Name: The financial challenges & gains of ESG efforts
Uploaded: 2022-04-13T16:27:15.217Z
Duration: 814.24
Description: Sustainable finance & ESG expert, Katherine Wilson has been featured on Innovate Finance’s Women in Fintech Powerlist for 3 years running. In the first episode of our Sustainable Solutions series, she offers her expertise to help us understand the challenges investors face when trying to build a sustainable future through financial services.

The Financial Challenges & Gains Of Esg Efforts (2) (1)-1.m4v

Katherine Wilson sustainability.vtt

English

{{00:00:00}}
Just because a business is sustainable
and just because it's got positive

{{00:00:03}}
social impact goals, doesn't mean it
will be a great financial returner.

{{00:00:16}}
I think the biggest challenge is no one
knows how to quantify what green is.

{{00:00:19}}
No one knows what the standards
are, what they should be,

{{00:00:22}}
it's all up for debate.

{{00:00:23}}
It's not like accounting standards
where there's a institution of

{{00:00:27}}
framework, something that's regulated
and globally accepted like GAAP.

{{00:00:32}}
There's just nothing.

{{00:00:33}}
So we think it is all up to be
defined, all up for grabs, so to

{{00:00:38}}
speak, for young companies to come
in and help define those standards.

{{00:00:42}}
And do you think that prioritising
metrics such as social and

{{00:00:44}}
environmental impact is really
still hard for FinTech companies?

{{00:00:48}}
I think it is hard because
they've just not been defined.

{{00:00:51}}
So everyone's trying to work
out where these metrics sit.

{{00:00:55}}
What is the most important?

{{00:00:56}}
How do we even calculate them?

{{00:00:58}}
How to report against them, especially
for a young FinTech, if you're trying

{{00:01:02}}
to grow revenue and you might not
exist tomorrow, if, if you've got

{{00:01:05}}
a hard stop on your cash position,
it is hard to prioritise these

{{00:01:09}}
different social and impact goals.

{{00:01:11}}
What is starting to happen though,
is these social and impact goals

{{00:01:15}}
are becoming priced and they're
becoming KPIs in and of themselves.

{{00:01:18}}
So they're things that investors
are increasingly caring about,

{{00:01:21}}
pushing to get reported against.

{{00:01:23}}
And as that happens more and
more, they will become formalised

{{00:01:26}}
and reported on as a key KPI,
like financial metrics as well.

{{00:01:30}}
So I think hard, getting
easier, but still a lot to go.

{{00:01:35}}
So eventually, maybe it will become the
standard that you have to start with?

{{00:01:39}}
I don't know if it'll ever become
the standard you have to start

{{00:01:41}}
with, again, up for debate.

{{00:01:43}}
It might be.

{{00:01:43}}
But I think it does definitely become
something that can't be ignored.

{{00:01:49}}
So it will become just as important
as other things like, are you

{{00:01:52}}
treating your employees fairly?

{{00:01:54}}
If you don't do that, you probably
won't have a business to start from.

{{00:01:57}}
So I think that will
be how they're viewed.

{{00:02:00}}
Yeah.

{{00:02:00}}
That makes sense.

{{00:02:01}}
And is helping the environment
the main thing when people

{{00:02:04}}
think of ESGs or are there other
factors that are more important?

{{00:02:07}}
I mean, well, ESG is split
into three buckets already.

{{00:02:10}}
So there's E for environment,
S for social and then G for the

{{00:02:13}}
governance elements as well.

{{00:02:15}}
How you want to weight that again
I think is a quite visceral debate.

{{00:02:19}}
Some people think E should
be 90% of the equation.

{{00:02:22}}
Some people think that
G is more important.

{{00:02:24}}
And again, we think all of that is part
of what needs to be a big part of the

{{00:02:29}}
discussion when we're looking at how
we factor these, how we quantify these,

{{00:02:33}}
how we weigh these and different people
will come to different views on that.

{{00:02:36}}
I think for us, it's not to
say which is more important,

{{00:02:39}}
what the weighting should be.

{{00:02:41}}
It's more about giving tools to
people so they can make those

{{00:02:43}}
decisions and they can work out
within their company, within their

{{00:02:46}}
institution, within that allocation
strategy for investment, what they

{{00:02:50}}
want to reflect in the same way that
they would for financial analysis.

{{00:02:54}}
So, that's what we see as one of
the big challenges when it comes

{{00:02:59}}
to the environment and the role of
the corporate in the environment.

