Episode 10: Sustainable Finance is the new normal

TRANSCRIPT:

Lee Ballin:  We truly believe that it'll be the world of business and finance that move us closer to the solutions that we need in a 21st-century economy.

Michael Torrance: Welcome to "Sustainability Leaders." I'm Michael Torrance, Chief Sustainability Officer with BMO Financial Group. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment, business practices and our world.

Legal Disclosure: The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or subsidiaries.

Michael Torrance: This week, we bring you a special episode as part of our partnership with Bloomberg for Sustainable Finance Week, a collection of events around this topic of sustainable finance in New York City and Toronto happening the first week of December. My guest today is Lee Ballin, the head of Business Development for Sustainability at BloombergNEF, Bloomberg's primary research group focused on industry-transforming trends and technologies driving a cleaner, more competitive future. Lee, welcome to the show. Why don't we begin with an introduction of you and your role at Bloomberg?

Lee Ballin: I've been at Bloomberg for 13 years. The last decade before I took this new role on in September, I was one of the original floor members of Bloomberg Sustainable Business and Finance Team. We looked across the firm looking for opportunities to mitigate the company's emissions, reduce our environmental risk and unlock opportunity on the Bloomberg terminal for our clients with respect to environmental, social and governance data, clean-energy investment and a litany of other things that would fall under the sustainable-finance umbrella.

Michael Torrance: Let's talk about the collaboration between Bloomberg and the partners that are coming together for Sustainable Finance Week. This week is really mainstreaming sustainable finance, and that will be the heart of the discussions happening. What is the goal of the week, and why did Bloomberg decide to organize it?

Lee Ballin: Well, yeah, it's a really exciting time to be in New York and Toronto. Together with our partners, we've launched this banner week called Sustainable Finance Week. Started last year. There were about three or four different events happening in and around New York City, and rather than having them be individual, discrete events, we wanted to put an umbrella, cast a banner over the entire week to make it feel like an event, a happening, here in New York City similar to like what they do during Ad Week or Fashion Week or even Climate Week, and while some may ask, "Why do we need to have a Sustainable Finance Week when we already have a Climate Week?" climate is just one of the sustainable-finance topics that we talk about and that the events cover over the course of this week. It really runs the full gamut of environmental, social and governance issues that companies and investors need to be wary of as the market moves, like you said, towards the mainstream, although I would argue that ESG is a lot closer to being mainstream than the market or the general public gives it credit for. We at Bloomberg are committed to helping move and mobilize capital to make sustainable finance the new normal for capital markets, but there's still barriers like a lack of common metrics or misconceptions about sustainable finance including the skepticism regarding financial returns. The goal of Sustainable Finance Week is to bring ideas on how to overcome these barriers, and we'll take on, as I mentioned earlier, the full broad spectrum of ESG considerations that the markets and companies are dealing with today. We think that having a cohesive week can really magnify these conversations and that the sum of the whole will be larger than its individual parts. There's going to be over 1,500 thought leaders and decision makers from the world's business, financial and policy coming together at this week here in New York and in Toronto, and we couldn't be more excited than to be bringing this forward, this very important issue, at a very important time.

Michael Torrance: What ESG topics will be at the top of the agenda for the week?

Lee Ballin: ESG is a large umbrella in and of itself. We'll be talking about, you know, examples of good governance. You know, what does a good board do? How is it constituted on the G side? On the E side, we'll be ... I'm sure there will be conversations around the environment, climate, of course, water, which is an emerging issue, and how to partner to mitigate environmental impacts across your entire supply chain. That includes the trend of setting and achieving science-based targets. On the social side, diversity, gender: Those are the types of conversations that I would imagine will be dug into very deeply throughout the course of Sustainable Finance Week.

Michael Torrance: Can you tell us more about Bloomberg's own sustainability journey?

