Sustainable finance: Do we have to reinvent the wheel?

When it comes to finding private-sector financing solutions for social and environmental challenges, do we need to reinvent the wheel? I’m beginning to wonder. For example, Gary Kleiman, who runs an emerging markets analysis and advisory firm, has been arguing for many years that we already have the instruments we need for financing refugee-related infrastructure and jobs. 

A sovereign bond dedicated to job creation for refugees or job creation to reduce migration would be perhaps a simpler solution than finding small impact investment opportunities that finance refugee entrepreneurs. While the latter is still important, smaller projects often require more complex structures and we have yet to see an investable product launch in this area. Kois Invest’s refugee livelihoods bond, for example, will have taken three years to structure when it launches next year. 

I was thinking about this perspective of using traditional markets while looking at the IPO of ASA International. It is the first-ever IPO of a global microfinance issuer and the deal was coordinated and sponsored by Citi. 

ASAI is one of the world’s largest and most-profitable international microfinance institutions and focuses on lending to low-income, predominately female entrepreneurs – around 1.9 million of them. Its market capitalization was £313 million ($411 million) at launch. The IPO means that ASAI now has funding to support the 365 million potential clients in its markets that have no access to basic financial services. And as co-founder and Asia chief executive Dirk Brouwer points out, across Asia and Africa there are as many as one billion underserved female entrepreneurs. 

That tweaking traditional financing structures can be easier than building from scratch is also shown by the growth of the sustainable bond market. 

According to Dealogic’s first half review, global sustainable finance bond issuance was up 34% year on year to $84.8 billion from 227 deals – the highest half-year volume on record. Corporate investment-grade bonds accounted for the largest share (43%) of the total volume in the first half of 2018, with $36.4 billion via 91 deals. 

Embrace the market

Along a similar line of thought and in support of the use of traditional markets for social and environmental purposes, it may be time for us to start talking more openly about how it is OK to mix commercial opportunity with doing good. 

It is something that is talked about at length in the abstract – that it’s possible for finance to be used to solve social and environmental challenges and be commercially attractive – but, to be honest, I rarely hear of lucrative green deals from bankers. Even in the large market for green bonds, people will share off-record that they are not convinced the revenues are attractive. 

It is not an easy conversation to have in the open as there is still some fear that shareholders or even directors will pull the plug on such deals if there is greater publicity of their financial results.  

Solomon has also vowed to increase the number of women the bank hires and promotes. His promises will be followed closely 

On the other side of the coin, when bankers do share with me that a deal was very lucrative, they ask for it not to be made public. They fear political kickback or media criticism that banks are making money from financing refugees or forests or the ocean. 

It is clear that we have yet to reach a point where everyone – NGOs, governments, banks, investors, shareholders and the general population – is truly comfortable not just with the notion of making money and doing good but making money from doing good. 

I don’t know how we get there, but I think we will need to be more transparent both when the financial rewards are not as positive as were hoped and when deals are more lucrative than expected. 

And finally…

It seems a new era has dawned at Goldman Sachs. I have always admired Lloyd Blankfein and so was concerned what the future for Goldman might look like with David Solomon at the helm. So far, it seems like he is pushing the firm squarely into 2018. 

As he moves into his new role, the bank, notorious for having a lack of women in senior roles, announced a third woman would be joining the board, taking its female representation to 25%. It’s not a huge achievement, but it’s something. Solomon has also vowed to increase the number of women the bank hires and promotes. His promises will be followed closely. 

Solomon seems, at least on the surface, a little fresher than Blankfein. Not only will he be the first DJ-ing chief executive of a Wall Street firm, with a Billboard chart entry to boot, but he is also probably the first to use words such as “being vulnerable” and “being emotional” in public interviews. 

I was at 200 West Street recently and there was palpable excitement. While Blankfein has been a popular chief executive and has steered Goldman along a mostly progressive path, the arrival of new blood gives a sense of an opportunity to rebrand the investment bank. 

And at least we will still have Blankfein on Twitter.