The Yale Initiative on Sustainable Finance (YISF) aims to produce fresh thinking and cutting-edge research on the challenges to integrating sustainability concerns into financial markets and investment decisions.
The Initiative functions as a knowledge hub and provides space for intellectual exchange among scholars, practitioners and policymakers.
Todd Cort, lecturer on Sustainability at the Yale School of Management, outlines the results of YISF's research on corporate disclosure and sustainability disclosure for investors.
YISF sponsors research and dialogue on the relationship between capital flows and a more sustainable future. YISF also produces conceptual frameworks, empirical analyses, market guidance, and policy recommendations related to the integration of sustainability concerns into financial markets and capital allocation processes.
Analytically rigorous academic research, which informs policy and provides marketplace guidance
YISF research is academically rigorous, theoretically grounded, and action-oriented. It focuses on illuminating barriers to and identifying incentives for, steering the flow of capital toward more sustainable enterprises and projects. YISF also aspires to help refine the legal rules and procedures required to enhance the focus on sustainability in financial markets and the world of investment more broadly.
As a joint initiative between the Yale Center for Environmental Law and Policy (YCELP) and the Yale Center for Business and the Environment (CBEY), YISF research benefits from the knowledge of a wide range of faculty across Yale University and addresses sustainable finance from a variety of fields, including economics, finance, accounting, environmental sciences, social sciences, and law.
The Initiative aims to create a knowledge hub that provides a space for robust conversations on sustainable finance issues by organizing workshops, conferences, and online interactions in which research findings and policy perspectives can be shared and debated.
Research Streams – 2017-2019
1. Assessing and refining ESG data and reporting for companies and projects
By identifying the different types of investors and their sustainability needs and investment strategies, we have observed that ESG data rarely provides what mainstream investors want. This research stream explores how ESG metrics might be recast to meet the needs of a range of sustainability-minded investors – and how the methodologies for sustainability reporting might be streamlined and made more clear and consistent. It builds on the Esty-Cort research paper published in the Journal of Environmental Investing, and its analytical framework for the methodological weaknesses in current ESG metrics.
Part of this project will explore the potential for improved ESG metrics based on innovative technologies such as satellites, sensors, social media and the block-chain.
2. Understanding and overcoming barriers to the growth of the green bond market
As the green bond market grows larger, many questions have arisen regarding the definition of “green.” Multiple green bond labeling schemes have emerged with various level of rigor. YISF is currently working on a comprehensive assessment of the green taxonomies of external reviewers (coming soon).
YISF also proposed a framework for data-driven green bonds assessment (Reed, P., Cort, T., & Yonavjak, L. (2017). Data-Driven Green Bond Ratings: A Market Catalyst. The Journal of Investing)
We propose to conduct a series of deep market analyses and survey to rigorously evaluate barriers to issuance.
YISF is an observer of the Green Bonds Principles.
3. Aligning the concept of materiality across sustainability and financial reporting
In financial terms, a piece of information is said to be material when it is likely to alter the investment decisions of a rational investor. Under the current legal and accounting frameworks, material information must be reported in the financial statements of publically listed companies. But what is material in a sustainability context may not be seen as material in a financial one. As a growing number of mainstream investors are expressing interest in the sustainability performance of the companies in their portfolios, this disconnect becomes more problematic.
This research project, in partnership with the World Business Council on Sustainable Development and the Global Reporting Initiative, seeks to understand the scope of this disconnect, the reasons for the divergent views of what is material, and ways that the gap can be closed.
As part of this project, YISF has produced a white paper outlining the challenges to a consistent materiality assessment across the reporting documents. Learn more about the findings of this research with Todd Cort’s short video. This challenges will be discussed with companies and investors during two roundtables, taking place in November 2017 and March 2018. Based on the comments received, YISF and GRI will develop a market guidance on companies reporting.
YISF is also exploring the evolution of companies’ liability in regards to sustainability disclosure. Through a legal review of US case law triggered by investors and consumers, YISF analyzed the evolutions in the ways courts deal with omission and misleading information related to sustainability in corporate disclosure. Strauss, D., Ajax, C. (2018) Corporate Sustainability Disclosures in American Case Law: Purposeful Or Mere “Puffery”? Article under review.
4. Delivering value to investors from sustainability
Unless mainstream investors come to believe that ESG integration is more an opportunity than a risk, the scope of sustainable investing will be limited. We propose to address the question of the correlation between ESG integration and financial performance from a range of fresh perspectives.
We will seek to test this correlation by analyzing the existing literature with advanced data analytics and Big Data tools, controlling for the type of sustainability practices and the types of investors (passive against active and semi-active).
We also adopt a broader perspective, by assessing financial performance as only one source of capital among others (environmental, social…). Building on the recent developments in sustainable accounting, we will explore potential for new accounting frameworks for companies that better reflect sustainability performance and offer guidance to investors. Ideally, a new accounting framework would indicate trade-offs between the different types of capitals and inform investors of the long-term performance of the company. Cort, T. (2018). Incentivizing Multi-Capital toward Inclusive Capitalism, Journal of Sustainable Finance and Investing
-The Journal of Environmental Investing, the State of ESG Data, volume 8. Guest Editors, Todd Cort and Dan Esty
-Strauss, D., Ajax, C. (2018) Corporate Sustainability Disclosures in American Case Law: Purposeful Or Mere “Puffery”? Article under review
-Reed, P., Cort, T., & Yonavjak, L. (2017). Data-Driven Green Bond Ratings: A Market Catalyst. The Journal of Investing
-Cort, T. (2018). Incentivizing Multi-Capital toward Inclusive Capitalism, Journal of Sustainable Finance and Investing
-Esty-Cort research paper published in the Journal of Environmental Investing (thejei.com)
Donors and Partners
YISF is funded in large part by a grant from the Gordon and Betty Moore Foundation with the support of the World Business Council for Sustainable Development (WBCSD). The Moore Foundation is proud to support YISF as part of its effort to enable global financial markets to align capital with sustainability across the value chain, from production and processing through to distribution and retail. Additional support for this initiative comes from Roberta G. Gordon and Mr. and Mrs. Mark T. DeAngelis.
The initiative will be housed at the Yale Center for Environmental Law and Policy and the Yale Center for Business and the Environment. These Centers will facilitate semi-annual workshops reporting on research progress and sharing ideas with collaborators and advisors.