Cliff Prior, CEO of The Global Steering Group for Impact Investing | No more greenwashing

To conincidence with the launch of our new report 'No more greenwashing - Driving evidence-based practice in ESG & Impact Investing', I've done a series of interviews with the contributors, the first of which is Cliff Prior, Chief Executive Officer of The Global Steering Group for Impact Investment (GSG).

This report is an overview of regulatory initiatives in Australia, the UK and Europe, and what to do with them, and you can get it by visiting http://bit.ly/nomoregreenwashing.  You can also watch this interview in video form directly on my Linkedin profile - http://linkedin.com/in/philipbateman

Find out more about the GSG at https://gsgii.org

Transcript

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Greetings, Cliff.

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Thanks for joining us to contribute to
"A Better Way Forwards",

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our work on taking the greenwashing
out of ESG and Impact Investing.

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Pleasure to have you here.

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Delighted to be joining with you
from right across the world.

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If people don't know about you,
they can look you up

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because the work you guys
are all doing is tremendous.

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I just want to get straight into it.

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What's your take on greenwashing,

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anecdotally, or personally
and professionally?

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Well, the greenwashing
is mainly around ESG-framed

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investments, and that's
36 point something trillion.

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And that has raced up.

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ESG started off

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at least ten years ago.

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But with small scale,
small scale, small scale.

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And then just in the last few years,
it's jumped right up.

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The consequences of that:

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one is that there aren't enough skilled, trained, talented people

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to handle all the metrics
and reporting and so on.

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There's a desperate shortage of
people in that field.

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If you're thinking of
entering that field,

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now is the time to
sign up for sure.

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So that's one part of it.

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Another part of it is that ESG

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is actually two
quite different things.

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The part of ESG, which is
risk-reduction for the investors

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and the companies,
and that's absolutely fine.

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There's another piece that is
trying to be about sustainability,

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maybe even claiming impact.

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And because those
two things are together,

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it's a right mush, and

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really, we need two labels for that.

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And then you've got
a further question

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about the balance between

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burden of regulation and systems

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and the point at which
you lose credibility.

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And that is a very narrow line.

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Just as an example,

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if you're in an ESG investment

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going into an emerging economy,

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do you really want
to have a whole great list

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of regulatory requirements,
reporting requirements?

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You're going to make
the small companies

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in that emerging economy

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just have such a big burden.

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So you can get too much
burden of regulation.

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On the other hand,

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you just flip the needle
over a little bit

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and it's no longer credible.

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So the third part is standards.

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Almost every

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asset management firm,
company, etc., 

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has created their own
sets of standards.

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That really does lead to

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a lack of credibility.

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Fortunately, we've
now got a system

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that's coming along for global
harmonised sets of standards.

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That's the International Sustainability Standards Board (ISSB).

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It's only just been started.

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It's going to be a few years
before that comes out fully.

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But we really do need

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that single system of standards
to get the credibility

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to train staff to be able to work
towards that standard.

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Just imagine, if you were

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building railroads

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and every railroad company
has a different gauge,

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so you couldn't take a train
from one to another.

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It is like that.

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There was that crazy thing
where NASA

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ordered some materials
from the UK.

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The UK made them in
centimetres, and

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NASA had wanted
them in inches.

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You've got to have
single standards.

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So that's where I would say...

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I don't want to lose the opportunity

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of 36 trillion dollars
doing things that are

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at least somewhere
towards impact.

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We don't want to
lose that, through...

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So we want to bolster it.
We want that credibility.

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We want those standards.
We want the staffing,

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and we want the clarity

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about what kind of
ESG you're doing.

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And when you speak about that
tremendous growth of the sector

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or the ESG sector from a funding perspective over the last,

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it only seems like five
or so years maybe.

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That didn't come along with measurement
frameworks or standardisation.

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It simply came along like, oh,
these funds are now this,

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which is essentially a marketing,
it's a labelling thing, 

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they're now this
because of the way they labelled them.

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And that, I think, is really the tension
with greenwashing.

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How do we, with
that amount of size,

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at that scale, that scale up...

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Is it all really ESG orientated

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or is it a different label
on an existing sector of funds?

