The Role of Finance in Transitioning to a Greener Economy
Written By: Miranda Cuevas
Edited By: Ada Collins
The Desautels Sustainable Finance Summit, organized by the Desautels Faculty of Management, took place at McGill University on Friday, January 20th. Professionals in the field of sustainability and impactful finance came to share their expertise in multiple workshops and a panel discussion titled “The Role of Finance in Transitioning to a Greener Economy”.
Our guest speakers for this discussion were: Paul Allard, Founder and CEO of impak Finance, Rosalie Vendette, Engagement partner at Quinn+Vendette, Christian Novak, Professor of Practice at McGill, and Michel Brutti, Founder and CEO of Clear Skies Investment Management. The discussion moderator was Maria Maisuradze, CEO and founder of ED4S.
To begin the discussion, the crowd was asked if anyone believes it is possible to achieve a green transition with a system-level change. About half the hands in the room go up. Subsequently, the moderator asks if anyone believes a green transition can happen with our current economic system. Not a single hand goes up in the room.
When asked about the possibility of achieving sustainability goals, it was very impressive to realize that not one of the students in the room or any of the panelists present believed that this transition was possible as we currently live now. There is no doubt that there must be a paradigm shift of what human beings deem important and how we are used to living our lives. The multi-faceted value must be given to our natural resources and environment. Our guest speakers answered a few questions on how to give this value to the environment in the finance sector, which are presented below:
What is the behavior in the economy that needs to happen for us to achieve a sustainable world?
Rosalie answers without hesitation that closed loops and circular economy are major transitions that must happen. This means that products and services must be designed in a way that enforces reuse and recycling of materials. As opposed to a linear economy, circularity must give multiple lives to each product and primary resource, rather than resources ending up as waste (1). Rosalie also emphasized that executives must build their courage to take on tough decisions. Michel Brutti added that the goal is to achieve a green economy that rewards the well-being of humans and social equity. This green economy must completely remove negative externalities on the environment by internalizing them and eliminating their negative impact. Furthermore, he explained that a green economy cannot come about solely by reducing our carbon footprint, but a positive social impact must be delivered as well. Paul Allard takes this idea even further by saying that the principles of a green economy are not fast enough. He explains that a green economy creates a tunnel vision where the focus is only zero carbon emissions. “We cannot just mitigate the negative impacts of other organizations, even if carbon footprint reaches zero we still have 200 years to catch up—we won't get there. We need a business model that creates positive impact performance based on financial statements and impact statements. Good intentions are not strong enough, we need a systemic change (Paul Allard)”.
Negative impacts are not being valued financially. Once we incorporate the cost of externalities we have completely different financial statements. How does your company address this to achieve global goals?
To answer this question, Michel Brutti says that he created Clear Skies Investment because he wanted to go further than just responsible investment and take into consideration environmental, social and governance factors (ESG). He urges investors to only consider companies that aim for positive impact and base their work models on ESG factors. At Clear Skies, he explains, they want to accelerate widespread use of the impact statement in the world of finances. They use tools to identify which are the companies worth investing in, based on this ideology.
Rosalie and Paul added that training people on sustainable impact consulting is essential. Companies must train every single professional and build careers that prioritize sustainability and impact assessment at the forefront of their work values.
How fast are we starting to incorporate impact consideration?
Michel Brutti answers this question by giving us some insight on government subsidies in the United States in favor of renewable energy. He explained that the utility sector is receiving tax credits to help decarbonization become more economically viable. For example, the Production Tax Credit (PTC) is currently in place to help develop renewable energy projects by offsetting the total tax amount by 2.5 cents for every kilowatt-hour (kWh) of clean energy generated. This tax credit is now extended to operate for ten years rather than only one, giving much more security to renewable energy projects in the long run. In this way, sustainability in the utility sector is becoming much more commercially viable. Paul Allard added that it is a mistake to only focus on the cash value needed for a sustainable revolution, success must be measured by our performance with respect to the environment. He mentions we need additional indicators of sustainable success in a company, such as impact statements.
All of the panelists present at the summit are leading the transition towards impactful sustainable change with every financial decision they make. They aim for positive ESG performance and for positive impact to become the norm in finance. As a closing statement, the panelists gave advice for students wanting to make an impact in the sustainability field. To show courage in the decision-making was unanimously agreed upon. Students now must be the generation to establish impact-driven business focused on the SDG’s and the Paris Agreement in every financial decision.
“Circular Economy Introduction.” Ellen MacArthur Foundation, https://ellenmacarthurfoundation.org/topics/circular-economy-introduction/overview.
Mathis, Sandra. “What Is Environmental, Social and Governance (ESG)?” WhatIs.com, TechTarget, 26 July 2022, https://www.techtarget.com/whatis/definition/environmental-social-and-governance-ESG.