Join the Yale Center for Business and the Environment for an engaging discussion on sustainability metrics with Todd Cort, Lecturer in Sustainability. Lunch will be served. Please register so that we may provide enough food and seating.
Mainstreaming Green Bonds Through Better Standards
The world’s governments have agreed to open the door to meaningful action to combat climate change. Now, post-COP21, one of our major tasks will be to redirect capital toward climate mitigation and environmental protection writ large. This capital challenge also coincides with strong institutional investor interest in understanding how climate related risks and opportunities can be incorporated in their strategic asset-allocation.
Most of the focus on metrics to measurable Responsible Investing to-date has been on the risk associated with operations of investable public equities. This has had two results. First, this focus has resulted in a lack of metrics, standards and ratings available for measuring the environmental performance of green or climate-sensitive investments across all asset classes including equity, fixed income and alternatives. Second, the current set of metrics is predominantly ‘backward-looking’ and focused on impacts (risks and associated costs) rather than opportunity (and associated revenue). If we are ever to get to scale in moving capital toward greener investments, we will need to establish these metrics, standards and ratings. One of the key objectives of the global climate agreement is a new focus on transparency and metrics, which will provide the foundation critical for capital to flow into high-priority climate sensitive sectors. Our proposed research is a step in this direction.
A group of researchers at Yale have partnered with the Emerging Energy and Environment Investment Group (EEEIG) to explore both the challenges with measuring the environmental impact(s) of investments, and a framework for moving toward a more robust standard of measurement for sustainability impact. Our work is broken down into three stages. First, using a comprehensive literature review as well as an extensive set of interviews with practitioners around the world, our research team is assessing the landscape of ‘green’ investments (with emphasis on fixed-income as this is a less organized space of investing). Who are the major organizations working in this space? What initiatives are already in place and how do they interact and complement each other? Most importantly, what are the gaps in our current ability to measure sustainability impact from an asset class perspective and how can we fill or overcome these gaps? This phase of the research is focused not only on the methodological rigor of current metrics and standards, but also on the applicability and ability to implement these efforts.
The second stage of the research is to draft a ‘metrics framework’ to assess sustainability impact of investments. We envisage a framework with two key elements. First, the framework will define a taxonomy of use cases. Use cases might include the type of investment, environmental or social impacts of the investment, type of investor, type of issuer, type of investment vehicle, type of market e.g. (primary or secondary), etc. Second, within each specific use case, we seek to define a set of metrics that will ex ante capture the most material sustainability aspects for the investment. Our intent is to create a framework that is meaningful to the use case (i.e. reasonably captures the most material sustainability impacts), but can also be operationalized and applied at scale.
The final stage of our proposed research is to convene a group of leaders in the field at Yale University in May 2016 to discuss sustainability impacts of investments. There, our team will present the results of Stage 1 (current practice in the field and gaps) and Stage 2 (a ‘strawman’ of our proposed metrics framework) to the assembled group for discussion and critical feedback. Our intent is to use this expertise to move the metrics framework toward operationalization. We will also use this May convening to invite others to speak and present on current efforts in the field. We believe that one of Yale’s highest contributions is through the ability to convene and facilitate meaningful and impactful discussions and we see this event as unique in this critical field.
This event is co-hosted with the Yale Center for Environmental Law and Policy.