Dr Steve Waygood leads the global investment team at Aviva Investors. He co-founded the Sustainable Stock Exchange Initiative and the Corporate Responsibility Reporting Coalition. He is a faculty member at the International Corporate Governance Network as well as the University of Cambridge Institute for Sustainability Leadership.
He spoke to Zoë Arden about closing the green finance gap.
There have been encouraging advances in mobilising and mainstreaming green finance, but would you agree that it is still marginal to overall financial flows?
Having worked in the sector for a few decades – its never been so exciting in terms of potential but it still remains the case that there is a profound gap between a sustainable capital market and the one we have today.
However, one of the reasons I think this is an exciting time is because increasingly there are individuals emerging who have the ability to close the gap. People like Mark Carney and other statesmen and women who recognise the need to get finance correct – and that without that we won’t have sustainable development.
So where are you seeing action?
We’re seeing action at all levels – country level, EU, UN and G20. There is an unprecedented level of interest at the moment in sustainable finance and plenty of examples of recent momentum.
The President of the EU Jean-Claude Juncker has endorsed our idea that the Capital Markets Union should be sustainable, as has the new commissioner for financial services. Green finance was on the agenda at September’s G20 meeting in China. The UN is looking hard at the issue of financing the SDGs. We are working closely with the UN Foundation, the Business Sustainable Development Commission and the UK’s Green Finance Initiative. The combined forces of all these various work streams could lead to real change.
And what is Aviva doing?
We’ve issued the Aviva Sustainable finance toolkit aimed at EU policy makers which has been extremely well received.
We need to build sustainable finance literacy. Why isn’t there a Fairtrade for finance that children are taught about and is part of the curriculum? You could have a league table on climate risk, a kitemark, literacy to build understanding.
I was heavily involved in the Brookings Institution report which was discussed at the UN recently and identifies strategies to shift the global flow of capital away from unsustainable sectors and towards investments that generate positive externalities in addition to economic growth, namely social inclusion and environmental protection. Our CEO was at the launch and we were delighted at how well received it was at the General Assembly.
What more does business need to do?
The radical leap now is to take private analysis on corporate performance and make it more public. Imagine if we had a league table for disclosure? We’ve seen a radical change in the level of disclosure over the last two decades which needs to be further encouraged through initiatives like league tables. I’m pleased that organisations like SustainAbility promote radical thinking in this area.
To use John Elkington’s ‘breakthrough’ language, at Volans, in finance there are three ways to achieve breakthrough: through financial literacy, demand side understanding and league tables which create a race for the top – and turn sustainable finance into a competitive sport where CEOs try and out-compete each other. Massive complexity can be simplified down to a league table and benchmarks of key issues.
And what about the role of government?
You will see financial regulation start to catch up that sustainable issues will cause systemic risk that needs to be managed market wide as well at an institutional level.
I strongly believe its role of government to correct market failure. The SDGs represent 17 market failures. It’s not just about financing the SDGs but how do you move markets so that SDGs don’t need to exist. We need rule of law, information, demands, property rights and economic capital to be deployed to achieve breakthrough. There is $300tr of capital in capital markets.
What gives you hope?
In one month, we’ve seen the EU-G20- UN all addressing sustainable finance. That gives me hope.