How Businesses Measure and Finance Their Energy Transition to Net Zero

• The UN’s Sustainable Development Goals are not being met because the ESG bond market is way behind.
• Both regulators and investors are supporting transparent measuring and reporting of ESG initiatives.
• The conversation was part of Insider’s virtual event “Financing a Sustainable Future – Funding the Energy Transition to Net-Zero” which took place on Tuesday, April 12, 2022.
• Click here to watch a recording of the full event.

The ESG — environmental, social, and governance — bond market may have doubled every year over the last couple of years, growing to more than $1.6 trillion last year, according to McKinsey. But funding is still way behind when it comes to the environmental aspect, said Karen Fang, the managing director and global head of sustainable finance at Bank of America.

“According to the United Nations, it costs anywhere between $3 to $5 trillion a year to accomplish the 17 UN Sustainable Development Goals. According to a recent McKinsey study, the total number of dollars needed between now and 2050 is a whopping $275 trillion, which is over $9 trillion a year,” Fang said during Insider’s recent virtual event, “Financing a Sustainable Future: Accelerate the Net-Zero Transition,” which took place on Tuesday, April 12. In this hour-long boot camp in partnership with Bank of America, Insider’s finance correspondent Aaron Weinman spoke with Fang and other sustainable finance experts and business leaders about how the world of corporate finance can accelerate the net-zero transition and how the markets are funding the energy transition to net zero.

Sophia Mendelsohn, the chief sustainability officer and global head of ESG at technology consultancy Cognizant, said that regulators are now paying close attention to ESG reporting because it’s highly relevant to investors’ financial decisions.

“ESG has become a critical part of a company’s financial structure, strategy, infrastructure investments, so it’s, therefore, no surprise that it’s now at the level of attention of large investors and therefore the SEC,” she said.

From a banking perspective, Fang said that reporting on the use of proceeds, at least annually, is critical for higher benchmarks in ESG financing instruments, like green bonds and sustainability bonds or loans.

“Issuers could be doing more in terms of having even more transparency to show progress on how they’re reducing emissions and how they’re helping improve the circular economy,” she said.

“Another very important topic is how they’re improving both climate transitions but also not losing the focus on nature and biodiversity,” she added.

Kathleen McLaughlin, the executive vice president and chief sustainability officer at Walmart, said that ESG issues are connected to the long-term prospects of any company.

“We consider the planet one of our stakeholders at Walmart,” she said. “You won’t be able to deliver value to the shareholder if you haven’t satisfied the customer, engaged and delighted your associates, and developed them to do the things we need to do to run our business.”

McLaughlin said that Walmart has high ESG ambitions as a company and eventually wants to become regenerative. Sustainable debt and equity financing are key pillars of that strategy.

“The $2 billion green bond was part of a broader portfolio of $7 billion worth of issuance — and actually, that $2 billion tranche had the highest demand,” she said.”If there’s an opportunity for investors to align their capital to action that’s in those [ESG] arenas and can be producing results, that’s attractive to people.”