The world needs to find US$4 trillion every year for the next 10 years to meet the SDG goals to 2030. The pandemic has dramatically slowed and even reversed progress on the SDGs, disproportionately impacting the most vulnerable segments of societies, with 115 million people back into extreme poverty and the equivalent of 225 million full-time jobs lost. Many of the world's leading financial institutions, including the participants in the Force for Good initiative, have prioritised the SDGs focusing on climate change, affordable and clean energy and decent work and economic growth. Goal 14, Life Under Water, on the other hand has ranked near the bottom of the finance industry's list of stated development priorities. Credit Suisse talks about how their SDG impact strategy and its focus on both climate change and the sustainability of the world's oceans.
"I am passionate about the oceans. Until recently, they were the second least invested of all the UN SDGs" says Marisa Drew, who is the Chief Sustainability Officer and Global Head of Sustainability Strategy Advisory and Finance at Credit Suisse.
The bank, one of the world's leading wealth managers, has announced the alignment of its view of the long-term investment trends to the UN Sustainable Development Goals (SDGs). "Investors can play an important role by directing their capital toward investment solutions that participate in this effort. In other words, investing with purpose. As part of the Credit Suisse House View, our Supertrends thematic long-term equity framework provides investors with an avenue to do just that,” says Michael Strobaek, who is the Global Chief Investment Officer at Credit Suisse.
Marisa and her team are focused on the business of making an impact. "Our impact team are rooted in sustainability and mobilising capital for good, that is our mission and what we wake up to every day."
Gaps in the World’s Progress on the SDGs Finds the Oceans are Critical to Success
The 17 SDGs, although established in 2015, have only recently begun to capture headlines and to galvanise substantial pools of capital. The finance industry's focus is currently on the most publicised of these, which are also existential threats to the world, like climate action (goal 13) and the related affordable and clean energy (goal 7). At the other end of the spectrum are goals like life below water, life on land, zero hunger and no poverty, which have received little attention from the industry. The financial community clearly understands the importance of these, but in the absence of business cases to address the goal or direct links to the communities most impacted by the goals, few large financial institutions feel they have a direct mandate to prioritise these issues. In an interconnected world through, it is clear it is just a matter of time before these issues are everyone's issues.
The numbers are very revealing. The economic value of global ocean assets is estimated at US$24 trillion and with an "annual gross marine product", GDP equivalent, calculated at US$2.5 trillion, oceans are the world's 7th largest economy. They are also among the world's fastest growing economies and they are forecast to grow twice as fast as the mainstream land-based economy to 2030. More than 3 billion people rely on the ocean for their livelihoods and one billion people rely on fish as their main source of animal protein. And marine organisms produce more antibiotic, anti-cancer substances than any other organisms found on the planet. From an economic perspective the conservation case is clearly compelling.
For climate change mitigation, there is nothing on land that can compete with the oceans. They absorb 93% of climate heat generated on the planet, generate 50% of oxygen and absorb 25% of the world's carbon emissions.
The challenge to save the oceans and life under the seas is an urgent one. 50% of the Great Barrier Reef has died since 2016 due to rising water temperatures and acidity, coupled with a c.90% decline in new coral growth. Studies estimate that nearly 30% of the world's marine fish stocks are now fully exploited. And under a 2o C global temperature rise scenario, sea levels are predicted to rise at least 2 feet in your children's lifetime, displacing a population of c.1 billion.
By then, 2050, there will be more plastic than fish in the ocean based on current pollution trends.
Agricultural and other runoff has created 500 "dead zones" in the ocean, totalling the size of the UK, where no marine life survives. Dead zones are created by many physical, chemical, and biological factors that combined, and in particular from nutrient from wastewater running into rivers and coasts stimulating algae, which then sinks and decomposes in the water, consumes oxygen and depleting the supply available to healthy marine life.
Understanding Enough to Start Thinking About Solutions
"The why is clear, how to get things done is a big challenge because so many think of the oceans as common good, with an unlimited supply. This leads to a lack of responsibility to make sure they are well protected and well maintained," explains Drew.
This led Drew's team to quickly commission research, help raise awareness of the problem and showcase those making a positive and meaningful contribution to finding solutions. Further, they were able to draw together multiple stakeholders with the expertise to understand and analyse the problem, ranging from NGOs, to the academic research community, to scientists, to ocean focused companies and industry disruptors. The expertise included Tidal, X Development (formerly Google X), the Blue Marine Foundation, Woods Hole Oceanographic Institution, Oceana, Plastic REVolution Foundation and The Ocean Foundation.
