While attending Dr. Karl-Henrik Robèrt's presentation to RBC’s financial professionals in Toronto, Justin Yan, a financial journalist for TSX/CP Equities News, saw a correlation between finance and sustainability. He interviewed Dr. Robèrt for the article “Mating Finance with Sustainability?”. For images from the event, click here.

Thank you to TMX Money and Justin Yan for the article.

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Mating Finance with Sustainability?

A little over a decade ago, social and environmental concerns were barely a blip on the radar of Bay Street firms and major Canadian banks. But in recent years, the push for sustainable business practices and the 'greening' of firms has increasingly spilled over onto finance and capital markets. This push has garnered evermore attention given the fresh memory of the near financial collapse in 2008 and our tepid recovery since.

This begs the question: What is the role of finance professionals in sustainable development?
RBC recently explored this question in a seminar in Toronto titled: Sustainability Meets Finance, led by Dr. Karl-Henrik Robèrt, founder of sustainability consulting firm The Natural Step.

Originally based in Sweden, The Natural Step is an international non-profit organization that specializes in sustainability consulting for businesses with experience in over 15 countries with over 250 companies.

An oncologist by training, the doctor-turned-sustainability consultant rejects the notion that business is incongruent with environmental concerns. Rather, he believes that society as a whole is experiencing a paradigm shift towards a greater focus on sustainability and that financial professionals play a key role in its fruition.

However, he argues the road to that shift is dotted by a lack of leadership and unnecessary conflicts – all of which impede the much needed rapid integration of more sustainable business models in the face of dwindling finite resources.

The debate surrounding the issue of sustainability has been chaotic and complex with no shortage of grey areas. Part of the problem stems from sustainability's differing interpretations by civil society, government, and the business community. This has led to ongoing conflict which has been largely counterproductive, Dr. Robèrt says. There is an unnecessary tension between sustainability advocates on the one hand, and the financial community on the other, he went on to say.

His overarching message is simple: a required change in attitude. It is necessary for the business community to “forget about sustainability as penance”, he says. “On the contrary, this is the opportunity of our lifetime”.

Milla Craig, Sustainability Investing Industry Analyst and Consultant at Millani Perspectives, offers a supporting view. She defines sustainable investing as the systemic incorporation of long-term, economic, environmental and social risks. At a recent seminar on corporate responsibility in Toronto, Craig argued that sustainability-driven companies that actively address environmental, social and governance issues have a distinct competitive advantage.

This perspective is echoed in a Harvard Business School working paper by Ioannis Ioannou and George Serafeim titled The Impact of Corporate Social Responsibility on Investment Recommendations. Drawing from data on publicly traded U.S. firms over 16 years, the authors found that socially responsible firms received more favourable investment recommendations from sell-side analysts in recent years. The authors also point to an increasing perception of value and materiality of socially responsible practices.

So what is holding back the increased adoption of sustainable business practices? Dr. Robèrt points to a lack of leadership despite the increasing number of firms taking steps to improve their business activities.

On the analyst side, a small number of Canadian firms such as Jantzi-Sustainalytics have incorporated environmental, social, and governance data in their company valuations and models. We are also seeing major Canadian banks such as RBC taking leading steps to address environmental and social concerns.

At the conference, Sandra Odendahl, RBC's Director of Corporate Environmental Affairs, said “sustainability is a continuous journey and a continuous process”. She cites the bank's progress in corporate responsibility practices since it began examining environmental issues in depth in 1999. This has led to the development of the RBC Environmental Blueprint in 2007 – a sustainability roadmap – increased environmental reporting of items such as carbon emissions as well as a number of educational initiatives.

RBC is also one of the few Canadian banks that have made it onto both the Dow Jones North America and World Sustainability indexes for over 10 consecutive years. In addition, RBC is listed on the Jantzi Social index as well as the FTSE4Good Index.

Yet, the financial community as a whole has proven a difficult sell. Despite a select few pioneers, for the majority of institutional and individual investors, the issue of sustainability has not yet caught on in dollar terms.

This represents a major hurdle as Dr. Robèrt believes finance is pivotal to pushing the envelope of sustainable development. “Sustainability is a dynamic challenge”, he says. “It needs [financial professionals] to commercialize these dynamics.”

He emphasizes the need for lenders and investors alike to adopt a long-term view of projects; to literally invest in the future rather than concentrate on short-term gains. “The financial sector can – at least in the short term – be harsher on traditional bottom lines as the real value discriminator”, he says. However, he argues that finance stands to benefit from understanding the new rules of a more sustainability-driven market.

The marketplace is experiencing a paradigm shift towards more sustainable business practices, where growth in itself is no longer the focus but rather “growth with values,” explains Dr. Robèrt. “If the financial sector could learn how to be proactive by helping money flow to where the action needs to be [sustainability], that could be a way for them to gain momentum toward future markets, to avoid being caught in financial bubbles”.

- Justin Yan, financial journalist for TSX/CP Equities News