-specific tools to answer these questions. Soon we would – but be careful what you wish for. (Spoiler: Do No Significant Harm.)
Regulators started to take interest in this growing market, which was also aligned with the political agenda, especially in Europe. The European Commission put together a High Level Expert Group to propose a sustainable finance action plan. These meetings were passionate – for once that word is not exaggeration, there were plenty of emotions. Miraculously, the Chair, a couple of Group members and the professional editors managed to distil all this passion into a very readable report, it took at least one weekend retreat, we heard.
The Commission could almost not believe the interest in this report – all the newspapers wrote about it, and the printed versions disappeared like the proverbial hot cakes.
But the scale of interest was actually easy to believe. It was the first initiative of its kind globally and it contained a short list of concrete proposals for action such as the idea of establishing a green taxonomy. That word would later shake the world of finance.
The European Commission did not lose any time. Two months later they had an Action Plan in place and a new advisory group put together, to make proposals for a green taxonomy, a green bond standard and climate benchmarks. We started the work enthusiastically, myself of course in the Green Bond Standard group. Many of us former TEG members think fondly of this time; we were working on entirely new concepts, there was tremendous interest in this work from all sides, and we had a great group of people.
Sadly, Covid hit the world before we were done and we never had that well-deserved final dinner.
In Europe, we had the creation of the Platform on Sustainable Finance, 1.0 and now 2.0 is at work. This is a permanent group but members and tasks vary every couple of years. The work field has expanded, almost exploded.
At the same time, there are now dozens of other jurisdictions working on taxonomies, we have new reporting frameworks, voluntary and mandatory, and we are not only talking about climate anymore.
Central banks are working together globally on these topics. The importance of nature and biodiversity has hit the markets' and regulators' screens. We got a whole new angle into the energy situation with the war in Ukraine, and we have seen how destruction of nature actually destroys the economy.
Everything is interlinked: energy, climate, nature, raw materials, recycling, protection of water systems and oceans, plastic pollution, food production, agriculture, migration.. See what I mean by a growing onion?
There is a huge amount of work to be done but on the other hand, looking back, so much has been done in just a few years.
And it has finally started to dawn on the markets and on decision makers, that this needs to be mainstreamed into all finance, whatever colour you call it.
Because the atmosphere, the seas, the soil under our feet are not free dumping grounds. Externalities must be priced in, taken into account as risks (or opportunities) if we are to have free and fair markets.
Eila stepped down as chief sustainable finance advisor at the European Investment Bank. She now works in a personal capacity on the European Commission's Platform for Sustainable Finance.
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