When did you first hear about SFG and what made you interested in the organization?

I am no stranger to SFG; I actually first began collaborating with the organization back in early 2018.  At the time I was leading Geneva 2030, a partnership between the International Institute for Sustainable Development (IISD) and the SDG Lab at the UN Geneva. Our mission was to accelerate implementation of the 17 Sustainable Development Goals by leveraging the unique ecosystem in Geneva.  It did not take us long to realize that finance was a key barrier, and that unlocking private capital was fundamental to SDG achievement.  Given Geneva’s strong financial market players, we felt we could have a big impact and SFG was the perfect partner to do this mobilization with.  I have been working with SFG ever since, including last year when I acted as the Coordinator for Building Bridges 2021.

How long have you lived in Geneva?

I am from a small town of only 2,500 people in the middle of the Canadian prairies.  I first spent time in Geneva for an internship at UN Environment in 2015 and then moved here more permanently in July 2016 to work with IISD.  I love the city. I love that it has an incredible international community and is so accessible to the mountains and nature.  I was also thrilled to have the opportunity to learn French because it was not available to me growing up. I’m still a little slow speaking but I have made a lot of progress these last five years so SFG members should feel free to speak to me in whatever language they are most comfortable.

What is your educational background?

I did my undergraduate degree in Business at the University of Calgary.  My Masters was a special program by the University of Waterloo in Social Innovation offered to young Canadians working in social change.

What else have you worked on during your career?

A lot of people don’t know this about me but I actually started my career in the oil and gas sector.  This sometimes comes as a surprise because I am so passionate about sustainability, but it was seeing the inside of energy industry that sparked my interest in climate change issues in the first place.  After several years working with energy companies on their CO2 reduction strategies, I left to run a not-for-profit that I co-founded with two friends while I was in University.  It’s called Student Energy and aims to engage young people from all over the world in the energy transition. It is an organization with a large, global community so I have a lot of experience in community mobilization that I hope I can bring to SFG. 

What are your plans for the SFG Community?

I think SFG has such a special role to play.  It was working on sustainable finance long before it was the hot topic and I think we can build on that history to ensure that SFG is always looking to the next horizons of sustainable finance.  I want to make sure we are offering significant value for our members while also being a productive, proactive player in the overall landscape here in Switzerland.  This means that I will be pushing forward key initiatives like the Gender Lens Initiative for Switzerland and Building Bridges, while also creating more opportunities for our members to learn, build capacity, and strengthen their networks.

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David Grimaud, head of asset management at impact investment firm Symbiotics, the UN’s 17 sustainable development goals (SDGs) have also helped to frame priorities for investors and create a “common language that everybody speaks”. In an interview with Sustainable Finance Geneva, he gives his view on the biggest trends shaping impact investing and what to expect in 2022.

David, you kicked off our interview by talking about innovation being the buzzword of the moment. What is happening in terms of innovation in your sector, particularly when it comes to sustainability? 

Innovation is definitely a hot topic. In particular, we are seeing more and more investors willing to embrace climate action and invest in new opportunities that contribute to mitigating climate change. Investors are not only looking for portfolios that are greener but that also have a greater social impact, in both developed and frontier markets.

The movement is being pushed by the wave of regulation that is being introduced by financial authorities all over Europe, as well as new standards and practices being adopted in the market.  Investors are complying with standards like the green bond principles, for example, or the operating principles for impact management. And one of the other big drivers, of course, is the Sustainable Development Goals (SDGs) with an increasing number of investors matching their portfolios with the 17 targets.

As an impact investor, we are at the forefront of this wave.  For mainstream investors, placing some of their money with us positions them very well against those new standards and we are seeing an increase in demand, with last year marking our strongest year in terms of investments, despite the Covid-19 crisis.

Strong results aside, what have been the biggest challenges for your industry during the Covid-19 pandemic? 

During the first months of 2020, the situation in emerging and frontier markets was similar to that in developed markets in the sense that authorities and country administrations supported or came to the rescue of the private sector and households. Loan moratoriums and credit facilities were put in place to support the private sector. This massive financial liquidity injection dried up the market in terms of investment opportunities.

