ESG solutions in a turbulent world

Do we think that there’s a risk between the competition of climate reporting, climate views, versus biodiversity?

Do we think there’s a risk that that could detract from the overall aims or do we see them as beneficial and symbiotic to each other?

“TNFD is not going far enough for the oceans – only really dipping a toe in.”
Chip Cunliffe

Chip Cunliffe

TNFD is not going far enough for the Oceans – only really dipping a toe in. This is driven by the lack of financial literacy and about its importance of the ocean being healthy for all of us. Everything from the oxygen we breathe to the food security that we require in the Global North and the Global South – all depends on healthy oceans. It is also essential for those ecosystems that provide the resilience benefits to all those people who live in and around the Ocean to thrive.

Emlyn Ade Palmer

It’s positive that TCFD and TNFD have been designed to be both symbiotic and useful in different ways. However, there has mention of stakeholder gaps in the creation of TNFD and it would seem that there is a need for it to cover a wider range of areas than it does in its current form.

One of the things challenges with this is motivating people to take action to deal with it within their spheres of influence. In the context of a financial value chains, outlining the financial implications of biodiversity or the lack of it could help motivate investors to act on it.

 Aled Jones

Even within COP, we have a very transactional and asset-based view of the world. And the ocean is nobody’s asset. So that’s why it has been overlooked for so long.

There will be an increasing amount of data and acknowledgement that nature is an issue that companies should be considering. Although it seems to be much slower than TCFD.

We can’t measure everything. And so to understand the world and how it works and the system, we have to get better at using qualitative data, understanding qualitative scenarios, qualitative data to make decisions. And then what we need to do to improve climate and biodiversity outcomes, not our financial metrics that are linked to those.

“A lot of the frameworks are really focused on activities and outputs and not outcomes.”
Lindsay Camacho

Lindsay Camacho

A lot of the frameworks are really focused on activities and outputs and not outcomes. By changing the approach to have a “more qualitative narrative style of reporting” that, for example, is not solely how many jobs were created, but actually looks at how many households now have a living wage and are more resilient to financial shocks or climate change. This standardisation would help to prevent things like greenwashing and pinkwashing.

Is there a fundamental issue, in your view, of using AI to solve sustainability challenges? And what’s your perception of using it for that in particular?

A key criticism of AI is the over representation of data sets based on Global North, where most internet users are based, and people of the Global South are being overlooked in the development of large language models and neural networks.

“Responsible AI is the process of really looking at how AI is actually used and the effect that it’s having on society, making sure it’s not divisive or damaging, that it’s doing what it’s supposed to do.”
Emlyn Ade Palmer

Emlyn Ade Palmer

Someone wrote that “AI should really be about sculpting the technology landscape to suit the contours of human need and market demand.” There is a question of how these models are created, how the data sets are compiled, how models are trained, how they’re evaluated for efficacy. There is this thing called responsible AI and it is about trying to address some of the ill effects that could result from poor development and implementation of AI. Responsible AI is the process of really looking at how AI is actually used and the effect that it’s having on society, making sure it’s not divisive or damaging, that it’s doing what it’s supposed to do.

Lindsay Camacho

We’re certainly seeing greater operational efficiencies based on the use of AI. There are companies that are leveraging it, certainly, on the data side. But I think the question we just have to ask is where is the input coming from and who is feeding into it? Kind of going back to your original question.

Chip Cunliffe

I can see that the use of AI in modelling, will be useful. But, it comes back to Lindsay’s point around where the data comes from and how it’s fed in and how it’s manipulated. There is a lot more that we need to understand to be able to utilise it effectively.

“The key thing with AI is rubbish in rubbish out. We’re training AI on a society we know doesn’t work, which is unlikely to solve any problems. It doesn’t learn how to do things better because it doesn’t know how we’re going to respond to it.”
Aled Jones

Aled Jones

I totally agree with what Emlyn was saying, we do quite a lot of work around looking at how knowledge is used for decision-making, mostly within governments but also within companies.

We’ve been doing quite a bit of work for the UK government around energy models and how that is used, especially to look at innovation. So that project has just ended.

The key thing with AI is rubbish in rubbish out. We’re training AI on a society we know doesn’t work, which is unlikely to solve any problems. It doesn’t learn how to do things better because it doesn’t know how we’re going to respond to it.

You don’t need AI to make those decisions, you need people who can engage and think. So yes, I think there is a big rush, which is a risk and we need to slow it down. So the EU is right to try and slow it down because otherwise we’re just going to cement in even more an economy that doesn’t really work and doesn’t give us the outputs that we want.

What are the most significant policy changes that need to be seen to ensure a smooth transition?

It’s deliberately a very broad question, but what would you, personally, really like to see over the next 10-year time horizon and what do you think will be a real problem if you don’t see it? And this can be on a UK level, a global level, it can also be the interrelations between governments.