{{00:03:02}}
Again, I think it's down to each
corporate to decide how they want to

{{00:03:05}}
act and run the risk of not acting,
if they think that they don't need to.

{{00:03:11}}
And then the government steps
in and says that they do, that

{{00:03:14}}
becomes a regulatory risk.

{{00:03:15}}
And then for the investors in
those corporates, it's all about

{{00:03:19}}
understanding where that corporate
sits and if they're willing to

{{00:03:21}}
be alongside that viewpoint.

{{00:03:23}}
And you know, what do you think
some of the barriers are really

{{00:03:26}}
preventing people from investing
more in sustainable investments?

{{00:03:30}}
I think people don't
really know what they are.

{{00:03:32}}
So most of ESG at the moment is
a little bit of a fuzzy box tick

{{00:03:37}}
exercise at the end of, you know, once
an allocation decisions been made.

{{00:03:41}}
It's a bit of a screen against,
you know, a rating that bundles

{{00:03:46}}
all ESG into one and doesn't
have much transparency over

{{00:03:50}}
what is behind that rating.

{{00:03:52}}
So I think that's a big challenge
is that people look at a rating,

{{00:03:56}}
they might disagree with the
weightings behind that, and so

{{00:03:59}}
dismiss the rating in its entirety
and default back to the financials.

{{00:04:03}}
But if we can break that apart and if
we can, you know, give people access

{{00:04:07}}
to the raw, you know, quantitative
data so that they can decide what

{{00:04:11}}
they want to prioritise, how they
want to prioritise it, then that

{{00:04:14}}
gives control back to the investor.

{{00:04:16}}
It gives control back to the person
allocating the capital to be able

{{00:04:20}}
to put it where they want to put it
and reflect their investment views

{{00:04:23}}
on what within sustainable finance
and ESG matters most, so they can

{{00:04:28}}
direct that in how they want to.

{{00:04:30}}
As you look at, you know, sustainable
investments and we obviously talk

{{00:04:34}}
about the investor, the one with
the capital kind of allocating,

{{00:04:38}}
what about the smaller people,
sort of the everyday person.

{{00:04:41}}
Are we seeing that that's becoming
more of a trend around wanting

{{00:04:44}}
to sort of invest in green?

{{00:04:46}}
Again, I think it comes
down to the individual.

{{00:04:49}}
There is a huge amount of literature
and study showing that green

{{00:04:54}}
investments, saying green is also
quite tough because it kind of implies

{{00:04:59}}
greenwashing in lots of ways, but
positive social impact investments

{{00:05:03}}
matter more and more to the younger
generations because they look at things

{{00:05:07}}
beyond the pure financial returns.

{{00:05:09}}
So I think that trend isn't going
away and you know, that will continue

{{00:05:14}}
and there'll be opportunities
to create mandates around a more

{{00:05:18}}
holistic portfolio that doesn't
just prioritise financials.

{{00:05:23}}
And how can we avoid or identify,
as you sort of alluded to this

{{00:05:27}}
greenwashing term when businesses
and investments claim to be

{{00:05:30}}
greener than they actually are?

{{00:05:31}}
I think it all comes back to
transparency of information

{{00:05:34}}
and being able to give that
information to the investors, to

{{00:05:38}}
the people who are allocating the
capital so they can make those

{{00:05:41}}
different decisions for themselves.

{{00:05:44}}
You know, when you go and buy
consumer products, you're getting

{{00:05:47}}
more and more information, so you
can say, do I want to buy organic?

{{00:05:50}}
Do I want to buy local?

{{00:05:52}}
The same thing will happen in
investments where people can

{{00:05:54}}
decide the kind of companies they
want to put their capital in and

{{00:05:58}}
weigh that against the return
that company can potentially give.

{{00:06:02}}
On the green washing side of things,
I think the big challenge there is

{{00:06:05}}
again, if ESG and sustainability is
seen as this kind of nice to have box

{{00:06:10}}
tick lens at the end, that isn't really
the ethos of what it is, because it,

{{00:06:15}}
you can kind of mask poor performance
with some kind of overlay, if you've

{{00:06:20}}
not really understood the numbers and
surface the information underneath it.

{{00:06:24}}
So the more information that's
there, the more we can understand,

{{00:06:27}}
you know, what are the green
things that company is doing?

{{00:06:31}}
Does that go far enough, along
with a investor's desires?