However, it allowed us from March to June 2020 to reallocate our attention to risk monitoring. Non-Performing Loans (NPLs) rose but have since stabilised and remain under control. Now, more than a year later, it’s a different story with the outlook very much linked to vaccination campaigns, which vary from country to country, so we have to monitor the situation closely. But we expect to see default rates similar to those we saw in 2020, so that is good news.

According to the UN, least developed countries have spent 580 times less per capita terms on their Covid-19 response than advanced economies. For many countries, the debt problems are severe, with calls for governments and creditors to extend debt relief. Could private creditors or investors do more to help struggling entrepreneurs and small business owners? 

It’s always possible to do more, but when it comes to our own response we did get together and sign a handshake agreement with our peers to ensure that we did not add pressure to microfinance institutions when they were in a distressed situation.  It was a powerful move that we are able to bring our peers together to ensure that we have a coordinated approach.

What do you see as the key trends in impact investing and outlook for 2022? 

Green financing is one of the major trends we are seeing. The instruments to be able to finance green projects are also developing and the most popular one is green bonds. So far this year, we have arranged over USD 112  million in green bonds. In 2019, we developed an in-house platform to support financial institutions in emerging and frontier markets to raise funds from international investors by issuing green and social bonds. We had been able to issue social bonds for quite some time but we added the green bond certification, so now we are able to issue both.

The SDGs are also driving the trend. Mainstream investors with deep pockets are entering the [impact investing] space with the 17 goals in mind. So, that means not only taking climate action, but also [solving other problems] such as ending poverty and ensuring sustainable access to food are among the top investment trends. There is a lot of innovation when it comes to agriculture and strengthening financing and value chains. Another axis is water, sanitation, hygiene and access to affordable clean energy such as solar power.

Next on the sustainable finance agenda in Geneva is the Building Bridges, taking place on 29 November.  How is Symbiotics involved? 

We are a sponsor to the event and we will also be hosting a panel looking at how innovation in impact investing can help bridge the gap between supply and demand. The goal is to showcase some concrete examples of innovation, both in terms of funding structure or investment vehicles in emerging markets or in terms of helping to channel concrete investments to financial institutions operating in emerging markets. Our Sustainable Bond Framework, the platform I mentioned earlier, is one example of this.

What do you hope to get out of the summit?

Building Bridges a unique opportunity to interact with various types of investors and learn from them in terms of what they have been doing when it comes to impact investing or sustainable finance. It’s an opportunity to network and explore ways to partner for the future. It’s a chance to reconnect as well as meet people that are new to our industry. It’s also a great platform for increasing the awareness of what impact investing can do when it comes to sustainability.

How has the understanding, or definition of impact investing changed since interest in sustainable finance gathered momentum?

The definition and the overarching mission in my view hasn’t changed. Our corporate definition summarises that goal very well, which is to push capital where normally it doesn’t flow. What I have seen, however, is more standardisation in the sector as the term becomes more mainstream. The challenge now is how to on board investments that are aligned with impact investing in mainstream portfolios so that every investor can put some of his savings in impact investing. With mainstream portfolios getting more interested in impact, regulation is becoming more demanding. And then it becomes a matter of standardisation. The challenge is more about how to report and measure the impact of what we are doing.

Does impact investment risk being haunted by the same greenwashing claims as ESG investing? 

For impact investors, I don’t think greenwashing is a relevant topic. Impact investing is more tangible in the sense that the investment destination is very clear and the social and environmental mission is really at the core of the investment. The challenge is less about the marketing and more about assessing how much of the improvement can be attributed to an investment made. There are many metrics being used to measure impact; it’s a field that is rapidly evolving but I believe that with the regulations being introduced, we will soon come to a consensus in terms of how to measure impact.

Geneva has a long history in microfinance and as a hub for impact investing – is this still the case?