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Yeah, a lot of people

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talk about a 'framework'.

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You've got ESG 'framed' investments.

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Rather than saying it is ESG.

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But as I say, there's this
big difference between

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reducing the risks for your investment in the companies

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that you're invested in, versus
trying to do something positive.

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And we have to
make that separation.

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They are completely
different things.

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And again, it creates the credibility.

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And I hope with this work
we're putting together

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is really as we get into ESG

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and look at single and
double materiality,

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and I heard somebody even talking
about triple materiality,

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and first and second
and third stage emissions,

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when we're looking at carbon footprints of economies

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and things like that,
there's so many...

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I just implore the people
watching this who are going out

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and creating this material
to really get into

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"What do you mean by
the thing you say?"

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Because at least for
that as a starting point,

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it's going to allow somebody
who's looking at your material

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to pin it to the wall and go,

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"okay, well that's what
they're talking about",

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rather than just headlining stuff
and carrying on.

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So, brings me to my next question,

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which is: what is your experience

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about the gap between funds
wanting to contribute

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to business projects
that are seen as environmentally

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and socially beneficial,
or 'impacts' if you will,

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And the people that are
creating those projects

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and requiring capital?

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So almost everybody talks
about a mismatch between,

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depending on
which side you're on,

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if you're an investor, you say

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"there's just not enough
material to invest in".

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And if you're a company,

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"there's just not enough investment".

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I mean, this is

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not unusual.

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Investors are very choosy

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who they invest in,
and companies are

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very desperate

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for investment.

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The majority of,
certainly for SME funds,

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develop without inward investment.

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They develop through their own profits
and reinvesting their own profits.

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And so if you think of
the commercial world

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rather than the impact world,
that is the norm,

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which sort of..

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when the impact movement started,
there was this

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view that somehow magically,
every investor could find

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the right companies and companies
could find the right investors.

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Of course not.

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Why would it be different
to the commercial side?

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However,

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there are some some
particular areas

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because you're not just looking
at risk and return.

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You're looking at risk, return
and impact.

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You've got three categories that
you're going through

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 to make your choices.

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You're very often
going into new fields of work.

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And some investors love that.

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But most investors like

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somebody to do it first.

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And then if it works,
they'll pile in.

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And then of course
you've got the investment

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which is deliberately into

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emerging economies, where

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then you've got the risk
on the investment,

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the risk on the country,

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the risk because you're
doing something new,

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and in those fields, you're almost certainly going to need

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some kind of blended
capital, whether that's

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partnering up with a DFI, a Development Finance Institute, 

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or with philanthropy
or with government support.

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If you look at what's happening
in Indonesia right now with

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the G20 / B20 discussions,
it's all about

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blended finance,
and where can you get that subsidy

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for investors to be able to
take bigger risks,

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genuinely bigger risks?

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And it speaks to that axiom of
‘progress, not perfection’.

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I mean, anybody who's looking
for the perfect solution,

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even I imagine as we..

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we need to develop canon of these measurement frameworks

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you get what you measure..

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What did we measure
over the next 2 to 3 years?

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Did it work?

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Do we need to change the
measurement systems?

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And we're only at the
foundational moment

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of having an international
standard for it

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through the ISSB.

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It's just such a
fascinating time, really.

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It is a fascinating time.

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It's a fascinating time
where big changes are happening.

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We've got the one point.. a bit 

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trillion dollars of impact,

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but we've also got
two and a half trillion

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of sustainability linked
bonds and loans.

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And that's come out of almost nowhere,
very, very rapidly.

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Obviously bond issuance
you can get much bigger scale.

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But that's a really interesting move.

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On the other hand,

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impact is

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just about to step in
to its first global recession.

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We are going into a
global recession.

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We are going into a
global inflation era.

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The impact movement
hasn't had any of those before

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because the last big recession, 2008,

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impact was a tiny little field.

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So we've got a lot
to learn out of this.

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Traditionally,

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if you're heading into a recession,

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things like bonds are very difficult.

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But innovation, that's
where you get the new ideas.

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If I was

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outside of the GSG,
and just an individual investor,

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I think I would be going
for tech right now.

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But, hey,

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everybody would have
their own views on this.