“Dare I say, there’s an ocean of opportunity?”
Chip Cunliffe

Chip Cunliffe

Dare I say, there’s an ocean of opportunity? I mean it is a big space and you’re right, we are or it is lagging behind. And I think I go back to that piece around financial and ocean literacy, and having that integrated into decision-making processes.

I think that the world is very much focused on the terrestrial and there is a need to start to focus policy that incentivises investment into the Ocean. There are a whole host of ecosystems; reefs and mangroves, seagrass and salt marshes, etc, that really provide many benefits that a lot of people don’t realise. Indeed, the Ocean is itself a solution to climate, food security and a myriad of other risks we face, but we must create the enabling environment to invest in it.

Lindsay Camacho

The thing that comes to mind immediately is the fact that we have multinationals that are operating here in Europe, which has so much higher ESG standards. They’re adhering to them, they’re excited about them, they’re integrating them throughout their business models but then elsewhere where they’re operating in markets like North America or Latin America, they’re way more relaxed because the regulation in those markets is more relaxed or not there.

So just thinking about whether there are buttons or levers that investors here can pull in order to lobby for regulation. Just given what’s likely to happen in 2024 with changes of administrations and regimes, we don’t know what the future holds. What does that mean if we’re doing our part here in Europe but not elsewhere?

Aled Jones

I totally agree with what Emlyn was saying, we do quite a lot of work around looking at how knowledge is used for decision-making, mostly within governments but also within companies.

The hope is a revolution in policy design. It is not necessarily a shift in focus around policy outcomes, but the decision-making that goes into designing policy. Currently, the operational efficiency of the economy is essentially what is being looked at rather than what is beneficial to the individual on the ground.

So for me, the first thing is can we get a systems view into government, so that they can design policy which is around delivering for the individuals that vote them in? People are being left behind by current politics and they have been for quite a long time. At the top level, it’s how do you make policy work for the individuals that are voting for the government? That is a huge ask. So in the meantime, we need better policy around innovation support.

The UK is being left behind as we don’t currently have an industrial strategy. The EU and US are focusing on this area. So we need to think about the solutions around nature, landscapes, oceans, energy. We need a proper industrial strategy that also thinks about security around that.

“More policy might be helpful, but it would need to be more coordinated.”
Emlyn Ade Palmer

Emlyn Ade Palmer

Coordinated policymaking will probably lead to better outcomes. There are different versions of the policy measures globally but it would be best for policymakers to leverage off good work that has already been done elsewhere, so we end up with greater consistency.

From my perspective this is primarily because many investors invest globally and it’s very hard to create a sensible picture, at the portfolio level, if you have different obligations of underlying investees to provide information.

So more policy might be helpful, but it would need to be more coordinated.

From today’s discussion, what would you hope to see to ensure a future healthy planet for people, for flora, for fauna, and for the planet itself to come back to a better equilibrium?

What would you hope to see over the next five to ten years? And that can be a longer-term scale if easier to reflect over this time horizon.

“The third wave of impact investing will focus on democratising access to wealth with a headline of inclusivity and wealth building.”
Lindsay Camacho

Lindsay Camacho

Recognition that traditional investment structures are extractive, gender biased, racially biased, not focused on impact, not working. This aligns with Kate Raworth’s Doughnut Economics theory of moving away from a GDP focus and onto planetary boundaries. The third wave of impact investing will focus on democratising access to wealth with a headline of inclusivity and wealth building.

Emlyn Ade Palmer

There needs to be an awareness of environmental and social impact and an appraisal of it, whether it’s through quantitative metrics which the world typically understands so much more easily, or also qualitative narratives, which I hope will become more recognised within that space. I hope we’ll have a greater adoption of this approach as I believe it will aid the path to improvement.

Aled Jones

We have actually seen the market moving much faster than policy and then creating the space for regulation. So as per social tipping point theory, you get 20% of the market doing something, signing up to TCFD, running with that, doing the reporting, and then legislation created to make it mandatory for everyone now, and the market won’t say stop. So we’ve seen that happening. And I think similar things will happen with TNFD, so there will be more information and more data.

Chip Cunliffe

It is key that politicians should have a longer-term view than the five years or so that they might have as their term. The opportunities for the private sector are there and we should continue to utilise the engagement to drive this momentum. And I think they will anyway, because of the opportunity that they see from a transitional perspective but also the longer term. I agree with Emlyn about the impact investment side and capital markets gaining an interest in lots of space. In this context the Ocean is key and a critical focus of ours is around increasing financial literacy and the benefits that the Ocean provides to all.

“There will be new voices coming out that can create that vision for change.”
Aled Jones

Aled Jones

It would be great to see strong political leadership with a positive vision for the future and a strong coherent narrative. It’s now the younger generation that seem to be more proactive. This is not just the big names like Greta Thunberg, but there’s lots of individual voices that are now being heard around social issues, around gender issues, around climate change. So maybe that generation understands the scale of the problem and the need for effective solutions. There will be new voices coming out that can create that vision for change.