When it comes to microfinance, based on a private asset investment fund survey that we perform, 35 per cent of total assets when it comes to sustainable investments are managed out of Switzerland; so the country really is a hub for impact and sustainable investment. I personally believe that if we do things right, we can grow that share and enhance Geneva’s role. To do that, we also need to continue to leverage the large network of international organisations here in Geneva and we really have to push the SDGs.  Because with the SDGs, I really believe that we have found a common language that everybody speaks.

This article was published in collaboration with Geneva Solutions

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Best known for its environmental activism and wide-ranging conservation efforts, the organisation also works with banks, insurers, regulators in raising awareness of how risks like climate change will impact their investments and pressing them to align their goals with the Paris Climate Agreement.

Through research, such as it’s recent retail banking survey, WWF also seeks to hold finance institutions to account and monitors how they are integrating environmental objectives into their businesses.  “The WWF has both a critical mind but is also a collaborative organisation,” said Favier. “We challenge but we also want to work with industry to advance a topic,” she added.

Favier joined WWF Switzerland in 2012 after several years working in the financial industry for the likes of Deutsche Bank and is also part of one of the Building Bridges’ expert groups. Below, she gives a first-hand account of the changes she has witnessed over the years in the sector’s attitude towards sustainability and how to accelerate efforts.

SFG: Based on your first-hand experience at WWF working with financial institutions, how far has the sector come in improving on their sustainability practices and making a real change? 

AF: Compared to nine years ago, when I started working at WWF, the main change I see right now is a level of awareness within the industry and among decision-makers. The topic has gone from the niche to the mainstream and has reached the higher management of banks and insurances. There has also been an acceleration over the last year and a half since all the climate strikes. The conversations we were having with banks changed a lot after that and it’s very interesting to observe how sometimes pressure from the outside really has an impact.  So here we see an improvement, with more and more banks starting to join the Race to Net Zero and pledges such as the Net Zero Banking Alliance, which now counts over 43 banks.

What’s more, risks associated with biodiversity loss are now also starting to be discussed and that is great to observe because it was a topic that was absolutely not mentioned or not present 10 or even 5 years ago. We also now have several high level initiatives that are emerging on the topic such as the Finance4Biodiversity pledge or the work around the TNFD (Task Force for Nature Financial Disclosure).  WWF Switzerland is also active in this field and is working with partners on the development of a concrete new method to measure biodiversity-related financial risks which will allow them to measure companies’ dependencies on biodiversity and translating this into financial risk metrics.

However, if you consider the current climate and biodiversity crisis, pledging is not enough, and it’s really time for action.   To give you an example, a recent study from Urgewald & partners, revealed that the large commercial banks worldwide have financed over $300 billion dollars in the coal industry over the last two years. So overall, we see the level of awareness increasing and the financial industry pledging more, but often action is not always following.

SFG: Recent reports like your flagship retail banking report and Switzerland’s climate climate compatibility test would suggest that the urgency is not there yet on the part of the financial sector. What needs to be done to step up the pace of this change?

AF: In a study published last year with PwC we offer over 40 concrete measures, or six main leverage points, for improvement. These include turning Switzerland’s political commitment to net zero greenhouse gas emission by 2050 into a legal obligation for financial actors and setting a political goal for aligning financial flows with a biodiversity  recovery.  We also called for the fiduciary duty notion to be revised so that financial actors and regulators need to integrate climate change and biodiversity risks. We were happy to see a motion, which recommends this, recently adopted by the National Council.

Companies and financial actors also need to establish measurable strategies and targets to  reduce greenhouse gas emissions, and to disclose climate and biodiversity diversity-related financial risks. And here, it’s also interesting to see the decision of the Federal Council in December last year to prepare a binding implementation of the Taskforce on Climate-related Financial Disclosure (TCFD) recommendations for large companies in Switzerland.

Clearly, having a conducive regulatory framework is important and this is still missing in Switzerland. Without credible standards and common definitions, ensuring the necessary transparency will be very difficult to achieve.

SFG: We hear over and over again the warnings about corporate greenwashing despite more efforts to regulate the market. Do you see the trend increasing? 