Mobilising Capital for an Unbounded Problem
So how does one mobilise big capital for a boundaryless problem where the benefits to the world are clear, but the investor returns seem less so? Usually, such problems end up at the doorsteps of governments but as Drew points out, "there is not enough government money to solve this problem. It needs private capital to be mobilised."
When the team researched what was available in the ocean sector, they found a real gap in the market of institutional-grade investment funds at scale that would have a direct link to ocean health while providing liquidity and a credible investment thesis to the investor. So, the goal they set themselves was to try do something about filling this gap.
"The topic of ocean health and its fragility needs awareness, policy intervention and private capital to be urgently mobilised. We cannot rely on government funding or philanthropists alone to meet this challenge," says Drew, "Investing in the oceans seems vague and diffused unless you find a direct impact line. Stakeholder engagement provides an answer."
Once again, collaboration was key, between Credit Suisse, as a financial institution with scaled investment and distribution skills, and another that would have the specialist knowledge and experience. Drew's team interviewed 30 expert institutions and finally selected Rockefeller Asset Management because of their history of engagement and a 20-year track record with their charitable affiliate The Ocean Foundation.
The Credit Suisse Rockefeller Ocean Engagement Fund was launched, and the operating team began actively engaging companies to change their behaviour to make an impact on the ocean. What is clear is that stakeholder engagement makes a real impact. Investment decisions take into account the idea that there are 'ocean leaders', best-in-class companies, and then there are, 'ocean improvers', these are decent companies showing the greatest potential improvements in their overall ESG footprint and being thus far unrecognised, have the highest potential to generate alpha. Rockefeller does this engagement. While Credit Suisse brings scaled client capital given their substantial distribution strength.
Learning how to engage stakeholders to address an issue is a core competence and one that will allow for effectiveness in other areas too. It is just as important at the other – top - end of the league table, climate change.
Climate Change and the Oceans are Connected too
Climate change requires a healthy ocean. It also requires mankind to manage how they treat the land. The subject is one that every major financial institution is focused on. Our study on financial institutions as a 'Force for Good' found that this ranked first on the list of 85% of the world's leading financial institutions, representing nearly US$100 trillion of assets.
"What we at Credit Suisse, in partnership with the Climate Bond Initiative have been solving for, in our aim to help define a framework for a credible transition, is something the regulators want, the high carbon-emitting issuers want and need and what investors are asking for."
"We are hard at work to help facilitate and finance the credible transition of the high-carbon-emitting industries in the world in order to mitigate climate change," says Drew. "We have worked for over a year with the Climate Bond Initiative (CBI) to conduct the research and, solicit feedback and input from thought leaders, climate scientists, academia and our peers in the finance community to develop something that can be part of an industry-adopted effort. Credit Suisse funded this research, but we wanted it to serve the industry and support the scaling of the transition finance markets." There are 5 key principles (see inset). There is a cautionary note, but with some pragmatism, from Drew, "There are some industries for which there are no green or Paris-aligned pathways yet that can underpin the end goal of net zero emissions, for example, aviation fuel. In these cases, we need to support transition activities that are greener than what exists today while doing the work and providing the funding to help find the ultimately truly green solution. Carbon offsets do not really count except in limited timeframes because we need industry to evolve, and not to just keep doing business as usual and give it a 'pass' by purchasing carbon credits."
Institutional change is about hearts and minds too
The highest performers in making an impact from our study on 'Capital as a Force for Good' were starting to institutionalise change, and the more radical their endeavours, the greater was the potential to make a step change in the DNA of the institution.
Credit Suisse is serious about its intent to make an impact, says Drew, "We are interested in substance not marketing what we do to make our impact."
The mission to introduce stakeholder engagement investing for what seems like an intractable problem in the saving the oceans is a good example of this seriousness and its impact on the organisation. "Because this work is so purpose driven and has the real potential to make a difference in protecting this precious resource, it has captured the hearts and minds of my team and so many of my colleagues at Credit Suisse, all of whom are deeply engaged in making this effort a success"
Impact investing seems to be on the verge of capturing the whole of investing as hearts and minds move capital allocation and do so at superior profits.
On that journey, Drew reflects, "Looking back over many years, we began our work in making a difference, on the fringe, with a collection of passionate people. This has now come to the fore, and we have the attention and enthusiasm of the whole organisation; our research teams, our product development teams, our distribution teams, our client coverage teams and our top management. Our people really care about these issues and it is gratifying when the energy of the organisation is catalysed to play a part in delivering solutions to the world's most challenging problems."
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And see 'Investing in the Blue Economy' report at: https://www.credit-suisse.com/media/assets/microsite/docs/responsibleinvesting/spread-blue-economy-report.pdf
For further references see: https://www.oecd.org/newsroom/covid-19-crisis-threatens-sustainable-development-goals-financing.htm
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