A lot of journalists want to be op-ed writers. But this op-ed writer also envies journalists, educating and informing the public. Not exposed – like me – to the accusation by the Dude in The Big Lebowski that all my writing is “just, like, your opinion, man!”
So I fancied myself as a journalist when I sketched this month’s op-ed, keen to report back from the BRICS sustainable finance workshop I spoke at a few weeks ago.
Part of the reason I was keen was because I genuinely embarrassed myself. One of the BRICS central bankers in attendance told me: “Your presentation was quite basic. We’ve heard this before!”
My first slide: “Transition risk assessment needs data, scenarios and models.”
This wasn’t “bring your dad to school” day, Jakob! Say something interesting or stop being a waste of space!
To be honest, the feedback was spot on! I was unprepared for the level of sophistication in the room.
In my defence, I don’t in my day job have much exposure to the Central Bank of Russia and the myriad activities they’ve launched over the past few years (transition risk, taxonomy, etc).
Or the specific transition risk questions related to the potential emerging solar PV policy mandates in Iran. (Maybe they should do a carbon footprint? Let’s start with a hot-spot analysis to identify high-carbon sectors!)
I didn’t know about the quality and thoughtfulness of the Indian climate scenario community, mobilised to replace the NGFS scenarios with something that actually mirrors the reality of the Indian economy. (Never mind, just the third-largest emitter in the world!)
I was impressed. My editor at Responsible Investor was not.
“Did you really not know about the transition risk exercise in Russia?” (Make that two embarrassing conversations in the span of a week!)
I realise I have two problems. One, there is likely not a single RI reader for whom the fact that emerging markets are moving on sustainable finance is “news”.
Two, I wrote the first draft of this op-ed in the style of someone who is in a position to give out grades. Gently put, I am not.
My first intuition was to junk the text entirely, write about AI instead (apparently it’s a thing people are talking about…) But I feel like I saw the future at that workshop, and it filled me with hope.
First, it convinced me that by the end of this decade (only three and a half years away, I was shocked to discover when I did the mental math in my head!), the demand for sustainable finance will be higher than it is today.
Second, emerging markets will have sufficiently changed the Overton window on policies that both financial and monetary policymakers in Europe will finally move beyond disclosure to meaningful financial and monetary incentives.
Third, we will move from global, IAM-powered, theoretical climate transition scenarios to bottom-up, regional/local forecasts and scenarios powered by local expertise and tailored to the specific research questions and markets they are designed to inform.
Four, corporate reporting will still exist. But it won’t be the primary driver of transition intelligence powering strategies, superseded or at the very least meaningfully complemented by alternative datasets.
Five, the most successful responsible investment teams will be those that that are best at making a convincing business case around emerging market RI strategies. In turn, investors unprepared for the sustainability expectations being set by these markets, and the investment opportunities that arise from them, will fail.
Finally, we will finally see the emergence and mainstreaming of a new class of risk models, designed to respond to secular risks and reflect non-linearities and second-order effects.
That is the future I saw at that workshop.
I admit I am biased towards the kind of “idealistic pragmatism” that dominated the dinner and lunch conversations, focused on building the technical scaffolding that supports the edifices sheltering our sustainability ideals.
So inevitably these kind of conversations fill me with hope because I am convinced that scaffolding is the prerequisite for the future I described.
I also anticipate the pushback from readers – rose-tinted glasses meet your old friend, wishful thinking.
I don’t mean to suggest all was perfect. My presentation may have been basic, but that doesn’t mean everyone in emerging markets is playing four-dimensional chess. There was a reason for the event – plenty of learning to be done.
And there are a ton of non-climate, non-social sustainability themes – nature first and foremost – where the conversation was rather bleak.
The adoption of all these things I outlined above is still in early stages. But the path is there for the taking.
I also know we have this conversation every three to five years. Emerging markets are coming, watch out, it’s the future.
So I understand if you feel like you’ve heard this story before. I mean, it is the feedback I got at the conference too…
But, to borrow another quote from The Big Lebowski: “I’ve got certain information, all right, certain things have come to light.”
And I for one will ignore that feedback at my peril…
Jakob Thomä is co-founder of Theia Finance Labs (formerly Two Degrees Investing Initiative), research director at Inevitable Policy Response and professor in practice at University of London SOAS.