AF: If you look at Switzerland and the topic of greenwashing, there’s currently a lack of transparency on the sustainability impact of investments and financing products. There’s also no clear definition of sustainability and what is good and what is not. And as long as those two issues are not solved, the problem of greenwashing will increase.

SFG: How do we ensure this doesn’t happen?

AF: Transparency is really a precondition for bringing the financial markets towards more sustainability and to allow investors and clients to make decisions that are informed and in accordance with their overall environmental preference. What matters is that the information made available by financial players is standardised and comparable. It’s really essential to have a common understanding of what a sustainable or green economy is. This so-called taxonomy, which needs to be based on scientific criteria, should also go beyond just green activity like the European Union is currently doing; ideally we should have a taxonomy, which also covers brown activity such as oil and gas  and grey activity such as cement or steel.

Greenpeace’s recent study illustrated this very well. It showed that sustainability funds in Switzerland hardly redirect capital into sustainable activities compared with conventional funds. They also didn’t show significantly lower carbon intensity than regular funds. So it’s really misleading for the asset owner or retail investor who wants to invest money more sustainably today. We also see it also in our retail banking report, where it was a part of the method to analyse how the banks are reporting on the sustainability impact of their products they sell to retail clients and we really see that there’s a wide range of practice. So, customers often lack the transparency which is required to make well-founded and, you know, sustainable, informed decisions.

SFG: Industry data shows that sustainable finance is booming with record flows into sustainable funds in 2020. At the same time, reports like that of Greenpeace suggest there is a mismatch in the market in terms of the true sustainability of these products. What are your thoughts?

AF: Yes, there’s a mismatch between the growth and the quality of products.  We really have to pay attention that the quality [of these products] is being measured and that their impact on the real economy is being demonstrated. Another issue is that a lot of ESG funds are equity funds. So the impact to the real economy, if we are honest, is diluted. It’s a secondary market compared with financing, lending or underwriting a project or a company where you really have a direct financial flow going in a company and a direct client relationship. However, through forceful shareholder engagement with companies  investors can try to influence the companies they are invested in. In order for the engagement to be forceful, investors need to fix clear engagement targets, a time-line and an escalation plan.

SFG: The recent Shell court ruling among other recent climate case wins, shows how quickly the tide can change. Companies in Switzerland could find themselves at the centre of a court case sooner than they think – do you see signs of corporations and their investors here taking this much more seriously? 

AF:  Globally, we see that more and more investors are realising that being invested in high-emitting companies that do not want to change their business model is a risk. We also see that with the recent shareholder wins in the case of Exxon and Chevron. So, investors are taking climate risk more seriously. There are also a growing number of investors that have joined the Net Zero Asset Owner Alliance pledge where they commit to transition their investment portfolio to net zero by 2050. But in Switzerland, we only have two of the large insurance companies who have committed to it.

So, I would say that maybe because we have less high-emitting companies, or we don’t have an oil and gas industry, there is a perception that we are less exposed. But we also do have large emitting companies, if you think about the cement sector for instance, such as Lafarge Holcim. Another thing to mention is a  recent ranking of the Swiss Climate Alliance showed that only 10 per cent of the 115 largest pension funds analysed are considered as good practice when it comes to managing their impact on climate change and decarbonisation of their portfolio. Time is running out, and there is still a lot to be done.

SFG: What other areas do you think investors should be paying more attention?

AF: We need to go beyond climate and tackle biodiversity in nature risk. Until today, if you look at the overall narrative, the investors really focused on the topic of climate change when considering environmental risk. But actually, climate change and biodiversity loss are very closely linked. The more you lose in healthy ecosystems, the more you lose in nature-based solutions to fight climate change and absorb carbon. So it’s very important to understand that the two are really closely correlated and reinforce each other. This is not really being taken into account in models that financial institutions are using today, which means that climate risks are actually being underestimated.

SFG: You are an expert for one of the workstreams on the Building Bridges conference.  What does WWF want to bring to the summit and what do you think the most important priorities or outcomes should be?