{{00:06:35}}
Because if it doesn't then that
might not be good enough for them,

{{00:06:38}}
but if we're saying that something
is green because it hits a certain

{{00:06:41}}
level, but giving no more details on
that, when press report surface, that

{{00:06:46}}
that company that someone thought
was green isn't recycling its water

{{00:06:49}}
or whatever it is that you want to
say, that's when the scandals come

{{00:06:53}}
out, because people didn't know where
that standard was, but if it's all

{{00:06:57}}
transparent to begin with and you
understand where someone sits on a

{{00:07:00}}
spectrum, then there's not going to
be greenwashing because you can see

{{00:07:04}}
where something sat and you can make
a decision based on that educated, you

{{00:07:09}}
know, understanding of the position.

{{00:07:11}}
Are businesses with a robust,
sustainable strategy, a

{{00:07:14}}
better investment opportunity?

{{00:07:18}}
I wouldn't, it depends what you're
looking for in an investment

{{00:07:20}}
opportunity, because you can
make a huge amount of money

{{00:07:23}}
in, you know, companies that
have got atrocious ESG metrics.

{{00:07:26}}
So I think we need to be careful
about talking purely on the financial

{{00:07:31}}
alpha side when we look at ESG
metrics, instead of saying they are

{{00:07:35}}
a metric that we need to look at when
we're trying to work out business

{{00:07:39}}
decisions, investment decisions,
and as an allocator of capital,

{{00:07:44}}
where you want that capital to go.

{{00:07:46}}
So I think that they are a
key decision-making tool.

{{00:07:50}}
They are key to understanding the
holistic elements of an investment and

{{00:07:54}}
how that sits, but that needs to be
looked at alongside the financials,

{{00:07:59}}
just because a business is sustainable
and just because it's got positive

{{00:08:02}}
social impact goals, it doesn't mean
it will be a great financial returner.

{{00:08:06}}
Look at lots of charities.

{{00:08:07}}
They're not necessarily, you know,
financial behemoths, whether they

{{00:08:12}}
should, or shouldn't be is another
question, but from a shareholder return

{{00:08:15}}
perspective, just because a company's
sustainable, doesn't mean it will

{{00:08:18}}
necessarily generate those returns.

{{00:08:21}}
But I think what's important is
looking at that alongside the

{{00:08:24}}
financials and then making sure
that where you are investing aligns

{{00:08:28}}
with the goals that you want and
reflects the priorities you want.

{{00:08:32}}
Whether that's purely financial or with
an element of the social capital in

{{00:08:37}}
there as well, reflecting what could
be a regulatory risk if society as

{{00:08:41}}
a whole decides to start to regulate
some of these sustainable goals.

{{00:08:45}}
And, you know, I wanted to pivot a
little bit, not so much pivot, but,

{{00:08:48}}
you know, talk about conflicts like
the Russian invasion of Ukraine.

{{00:08:53}}
So obviously had a massive social
and governance implications and

{{00:08:57}}
obviously not to mention possible
environmental impact, oil, gas

{{00:09:01}}
sanctions and rising fuel prices.

{{00:09:03}}
So, you know, what effects do
you think that the conflict has

{{00:09:06}}
had on the thinking around ESG?

{{00:09:10}}
It's a big one and it's a tough one.

{{00:09:12}}
And I, again, I think I just keep
coming back to, with ESG, it's not

{{00:09:17}}
math, it's not one plus one equals two.

{{00:09:19}}
It is a whole host of data points
that can go into expressing a

{{00:09:23}}
view on how much risk you want
to take in certain spectrums.

{{00:09:27}}
Whenever you invest in any
country, even your home domicile

{{00:09:31}}
country, there is a political
risk associated with that.

{{00:09:34}}
And I think as long as people can
see that and understand what that

{{00:09:37}}
risk is and get comfortable with
it, then that's what you need

{{00:09:41}}
to balance in decision-making.

{{00:09:43}}
With what's going on, you know, with
the conflict that I think where that

{{00:09:48}}
can catch people off guard is if they
didn't know that risk existed and there

{{00:09:51}}
was no way for them to quantify that.

{{00:09:54}}
I don't think it makes sense to
say, well, we're going to eliminate

{{00:09:57}}
any potential conflicts country
in line with an ESG strategy,

{{00:10:01}}
because that kind of elimination,
I mean, you'd eliminate everything.

{{00:10:04}}
Because of the social side, I guess?

{{00:10:06}}
It closes everything.

