“Negative carbon is the currency of the future”

“Negative carbon is the currency of the future”
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Simply put, sustainable finance refers to the process of taking environmental, social and governance (ESG) considerations into account when making investment decisions in the financial sector, leading to more long-term investments in sustainable economic activities and projects. According to the Head of ESG, FIC, Deutsche Bank, decarbonising the steel industry will cost more than 1.4 trillion dollars and that is why the emerging sustainable finance market has a key role to play in funding the transition.

In an exclusive interaction with the Green Steel World, Mr. Georg Kell, the Founding Executive Director of the United Nations Global Compact and Chairman of Arabesque Partners, an Anglo-German ESG Quant fund manager, explained how ESG could be integrated into fi nance to drive the green revolution of the steel industry.

What is sustainable finance?

Sustainable finance is a broad term, and its meaning depends much on the context. It is used, for example, in the context of climate negotiations and at a project level and increasingly in commercial transactions. At its core is the idea that finance can be a very important vehicle to drive sustainability concerns and accelerate transformations towards a green, healthy, and inclusive economy. Within the narrower domain of investments – public and private – it is about the integration of environmental, social and governance factors in analysis and decision-making. There are many different approaches under development. Over one-third of professional assets under management globally already apply some sustainability criteria.

ESG and sustainable finance belong together

ESG is an integral part of sustainable finance, it is the “how” while sustainable finance stands for the “what”. They belong together. Sustainable finance needs to be based on good data and measurement. ESG is simply a way that helps analysis by defining three pockets of sustainability issues. The term was coined together with asset owners who felt they needed a categorisation of sustainability issues. The term was initially not widely used. But around 2014 several pathbreaking meta-studies were published which showed that there is a relationship between ESG performance on the one hand and long-term valuation on the other. Responsible CEOs have long known intuitively that there is such a relationship but for finance whose accounting frameworks largely ignore externalities such as pollution, this was a wake-up call.

The role of UNGC

Launched by the former UN Secretary General in 2000, the UN Global Compact is a voluntary corporate initiative that advances universal principles in the areas of human rights, labour rights, the environment and anti-corruption in corporate practices. The UN Global Compact is organised through country networks in nearly 100 countries on all continents. It is today the largest corporate sustainability initiative with over 15,000 participants who disclose on an annual basis progress. The UN Global Compact also coined the term “ESG” in 2004 in collaboration with the IFC and asset owners and launched in 2006 the Principles for Responsible Investment.

The essence of Arabesque

Arabesque is a technology firm that aims to mainstream sustainable finance. It has three different business units. Its ESGBOOK, the world’s largest independent provider of ESG data, offers deep insights and analytics to assess the ESG factors of corporations. Its Auto CIO offers autonomous asset management based on ESG and conventional analytics and thereby allows for hyper-customisation. And Its “S World” project aims to bring both ESG analytics and AI into the retail space so that one day everybody can express values with money.

The way ahead for the steel industry

We need to get the policy frameworks right to reward sustainable practices. The number one priority should be effective carbon pricing. Yes, there is some progress, but it is too slow and not sufficient. Carbon prices must be much higher to provide for incentives to take the risks to scale up the innovation we so urgently need. Closely related is the issue of carbon measurement. I have no doubt that “negative carbon”, that is the ability to substitute carbon-intensive processes with cleaner processes or the ability to take carbon out of the atmosphere, is the currency of the future. But it is very frustrating that after decades of talks, we can’t even measure carbon emissions effectively. To move forward we must get serious with carbon disclosure across the entire value chain.

Mr. Georg Kell is the founding Executive Director of the United Nations Global Compact and Chairman of the Board of Arabesque.
Mr. Georg Kell is the founding Executive Director of the United Nations Global Compact and Chairman of the Board of Arabesque.

Meet Mr Georg Kell

He is Chairman of the Board of Arabesque, a technology company that uses AI and big data to assess sustainability performance relevant for investment analysis and decision-making. He is also the Spokesperson of the Volkswagen Sustainability Council.

Mr Kell is the founding Executive Director of the United Nations Global Compact. He established the Global Compact as the foremost platform for the development, implementation and disclosure of responsible and sustainable corporate policies and practices.

In a career of more than 25 years at the United Nations, he also oversaw the conception and launch of the Global Compact’s sister initiatives, on investment, the Principles for Responsible Investment (PRI), and on education, the Principles for Responsible Management Education (PRME), together with the Sustainable Stock Exchanges Initiative (SSE).

Mr Kell started his career as a research fellow in engineering at the Fraunhofer Institute for Production Technology and Innovation in Berlin. He then worked as a financial analyst in various countries in Africa and Asia before joining the United Nations in 1987. A native of Germany, Mr Kell holds advanced degrees in economics and engineering from the Technical University of Berlin.

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Tanya Rudra
Tanya Rudra
Tanya earned her editorial stripes in the fast-paced world of online journalism, where her passion for sports enthralled a large audience. Having changed continents, she is now using her analytical skills to turn complex technical subjects into stories and articles that are both entertaining and informative.

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All images were taken before the COVID-19 pandemic, or in compliance with social distancing.