Lee Ballin: Yeah, I'd love to. That was where I spent the first 10 years of my sustainability journey here at Bloomberg. It was about creating a culture of sustainability that is deeply embedded in everything that we do, and while we started that journey 10 years ago, that culture that we created actually started from day one and is pushed down from the top of our firm through the lens and work that Mike Bloomberg and Bloomberg Philanthropies do. We launched specifically a sustainability initiative about 12 years ago. It's always been about proving the business case for sustainability and decoupling economic growth from environmental impact. We take a very holistic approach to sustainability and integrate respective considerations into everything we do both across our products, for our people and, of course, for the planet. We've always tried to create and develop the business case and prove the business case for sustainability. That has resulted in not only improving energy efficiency by 45 percent, which has resulted in reduced carbon emissions, but it's also resulted in over $115 million in cost savings. That, I think, is a big differentiator. If you can go to your management and say, "We've done all these great things for the environment, and, by the way, we also saved the firm a significant amount of money while doing it," it takes the effort to a whole other level, and it enables you to get more resources and to do things quicker and faster. For us, we are really excited that we started from the very beginning calculating cost savings along with environmental reductions. You know, we're on target to reduce our emissions 20 percent by 2020 against a baseline of 2007. We will have 100 percent of our operations powered by renewable sources by 2025. We're an anchor participant in the New York City Carbon Challenge for Commercial Tenants. We were one of the first companies to join that Carbon Challenge, and it's our goal to match New York City's government's goal to reduce the city's emissions by 30 percent. We prepare our business to withstand severe weather events and other climate-related disruptions by fortifying our key facilities, building in-network redundancies and helping key suppliers manage their climate change. We were an original signatory of the Renewable Energy Buyers Principles, and we work with the Rocky Mountain Institute's Business Renewable Center on its mission to help streamline and accelerate corporate purchase of off-site large-scale solar and wind, and we're also a signatory of the UNPRI. There's probably not a sustainability acronym out there or initiative that we haven't partnered with or at least shared our story with them, and it's something that we're very proud of, and it's also something that our employees really latch on to, and to be honest, it's given us an edge in terms of attracting talent, retaining talent and putting forth Bloomberg as a leader in this space for a workforce that increasingly cares about your company's environmental and social impact.

Michael Torrance: What has Bloomberg done to promote sustainable finance internally with your employees?

Lee Ballin: Yeah, so we were one of the first US-domicile corporate-retirement-plan sponsors to join the Principles for Responsible Investment. We did that in 2017. So again, I just threw out a whole bunch of initiatives and acronyms, but what does that mean? At the end of the day, we integrated into our corporate retirement plans, our 401(k) here in the United States, a fund that is considered an environmental, social and governance option for our employees to invest in. It's been one of the things that we're really excited about because Bloomberg understands the power of financial markets. While we can't actively promote a specific investment fund for our employees, we take great strides in making sure that they are aware of this offering so that they can make an educated decision on their own about where they want their money to go and the impact that their money can have. As far as I know, we're one of only a handful of companies that offer this to their employees. We are involved with the World Business Council for Sustainable Development's Aligning Retirement Assets plan, which is trying to educate other corporate members of the WBCSD to integrate and offer this same type of benefit to their employees, but we're really proud of our leadership role here and being able to trailblaze a path for others to follow.

Michael Torrance: What has been the response from Bloomberg customers? In your experience, you're dealing with some of the world's largest financial institutions. Do they really care about sustainability from what you've seen?

Lee Ballin: Increasingly, absolutely. Our customers care about this, and our customers expect that Bloomberg will deliver the solutions that they need in an ever-changing market. The number of customers that use our environmental, social and governance data on the Bloomberg terminal has grown over 300 percent within the last 7 years. We're constantly evolving our offering based on the trends that our customers are asking for us, and increasingly, those trends that our customers are asking for us include environmental, social and governance data, whether it be in the equity space or the fixed-income space. An interesting stat that I heard the other day through BloombergNEF, which is my new home, is that it took 103 months for the first $100 billion of green bonds to be underwritten. That timeline has shrunk the last $100 billion of issuance, only took 5 months, and we have now reached the $1 trillion mark. That is a rapidly exploding market that began, you know, within, you know, the last 5 or 6 years, and if the market is growing, our customer base is responding to that growth, and so it's up to us to give them the data, the research and the insight so that they can take advantage of a rapidly growing market. So that's just two of the areas in which we're seeing growth, but we're also seeing, you know, a significant amount of interest in gender investing. The Bloomberg Gender Equality Index is a reference index that in 2019 included 230 companies across 10 sectors headquartered in 36 different countries that show how companies are committed to transparency in gender reporting and advancing women's equality in the workforce, and since its inception in 2016, this is another thing that is growing, and it's more than doubled every year since we released it. So, you know, in summary, the space is evolving, and it's evolving quickly, and our customers need to be at the cutting edge of that growth and that opportunity, and so we are really making significant investments both at the company level but, most importantly, on the terminal.