{{00:10:07}}
You know, there are multiple
different factors in you know,

{{00:10:13}}
you gave the energy example.

{{00:10:15}}
An energy company might be going
against one of the 17 UN sustainable

{{00:10:20}}
development goals in energy
efficiency, but it might be giving a

{{00:10:23}}
huge amount back to the community in
other ways, and improving financial

{{00:10:26}}
literacy and poverty rates in the
community that it's supporting.

{{00:10:31}}
Energy is a big problem.

{{00:10:32}}
Poverty is a big problem.

{{00:10:33}}
We need to find these balances.

{{00:10:35}}
And just because something's
dirty, doesn't mean it's

{{00:10:38}}
necessarily bad in other ways.

{{00:10:40}}
What I think on that shouldn't
matter, what anyone thinks

{{00:10:44}}
shouldn't necessarily matter,
because there's no one answer.

{{00:10:46}}
It just needs to be how we're
looking holistically across all

{{00:10:50}}
of the different social goals
and how are we making decisions

{{00:10:53}}
about how to weigh them.

{{00:10:54}}
And in a portfolio, if we do have an
energy company that might be dirty,

{{00:10:59}}
but that is doing a huge amount for
its local economy, can we balance

{{00:11:04}}
that against something else that
might be cleaner energy, but isn't

{{00:11:07}}
doing as much for the local economy.

{{00:11:10}}
And then you can create a more
balanced portfolio so that when

{{00:11:13}}
things do happen, like this you've
foreseen the risks and you've created

{{00:11:18}}
a portfolio that can be insulated
against that somewhat because you

{{00:11:22}}
just understand where those risks are.

{{00:11:25}}
It's not unlike factor investing,
in traditional finance.

{{00:11:28}}
When you try and look at
what is quality of earnings?

{{00:11:30}}
What is beta?

{{00:11:31}}
What is momentum?

{{00:11:32}}
What is growth?

{{00:11:33}}
What is value?

{{00:11:34}}
You weigh all of this together and
you look at a portfolio and you try

{{00:11:37}}
to understand where your biases are.

{{00:11:39}}
That's the same question within
ESG and the sustainability metrics.

{{00:11:44}}
Do you think that FinTech
can potentially help power

{{00:11:48}}
the green energy revolution?

{{00:11:50}}
And if so, how?

{{00:11:51}}
I mean, absolutely.

{{00:11:52}}
Because like I said, at the
beginning, there are no standards

{{00:11:55}}
yet on how we define any of
these sustainable metrics.

{{00:11:58}}
There are some attempts.

{{00:12:00}}
Better than attempts, there are
companies out there trying, but it's

{{00:12:03}}
at the moment, a complete white space.

{{00:12:05}}
There isn't the go-to that you
know that you can buy all of

{{00:12:08}}
these data points from, you know,
there's no standard, there's no,

{{00:12:11}}
you know, accredited body of people
saying I have this qualification,

{{00:12:15}}
therefore, you know, I'm the
equivalent of an ESG accountant.

{{00:12:19}}
There isn't that kind of
like for like comparison.

{{00:12:22}}
So as we try and converge on what
those standards are and what those

{{00:12:25}}
frameworks should be, you know, a
young company, a young FinTech does

{{00:12:29}}
have the ability to define that,
to be the data provider, to be the

{{00:12:32}}
reporting framework and to help bring
the industry along on that journey.

{{00:12:37}}
On the newcomer side, if there is,
which there is, appetite to allocate

{{00:12:42}}
to more sustainable investments
and there are, you know, incumbent

{{00:12:47}}
traditional managers who are only
prioritising financial returns, there

{{00:12:51}}
is a space for a tech-led newcomer
to offer those investment products

{{00:12:56}}
that do have that more sustainable
emphasis and backing, hopefully

{{00:13:01}}
supporting, you know, the products
that other fintechs who are, you know,

{{00:13:04}}
delivering those new data products.

{{00:13:06}}
And that to us is a
phenomenal opportunity.

{{00:13:10}}
Well, you know, it's been really
interesting talking about ESGs and just

{{00:13:13}}
sort of where the industry is going.

{{00:13:14}}
That there's still, it seems
like a lot to sort of be worked

{{00:13:17}}
out and potentially a lot of
opportunity for fintechs, banks,

{{00:13:20}}
everyone to sort of work together,
to find the right balance.

