I cannot change the world alone, but I can cast a stone and create waves
After I made the decision to disinvest (read Part 1 in this series), I started searching for answers regarding sustainable investing. The question I have gone into deeper is: where to invest? How can I do things differently?
I would like it if my resources were utilized in investments towards promoting prosperity, promoting health, well-being. Investing to change the world for better. Construction of infrastructure for the 21st century (ecoefficient buildings, renewable energy for example), stimulus for agroecological agriculture, sustainable food. In fact, how could investment not have these aims?
How do financial institutions respond to this inquiry?
I engaged in a dialogue with three institutions where I have savings and surprised myself with the lack of transparency. My funds were kept in a black box and I have no clarity about what these institutions do with it, how they do it and for whom. Unless I explore and create a portfolio of stocks of companies that make use of indices like ISE – Corporate Sustainability Index, ICO2 – Carbon Efficiency Index, IGC – Corporate Governance Index in Bovespa (São Paulo Stock Exchange), I will have no clear information about the impact of my investments.
To continue exploring this theme, especially with regard to how new players, entrepreneurs, and fintech companies are acting as facilitators of sustainable development, I participated in one of the days of SmartInvest 2020. The event claims to be the “biggest investment event in Rio de Janeiro” for a “New Era in the Economy”. It was, to be sure, a large event. Notedly, the majority in attendance were white men.
What can the absence of women in an event like “New Era in the Economy” indicate?
On the day I went, all panelists and moderators were men. I thought it curious the theme of the event was centered on the “new era in the economy”, but in the old style #AllMalePanel.
Precisely where a diversity of perspectives, of visions and types is more and more important to understand all the nuances and take account of such complex themes as investments in a new economic era. Would not the lack of women in the debates alongside the men, simply be perpetuating patterns of past developments that have not brought us sustainable economic advancement?
In the conversations I had at various stands, from insurance companies to fintech companies, about how I could get access to detailed reports on the allocation of resources by institutions, the answers reinforced the understanding I had had earlier: a lack of transparency and openness about data on behalf of the banks.
Interestingly, the disclosure of data was one of the focuses of the event. I confess that until that moment, I had no knowledge about “Open Banking”.
Open Banking: Is it the data of the bank or the client that is open?
In a nutshell, open banking is a new system where clients authorize the sharing of their information with other banks and companies. It is a platform that allows for the integration of the so called API (application programming interface). The platform will enable client’s data be be shared, with their consent, with the expectation that this will increase competition in the sector and consequently increase the quality of services to the client and the best prices. From the comfort of our cellphones, we can access apps that display the best opportunities to find mortgages or loans, an analysis of our personal budget, savings tips and financial goals, in addition to being allowed to manage accounts from multiple banks on a single platform.
But I was surprised by the speed with which Brazil is overseeing its implementation. A public forum opened in December of 2019 was already concluded on January 31st. While the platform has been used in the U.K. since 2018, where there are criticisms about the real benefit of the platform and who it really serves, it is at least curious why Brazil has been so quick to introduce it. Especially because the scope of the sharing of data and services is even more overarching, if compared with other countries’ use. This information has even been corroborated by the Central Bank in an announcement.
For me the denomination “Open Banking” is probably better expressed as “Open Client”. A client that decides to give over its data to various other organizations. But the bank continues to function like those old restaurants where the counter is open to serve the client, but only authorized personnel have access to the kitchen. The heart of the company remains in a black box, without clearly informing where, how and with what aim they invest our resources. It is “Closed Banking”.
Dissonance: from an analyst in Rio de Janeiro to Harvard University
One of the people I talked with, expressed their own preoccupation with environmental questions, communicating frustration about the fact that the financial organization they worked for prints documents indiscriminately, wasting paper in an unnecessary way. I understood the angst, and became more curious to know about the organization’s investment policy. “Are the effects of investment on deforestation, environmental pollution, or increasing inequality a consideration there?”- I asked. An uncomfortable silence followed.
This dissonance, on one hand a genuine concern about environmental issues, and on the other an attitude that goes against and exacerbates environmental harm, reminded me of the case concerning Harvard University, in the United States. While I write this piece, actions are being taken in order to get the university to divest from fossil fuels. The university states that it is doing its part with regard to environmental issues, through research, education, new energy solutions, and a commitment to a campus free of carbon emissions by 2050. However, the university’s endowment continues to be invested in shares of companies that extract fossil fuels.