Michael Torrance: Solely in your view, what is driving the growth of sustainable finance?

Lee Ballin: So, I think one of the main reasons that this space is growing so rapidly is due to the plethora of problems that are ripe for business and finance to solve. There's a lot of innovation that's happening in the marketplace. I gave two examples of this earlier: the growing fixed-income green-bond market where the use of proceeds are being used to scale up renewable energy or develop facilities, energy-efficiency projects at companies and then, of course, the rise of gender-and-diversity type of screens on investments. But it's also happening at the company level, and one of the things that we did that was really innovative was we partnered with Cox Enterprises, Gap Inc., Salesforce and Workday earlier this year to do a corporate renewable-energy aggregation deal. These five companies, us included, got together. We typically have smaller energy demands, but collaboratively together, we became very appealing for a virtual-power purchase agreement. So this deal represented 42 1/2 megawatts of a 100-megawatt North Carolina solar project, and it was done by a renewable-energy developer, BayWa r.e., and it was coordinated by LevelTen Energy, which aggregates both buyers and sellers across national and regional renewable-energy portfolios, and so we were able to get a better deal by taking our relatively smaller energy needs and packaging them together so that, you know, we could take advantage of the pricing of having a larger demand, and I think that more innovation as companies demand renewable energy is going to be needed because not everybody can take 100 megawatts at a time, right? But if you get five or six companies together that have reasonable electricity demands, you can then use the combined purchasing power to create a deal that has a real financial and environmental benefit.

Michael Torrance: Do you have any advice for the industry on first steps to take to developing a sustainability plan?

Lee Ballin: Yeah, I have this conversation a lot with folks that are trying to, you know, really just get started, and I always tell them, you know, to borrow an old saying, "You can't boil the ocean." There are so many things that you want to do when you get greenlit to do sustainability at your firm, but you really need to take a methodical approach, and the first thing is getting the data, right? You can't manage what you don't measure. We've all heard that saying, but it's really true. So, get the data. Identify, you know, no more than five things that you think you can do immediately. Capture the low-hanging fruit, right? But the data is going to confirm what that low-hanging fruit is. You also need to take a multistakeholder approach, right? And that's not just externally, but it's also internally. The easiest thing to do for someone trying to get off the ground in this space is to push on open doors, so find out what your colleagues and facilities are trying to achieve for the firm and help them see the opportunity through an environmental or social lens.

The same goes for your colleagues at your data centers and your colleagues in supply chain or even your colleagues in marketing who are trying to put a fresh spin on products and services that they're putting out there in the market for future customers. Probably most importantly is, you need an internal sustainability champion who's going to help you move this ball forward. For us, we're really lucky. I mentioned we have Mike Bloomberg, but we also have Peter Grauer, who's the chairman of Bloomberg, who was the first person to see this opportunity and really gave us a license to go after it, and Peter has been our champion internally, and he's someone that we can go to when we hit a roadblock. You need that powerful voice at a very senior level at the firm. And then I said it earlier, but I'll say it again. The best is to start small. You can't do everything at once, even though you're going to be tempted to do so, so find that low-hanging fruit. Go after it. Quantify the environmental impact. Don't forget about the financial impact as well. And odds are, you're going to get some quick wins, and you're going to get some real good momentum.

Michael Torrance: Bloomberg chaired the Task Force on Climate-related Financial Disclosures, or TCFD, working group of the Financial Stability Board. To what extent has Bloomberg remained involved in supporting the broader market as it grows these types of efforts, including the TCFD as well as the Climate Finance Leadership Initiative, or CFLI?