AF: We would like to bring the critical mind and ensure that actors do not only speak about the good that they do but that they also discuss the actual gaps and challenges as well as the potential solutions.  We also need to ensure that we not only focus on asset management but have a broad discussion on sustainable finance and how the financial sector can contribute. When we talk about sustainable finance, it’s not only about asset management or ESG equity funds. It’s also about financing, lending, underwriting, insurance – and that includes their role as insurers and not only as investors.

On our side, though still to be confirmed, we would like to have a roundtable on retail banking and explore what are the issues around integrating sustainability into the industry. We would also like to discuss transition finance –  how do you deal with companies  that are actually polluting but we need for the transition? And what’s the role of finance here?

I think [other priorities at the summit should be] ensuring that we go beyond climate and also discuss biodiversity, or other sustainable development goals (SDGs)  such as  human rights.  For me, a really needed outcome would be to see real action being taken at a summit and more commitments from financial actors and regulators.

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Encompassing a complex and broad range of issues, the majority human rights related, the social factor of ESG has arguably received less attention than the “sound of the moment” – the environmental dimension. Poor quality of data available and lack of knowledge are reasons often cited for this.

But there are signs that this is shifting as sustainable investing goes viral and countries adopt new standards and regulations. The coronavirus pandemic and the socio-economic devastation left in its wake has also reinforced the importance of the social component of ESG. Investors can’t afford not to engage in human rights concerns.

For Dorothée Baumann-Pauly, director of the Geneva Center for Business and Human Rights (GCBHR), understanding how Europe’s financial institutions were already addressing human rights was one of the first things her team embarked on after launching the GCBHR at the University of Geneva in 2019.

The result was a study published at the end of 2020, conducted across six countries and surveying financial institutions with a combined €14.5 trillion of assets under management. Ahead of a webinar organised in collaboration with Sustainable Finance Geneva (SFG) on the topic on 4 May, we sat down to speak to Baumann-Pauly about the role of human rights in sustainable finance and wider ambitions for the GCBHR this coming year.

The “S” in ESG – is it fair to say that it is overlooked?

Absolutely. When I arrived at the University of Geneva in 2019, which was also around the time of the first Building Bridges conference, it really struck me that the sustainable finance conversation at this point was all green. This wasn’t only exclusive to Geneva but across the finance industry. And coming from NYU Stern Center for Business and Human Rights where we had recently published a report on the need to better define the “S” in ESG, I saw this as an opportunity where we could really help practitioners committed to sustainable finance figure out how to integrate human rights into their data.

When we say “overlooked”, in what way and why?

Our research at NYU Stern showed that social factors have not been the focus of early ESG products, particularly those developed for investor use. Of the 580 rating products aggregated by the Global Initiative for Sustainability Reporting, 97 per cent of environmental efforts and 80 per cent of governance efforts target investors as the primary audience. When it comes to social efforts, only 14 per cent similarly target investors.

The NYU report also highlighted that the measurement of “S” usually focused on what was “most convenient” as against what was “most meaningful”, and that “S” measures were often “vague”. Consequently, measuring these “S” factors was unlikely to yield the information needed to identify social leaders among issuers.

Today there are indications that particularly the “S” factors can make a difference for investment outcomes but social factors are more difficult to package for investor use than environmental factors. More work needs to be done to address this gap and financial institutions can create incentives for companies to provide better data on the “S”.

Surely ecological and social considerations need to be taken together?

Definitely. Human rights are the other side of the same coin of climate change. One affects the other and hence those agendas should go together. We need a conversation on sustainability from exclusively environmental issues to including social aspects in a world that is increasingly concerned about global inequality. It’s timely now that the finance industry also addresses this issue.

Another understanding that has evolved significantly in the past year is that a lot of companies have claimed for many years that they are just the middleman and that they have no leverage over social and environmental conditions.  This is not the case – we have seen this in the context of commodity traders in the cobalt supply chain.

If there is a political will, business to business companies can also certainly create leverage. To highlight this, we are currently working on a case study of ABN AMRO, a Dutch bank that through their lending practices engages with palm oil producing companies in Indonesia to ensure decent working conditions and respect for environmental standards on palm oil plantations.