For someone who’s participatory share in 0.000008% of a Brazilian company, caused a catastrophic impact on human life, fauna and flora, I cannot say much. In fact, I cannot judge anyone, not even myself.
Enthusiastic about continuing to explore this world and understand more about the topic, I returned to the main venue to hear more about the entrepreneurs.
It was another #AllMalePanel, but this time, the issue was explored in a dynamic way, including personal perspectives about marriage and even about women, particularly those over the age of 50, in addition, obviously, to financial and investor context.
What is there in common between the definition of human beauty and of a “beautiful investment”?
Being a woman who will turn 51in three months – god willing- it was at least surprising to hear the panelist try to validate the beauty of women of this age group, thanks to the advances in medicine and cosmetics. Physical exercise, psychological and spiritual practices, a balanced diet, good enough sleep, relationships anchored in deep connection, purpose-driven work that creates value for society as a whole, these are the ingredients that, from my perspective, are essential for everyone, men and women, so that they can experience quality of life and good health as they age. That is my definition of beauty, which I call in the end, health.
Some define beauty on externals, maybe comparing standards from different periods, hoping to return to some irrecoverable past. A time when skin was smoother, softer, unblemished, when there was a stronger metabolism. Another way to define beauty is by going beyond externals, while still including them, but taking into consideration the natural changes in life and including interior spiritual, psychological, and relationship dimensions. Yes, it is possible to feel beautiful after a long day of purposeful work or after having a strong connection with friends and partners.
Analogously, how do we define a “beautiful” investment? Simply in terms of how much money returns to my pocket? Or in terms of the good which we generate in society? And for what society? For who in society? For what region, in Brazil only? Or the planet as a whole?
Green swan, the new bubble in finance. How does the climate emergency impact investors and vice-versa?
In 2019 alone, there were 820 extreme weather events including hurricanes, fires and floods, causing damage worth $150 billion.
2020 began with extreme weather events in numerous regions on the planet, from Brazil to Madagascar, Europe and Australia, causing deaths and uprooting thousands of people, clearly showing that this is the new normal. It goes without saying that the alteration in the climate has led to the increased reproduction of certain species which are causing serious damage to human beings and ecosystems. For example, a locust invasion where a swarm of around 200 billion insects put the food security of tens of millions of people in Africa in danger.
On the other hand, major investments continue seeking and prioritizing financial capital gains alone. And precisely the sectors of the economy that are potentializing the climate crisis and the destruction of ecosystems.
And this also has a price.
The price of disconnection
A study undertaken by the WWF in partnership with university centers indicates that if the pattern of environmental degradation persists, the losses in global GDP will be $10 trillion by 2050. It is worth noting that the study is very conservative, because it only considers 6 ecosystem services: pollination, coastal protection, water production, forest production, marine fishing and carbon capture.
Another study, by the Grantham Institute, analyzed how the natural capital of a nation sustains the value of its securities. Environmental degradation could result in greater costs for obtaining loans, losses in quality of credit and reduced access to financing.
But the impacts are even more profound. According to BIS – Bank for International Settlements, known as the “bank of central banks”, we can have a financial crisis without precedent owing to the climate crisis. Analogously to the term “black swan”, the term “green swan” was coined to refer to environmental and climate problems. Differently than in 2008, however, where the bubble and the system’s vulnerability were not clear to most, now, with the environmental and climate crises there is clear scientific evidence that shows the impact of not taking-action.
Search for asnwers regarding sustainable investing
The central question is: are we going to face the scenario and act with the speed, depth and scale that the science says is necessary?
Being motivated to get answers about these challenges, at the end of the panel, I put a question to the panelists.
“As entrepreneurs in Brazilian finance, are you aligning your investments with the consideration of the climate emergency we are living in here and now?”
The answer, clearly, from two panelists did not surprise me. Very openly, they confirmed that this alignment of purpose and investment still does not exist in Brazil in scale. If the criteria of sustainability, climate crisis, environment and governance-oriented investments, according to them, their portfolio of investments would be very limited.
I appreciated the frankness of the two panelists. But I admit that it is difficult to hear this truth and to face it. Is this perhaps the reason why my question was so difficult to be heard by the panel?
See for yourselves. What do you think? I will leave below a link with a short video showing my intervention.
Continue reading… Part 3: How to give form to sustainable finance and become sustainable
 “Black Swan” refers to outlying events that have a strongly negative or catastrophic impact, such as in the 2008 financial crisis.