{{00:13:23}}
I really want to thank you for joining
us today in the Streamly studio,

{{00:13:25}}
it's been an absolute pleasure.

{{00:13:27}}
Thank you.

Just because a business is sustainable
and just because it's got positive

social impact goals, doesn't mean it
will be a great financial returner.

I think the biggest challenge is no one
knows how to quantify what green is.

No one knows what the standards
are, what they should be,

It's not like accounting standards
where there's a institution of

framework, something that's regulated
and globally accepted like GAAP.

So we think it is all up to be
defined, all up for grabs, so to

speak, for young companies to come
in and help define those standards.

And do you think that prioritising
metrics such as social and

environmental impact is really
still hard for FinTech companies?

I think it is hard because
they've just not been defined.

So everyone's trying to work
out where these metrics sit.

How to report against them, especially
for a young FinTech, if you're trying

to grow revenue and you might not
exist tomorrow, if, if you've got

a hard stop on your cash position,
it is hard to prioritise these

What is starting to happen though,
is these social and impact goals

are becoming priced and they're
becoming KPIs in and of themselves.

So they're things that investors
are increasingly caring about,

And as that happens more and
more, they will become formalised

and reported on as a key KPI,
like financial metrics as well.

So I think hard, getting
easier, but still a lot to go.

So eventually, maybe it will become the
standard that you have to start with?

I don't know if it'll ever become
the standard you have to start

But I think it does definitely become
something that can't be ignored.

So it will become just as important
as other things like, are you

If you don't do that, you probably
won't have a business to start from.

So I think that will
be how they're viewed.

And is helping the environment
the main thing when people

think of ESGs or are there other
factors that are more important?

I mean, well, ESG is split
into three buckets already.

So there's E for environment,
S for social and then G for the

How you want to weight that again
I think is a quite visceral debate.

Some people think E should
be 90% of the equation.

Some people think that
G is more important.

And again, we think all of that is part
of what needs to be a big part of the

discussion when we're looking at how
we factor these, how we quantify these,

how we weigh these and different people
will come to different views on that.

I think for us, it's not to
say which is more important,

It's more about giving tools to
people so they can make those

decisions and they can work out
within their company, within their

institution, within that allocation
strategy for investment, what they

want to reflect in the same way that
they would for financial analysis.

So, that's what we see as one of
the big challenges when it comes

to the environment and the role of
the corporate in the environment.

Again, I think it's down to each
corporate to decide how they want to

act and run the risk of not acting,
if they think that they don't need to.

And then the government steps
in and says that they do, that

And then for the investors in
those corporates, it's all about

understanding where that corporate
sits and if they're willing to

And you know, what do you think
some of the barriers are really

preventing people from investing
more in sustainable investments?

I think people don't
really know what they are.

So most of ESG at the moment is
a little bit of a fuzzy box tick

exercise at the end of, you know, once
an allocation decisions been made.

It's a bit of a screen against,
you know, a rating that bundles

all ESG into one and doesn't
have much transparency over

So I think that's a big challenge
is that people look at a rating,

they might disagree with the
weightings behind that, and so

dismiss the rating in its entirety
and default back to the financials.

But if we can break that apart and if
we can, you know, give people access

to the raw, you know, quantitative
data so that they can decide what

they want to prioritise, how they
want to prioritise it, then that

It gives control back to the person
allocating the capital to be able

to put it where they want to put it
and reflect their investment views

on what within sustainable finance
and ESG matters most, so they can

As you look at, you know, sustainable
investments and we obviously talk

about the investor, the one with
the capital kind of allocating,

what about the smaller people,
sort of the everyday person.

Are we seeing that that's becoming
more of a trend around wanting

Again, I think it comes
down to the individual.

There is a huge amount of literature
and study showing that green

investments, saying green is also
quite tough because it kind of implies

greenwashing in lots of ways, but
positive social impact investments

matter more and more to the younger
generations because they look at things

So I think that trend isn't going
away and you know, that will continue

and there'll be opportunities
to create mandates around a more

holistic portfolio that doesn't
just prioritise financials.

And how can we avoid or identify,
as you sort of alluded to this

greenwashing term when businesses
and investments claim to be

Expert Insight

Sustainable finance & ESG expert, Katherine Wilson has been featured on Innovate Finance’s Women in Fintech Powerlist for 3 years running. In the first episode of our Sustainable Solutions series, she offers her expertise to help us understand the challenges investors face when trying to build a sustainable future through financial services.

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Katherine Wilson

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