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But it is really important

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for us to be able to understand

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how recessions and inflation eras

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are going to affect impact.

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There are some other
big, big changes.

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People used to be quite

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distinct between "I'm a climate investor,
I'm a social investor".

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And I think what's happened
over the last few years,

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particularly this last year of
one environmental catastrophe

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after another after another
after another

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in Australia, you've
had plenty of them.

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You can't separate anymore, 

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because these catastrophes
hit people right now.

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And that combination

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of social and environmental
is another thing

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we're going to see changes for, and

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capital is going to want
to buy into that.

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It's going to have to buy into that.

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I've been noticing,
as you've been talking,

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what's coming up for me
is that, will people stick to their

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mandates for positive
social outcomes

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and positive environmental outcomes
when faced with a hard recession?

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Will that stay there?

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Will the impact on top of the
commercial outcomes stay the course?

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Yeah, there's a question about that
or that equally, for example..

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Well, let's take oil and gas.

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Quite a lot of ESG framed funds

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are giving up the ESG model

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because you could make a big profit
out of oil and gas right now.

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On the other hand,

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if you're a

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climate and social oriented investor,

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renewables are way cheaper
than oil and gas now.

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So what a great opportunity
to invest heavily at this point.

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So there will be

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different takes, as there always are.

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And that's the nature of the investment
field and the investment impact field,

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now that we’re big enough
and diverse enough

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to have both

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positive things happening
and some negative things happening.

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And when, for instance, in the UK,

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the Green New Deal
is essentially a framework for where

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a tremendous amount of money
is going to be invested or aligned with.

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To me, that paints a picture
that investors can get behind

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or organisations can get behind
to do co-financing and things like that.

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That can happen.

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It requires a

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credible consistency of
public priorities

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and just at the moment

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the UK has not been that good

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on that consistency piece,
but many other countries are, and I think,

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what's happened
with the Russian invasion of Ukraine

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and the consequence on food
and fuel and fertiliser etc.,

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is that people are thinking,

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“How do we get energy self-sufficiency?”

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One of the quickest ways to do
that is through renewables.

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Okay, the UK has to sort itself out,
but there are plenty of other countries

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where people know exactly now,

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they can't rely on oil and gas coming from

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countries which are
not safe to rely on.

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So I think that's a positive.

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And for those interested in taking
Impact Investing measurement

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seriously, what would you
tell them about the GSG?

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What's the scale of
the work you do?

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GSG really does two things.

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One is a country network, so it's 35
countries with national advisory boards

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for Impact Investing,
another 25 that are coming along,

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including some of
your near neighbors

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in Southeast Asia.

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Big drive there.

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Hugely important part of the world.

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So that's one part of it.

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And those national advisory boards,
we have a structure that we offer up,

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but every country has
its own opportunities,

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its own priorities,
its own things that it can't do.

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And that diversity

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is actually a huge virtue

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because we offer out
a great amount of knowledge sharing.

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So you may be in Israel
with a problem,

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but perhaps it's Colombia that's had
that problem and solved it previously.

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So that kind of a approach
is really important.

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The other side of what we do
is policy and advocacy

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with, for example, that International
Sustainability Standards Board,

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with impact transparency,
with engagement

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with the G7, with the G20.

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And trying to get

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impact, and impact thinking into these

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big centres of
decision making globally.

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So just one question in closing.

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What's something you've
changed your mind

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about recently in your role
as the CEO of the GSG?

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What a great question!

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I think I've

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moved from being
purist to being ‘now’,

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and actually it came
from one person,

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from Elias Masilela,
from South Africa.

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We were in the middle of a
quite complex discussion

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and Elias, he can channel his inner Nelson Mandela.

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Very clear, slow,
confident discussion.

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And he said, “I would rather have

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investment with a bit of greenwashing
than no investment at all.

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I have people who need lives.”

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And you just think, okay,

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we can't be purist.

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We have to achieve
enormous amounts.

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We've only got this 1 trillion out of

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120 trillion of listed assets.

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We have to use that
where it's most useful.

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And then, yeah, ESG is not perfect,

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but let's take the best out of it.

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Thank you so much.

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Thank you Philip.