You recently surveyed financial institutions across Europe, including 20 in Switzerland, to find out how they are addressing human rights.  What did you find?

We wanted to create a base of data to show what was happening in the finance sector and to see where things stand; what is the status quo for human rights at financial institutions. The results were quite optimistic in that the respondents say they are really open to taking this on but they lack the manpower and the expertise to do it well. So it was almost a call for more support. Us now teaming up with Sustainable Finance Geneva is hopefully a step in that direction in educating and supporting companies in the financial industry to take on human rights.

You launched the Geneva Centre for Business and Human Rights just over a year ago – what are your ambitions?

Our mission is to challenge and empower business leaders to make practical progress on human rights. To do this, we’re helping them to develop sustainable business models that create value for business and society. We also work on the education front to make sure that human rights become a standard element in business education because it’s at business schools where future leaders are being educated. In Geneva, for example, a lot of graduates from the Geneva School of Economics and Management find jobs in the finance industry. So preparing them for the human rights challenges that the industry is facing is highly relevant.

Finance is just one of the areas your team is working on. Can you tell us about your other projects?

Human rights challenges are so different in each industry. The classic cases are sweatshops in global manufacturing supply chains in the garment or electronics industry, but there are new challenges as well for example in the ICT sector with questions around  right to privacy or freedom of expression. At the GCBHR, we have projects in different industry sectors that matter to Switzerland.

In the extractive sector, we focus on commodity trading companies sourcing cobalt from the Congo where we support the development of responsible sourcing standards for artisanal and small scale mining sites. We also have a project on agriculture supply chains in India where we are supporting the development of human rights risk mitigation strategies during the Covid pandemic to enhance supply chain resilience. We are also partnering with the Geneva Centre for Security Sector Governance (DCAF) and the International Committee of the Red Cross (ICRC) on substantially revising a toolkit for companies that operate in complex business environments, such as conflict and post conflict environments.

I am personally very involved in advancing human rights through adapting business school education. In 2017, I co-founded a network of business schools, the Global Business School Network for Human Rights, that today comprises over 60 schools from around the world. I am also co-chairing the business and human rights working group of  the UN Principles for Responsible Management Education (PRME) to integrate human rights in core management education. Bringing human rights to business school education and educating future business leaders advances our objectives long-term.

What about current standards and regulations – how are these helping advance human rights in the finance industry?

Human Rights due diligence requirements will affect financial institutions in the future. The EU Taxonomy Regulation came into force in July 2020 and it will start to apply in practice from January 2022. It includes requirements for human rights due diligence: in order to qualify as “environmentally sustainable” according to the EU Taxonomy Regulation, businesses’ « economic activities » must align with the OECD Guidelines for Multinational Enterprises (OECD Guidelines) and the UN Guiding Principles on Business and Human Rights (UNGPs). This means that beyond the mounting expectations from clients, there will also be regulatory requirements to align corporate policies and practices in the financial industry with human rights.

How can we increase the conversation here in Geneva?

Our aim for this year is to ensure that the next Building Bridges at the end of November, which is the exact same week as the UN Forum for Business and Human Rights, has a human rights component. Everything starts with shaping the debate to then taking action. As the biggest sustainable finance event in Switzerland, the summit will be really important in providing a platform to drive the conversation on human rights. We hope to partner with the Thun Group of Banks, an informal industry platform that was created in 2011. The Thun Group has already been discussing the implementation of the UN Guiding Principles in financial institutions for the past ten years. Since January 2021 we have entered what the UN calls “The Decade of Action” and the GCBHR stands ready to support companies in advancing human rights in corporate practice.

Biography 

Professor Dorothée Baumann-Pauly is the director of the Geneva Center for Business and Human Rights, at the University of Geneva’s School of Economics and Management. Since 2013, she has also been research director at the NYU Stern Center for Business and Human Rights.

Over the past ten years, she has taught both in the United States and in Europe on various topics related to human rights and has published extensively on issues at the intersection of business ethics, corporate responsibility and private governance mechanisms.

She earned her PhD in Economics at the University of Zurich and lives in Lausanne with her family.

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