I had the pleasure of attending the 2013 TBLI (Triple Bottom Line Investment) conference on June 17th in New York City. Day one of the two day conference highlighted what became a recurrent theme: financially viable sustainability projects and companies are available for investment. What is missing are the appropriate financial products for the end buyer to actually make an investment at a scale that will shift the status quo and accelerate the transition to sustainable systems.
The Opening Keynote by Paul Rose, Vice President of the Royal Geographical Society, was effective in making clear that the continued deterioration of our environmental ecosystems is accelerating to potentially catastrophic levels. The need has never been greater to solve the critical element of deploying capital to sustainable and socially conscious enterprises. He did this in excellent fashion through wit and humor, which made his slide shows of global environmental collapse from his many explorations ever more alarming.
Paul followed his presentation by moderating a roundtable assembled to address the following questions, “Do Sandy and Katrina make a lasting impression regarding ESG and Impact Investing in the USA?” and, “What sustainable new initiatives or policy changes are to occur in the (American) financial industry?” Included on the panel were Mel Aaronson, president of National Conference on Public Employee Retirement System (NCPERS) and treasurer of the United Federation of Teachers (UFT); Carter Bales, Chairman at NewWorld Capital Group, LLC; Peter Malik, Managing Director, Corporate Engagement & Innovative Finance at The Nature Conservancy; and Hilary McMahon, Director of Research, Carbon War Room.
Mel Aaronson kicked off the panel with a bang and announced that the New York City Pension Fund trustees recently pledged to deploy $1B, or 2% of the trust, into sustainable infrastructure projects. He challenged the audience to bring him products with the right risk/return profile to satisfy his fiduciary obligations. He reiterated several times in his opening address that the money and the mandate are there, what’s missing are viable opportunities.
Mel highlighted the continued deterioration of New York’s public schools, specifically the issue of old fluorescent fixture ballasts leaking PCBs, an extremely toxic pollutant, into schools as both an impetus to earmark funds for sustainable infrastructure projects and also a prime example of a core issue confronting sustainable investing. The New York City Pension Funds’ trustees have a fiduciary responsibility to their pensioners. A direct investment into an individual building does not meet their investment criteria. Mel and the rest of the panel were frustrated that the economics for projects like school retrofits and energy efficiency upgrades make economic sense on paper, yet the investment community is not stepping up to structure these types of projects into a product suitable for New York or any other State Pension Fund.
Another example of this conundrum given by the panel was the trucking industry. Approximately 50 billion tons of oil is consumed in the trucking industry each year. Any small, systemic efficiency improvement to the industry has huge consequences both in terms of dollars and carbon emissions. Historically, efficiency upgrades have an 18-month deployment timeline and the economics of such improvements make sense, yet proven technologies remain on the sideline, waiting for financing.
Richard Kauffman, Chairman for Energy Policy and Finance for the State of New York, spoke next and highlighted that energy efficiency projects, which qualify as sustainable infrastructure projects, are a win-win-win for the investors, project developers, and consumers. The savings gained through energy efficiency projects can be accurately predicted and once all the math is done, the numbers add up to make energy efficiency a viable candidate for investment at scale. But this is not happening. Why? Kauffman identified two reasons: bank capital rules and a lack of capital market investment products.
It’s this second reason that Kauffman’s office is hoping to address by creating and seeding the Green Bank with a $1B from New York state funds. The Green Bank will not act so much as a bank but more like an insurance company, a credit enhancement facility to provide financing for sustainable development projects such as energy efficiency upgrades, and critically financial products securitized by these investments, suitable to Mel’s needs.
– Aaron Martin, Mission Markets