Lee Ballin: We need a market that properly values sustainability ESG within the investment decision-making process, and that has been a large part of our efforts because, you know, Bloomberg has a unique role in the marketplace. We kind of are neutral arbiters of information, right? And so, if we can help our customers make sense of this information but, more importantly, identify the risks but, even more important than that, identify opportunities for them, that is where we can have a real big impact. One of the biggest problems is that ESG-related data is still lacking standardization and comparability, which is why Mike has taken a leadership role in chairing the Task Force on Climate-related Financial Disclosures and was the former chairman of the Sustainable Accounting Standards Board. If you think about it through the lens of supply and demand, right, SASB and TCFD are going to be efforts that improve disclosure. They assist companies in better communicating their long-term strategies around sustainability and the transition to a low-carbon economy. On the flip side, there's the demand side, right, which is where CFLI comes into play. This is ... helps us make a market in transition through building capacity and sharing best practices around green and sustainable finance, ESG integration, green-bond analysis and clean-energy investing news and analysis, but the first thing is, we need to get the data out there, so SASB, for those who are, again, on the supply side, they're focused on financially material, industry-specific ESG standards that help companies disclose and investors manager sustainability strategies. That's the data. The TCFD, the Task Force on Climate-related Financial Disclosures, again, on that supply side, provides recommendations for effective, voluntary climate-related disclosures that inform investment, credit, underwriting decisions, and this is being driven by the FSB, the Financial Stability Board. Again, going back and forth between the supply side and demand side, that demand side, the demand for the information that the supply side is providing, that's where the Climate Finance Leadership Initiative comes in. Again, Mike was tasked by the UN Secretary General António Guterres to lead an effort to accelerate private-sector investments in clean energy and climate solutions around the world, but they need the data, so it goes back to the supply side, so it really becomes, you know, a scale where we need both of them to work in balance so that the investors can make the right decisions and put their money to work.

Michael Torrance: So, Lee, what are your thoughts about where sustainability is going next?

Lee Ballin: Oof, that's a good question. I think we'll continue to see integration of sustainability considerations into the existing asset classes that we talked about, but I think it's going to spread into other asset classes. We'll probably continue to see some consolidation within the ranking space. There was a recent acquisition by S&P Global of RobecoSAM as an example of that, but that's a trend that's been happening throughout the marketplace. I think customers are going to start getting more sophisticated, and they're going to demand better access to these innovative capital mechanisms, and I think women and millennials are going to be the ones that really drive that forward. But it all starts with data, consistent, comparable data that lacks holes, and that's where we need events like Sustainable Finance Week where the movers and the shakers in the industry get together to talk about how we overcome that particular barrier. And then of course, you know, as we wrap up this conversation, you know, there's just too many acronyms, right? We have our own language. If we want to be considered in the mainstream, we're going to either need to adopt their language or help them adapt ours because too often, I get too comfortable personally talking about these acronyms and this specific language, and I even lose the room when I'm talking about it, and I have to remember that not everybody is as comfortable with this space as folks like you and I who have been in this space for a little bit of time. But we'll get through it. I'm confident.

Michael Torrance: Thanks so much to Lee Ballin for taking the time to sit down with us in New York and for Bloomberg for leading this week's events. We'll leave you with Lee's thoughts on the future of Sustainable Finance Week.

Lee Ballin: Sustainable Finance Week is in its second year. I look forward to its third, fourth and fifth years. There's plenty of headroom for others to get involved, either as delegates, speakers or even participants doing their own events. We are leading this effort, but we by no means own it, and so if somebody hears this podcast and wants to learn more about it, they can reach out to Bloomberg to find out how to do that, and we would love to bring more people, more companies, more investors, more policy makers, more thought leaders to New York and Toronto in 2020 as we take this from 1,500 people to 2,000 people, 3,000 people and more.

Michael Torrance: Thanks for listening to "Sustainability Leaders." This podcast is presented by BMO Financial Group. To access all the resources, we discussed in today's episode and to see our other podcast, visit us at bmo.com/sustainability leaders. You can listen and subscribe free to our show on Apple Podcasts or your favorite podcast provider, and we'll greatly appreciate a rating and review and any feedback that you might have. Our show and resources are produced with support from BMO's marketing team and Puddle Creative. Until next time, I'm Michael Torrance. Have a great week.

Legal Disclosure: The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or subsidiaries. This is not intended to serve as a complete analysis of every material fact regarding any company, industry, strategy or security. This presentation may contain forward-looking statements. Investors are cautioned not to place undue reliance on such statements as actual results could vary. This presentation is for general information purposes only and does not constitute investment, legal or tax advice and is not intended as an endorsement of any specific investment product or service. Individual investors should consult with an investment, tax and/or legal professional about their personal situation. Past performance is not indicative of future results.