Ask Me AnyFin with Richard Peers: Building Green FinTech

What is the real meaning of sustainability? How to differentiate between a genuinely sustainable practice and greenwashing? And how does sustainability relate to economic growth? Check out the next episode of Ask Me AnyFin, where we talk to Richard Peers, the founder of ResponsibleRisk — an innovative consultancy that drives improvements in sustainable finance. Sit, relax and watch the video or read the transcript below to discover inspiring insights from the green FinTech world.

Sustainable finance expert says, “Ask Me AnyFin,” and is not afraid to answer

Watch the conversation with Richard or read the transcript below.

What does ‘sustainable’ really mean?

Małgorzata Łabanowska: Hello! In this episode of Ask Me AnyFin, we talk to Richard Peers, an influential figure in the world of sustainable finance. Richard spent most of his professional career working for Microsoft and is the founder of ResponsibleRisk, an innovative consultancy helping to put sustainable finance to practice. Hello, Richard, great to have you here.

Richard Peers: Hello, lovely to see you. Thanks for having me.

Małgorzata Łabanowska: I would like to start with the basics, which are, in fact, quite complex when it comes to sustainability, especially in the context of finances. Could you perhaps simplify it for us by sharing your definition of what sustainability is?

Richard Peers: My definition, I hope, is the dictionary definition, which is about avoiding the depletion of resources. And if you are going to deplete them, then [it’s about] restoring and bringing back the balance. And with nature in mind, that balance fundamentally is an ecological balance, which gives us a balance for humanity to thrive and survive.

It should be quite simple, I think. Of course, there are many motions and processes within that. Still, at its baseline, I think it’s about taking out less than the planet can deliver to us, finding balance and restoring that, and rewilding when you have taken things out of balance.

Sustainability and economic growth. How do they relate to each other?

Małgorzata Łabanowska: The idea of economic growth seems to be at odds with the concept of sustainability. I guess this is a traditional, perhaps outdated notion, and you probably disagree. But how does sustainable finance address this issue?

Richard Peers: I think it depends what level of reduction you’re going for. It is an exceedingly complex area. And I think you really have to look at economists, climate scientists, and biological, environmental scientists for a complete answer.

But I think a good place to look for information is something that Her Majesty’s Treasury recently worked on with professor Dasgupta. Dasgupta has written something called the Dasgupta Review, which is over 600 pages. What he’s trying to do there is not value nature or put a price on nature, but to look at the economics of nature and how sustainability fits within that framework and how we look at GDP differently, and so forth. And I think, in a way, to answer that question of economic growth and sustainability, which is complex and nuanced, a perfect place to start would be there.

But I suppose if you press me, I would say the biggest issue that he talks about is externalities. It means the things that we use from nature that we don’t put a price on or don’t value in the economic system. And therefore, we are taking things away from the planet while we are delivering economic growth. They talk about this being the best of times in many respects in terms of reduction in poverty and growth. I mean, it depends on your point of view.  But on the other hand, it’s the worst of times in terms of the excessive consumption we’re making from planetary resources and climate change.

So to count the externalities that haven’t been priced before, the water, the air, the forest, and so forth, bring those into the equation, put a proper price on them, and then we’ll be able to understand what is meant by economic growth with that point of balance, with nature in mind.

Małgorzata Łabanowska: So it feels like it’s more realistic than it was before, that we take the environment into account.

Richard Peers: We’re talking about net gain on biodiversity, so if we take anything away, then we don’t just restore it. We give back more than we took away. We’ve got to deal with the usual ‘reduce, reuse and recycle,’ and all of these things. Many of them have been known for a long time. I don’t think there is nirvana or a silver bullet. But if we can, as I believe is happening, orchestrate the world’s finances — and as we know, money makes the world go round — and if the measure and the management of the way that capital is allocated take into account these externalities, we will now certainly have a better understanding of the effect we’re having in the world. And hopefully, we’ll be able to get ourselves to some growth without such negative impacts. But, you know, there are many pages written on this, but I certainly recommend the Dasgupta Review to you.

ResponsibleRisk: storytelling that turns finance green

Lucas Korol: Let’s talk about your company called ResponsibleRisk, or maybe I should call it an initiative rather than a company?

Richard Peers: It’s a company on an initiative, I hope.

Lucas Korol: Yeah, it looks like both at the same time. Could you please tell us a little bit more about it and how it was conceived?

Richard Peers:  As you said, I was at Microsoft for 23 years, and in a way, I think of myself as a sort of jack of all trades and master of none around marketing. I was in consulting, I was in evangelism, you know, just the whole range. But the beauty of that was to see many industries, many disciplines. But about the last ten years, I ended up being in the financial services sector, in particular, working on open banking APIs, FinTech specifically, as this is the global lead for that for Microsoft.

And I came across sustainable finance. I realized that one of the biggest issues, as highlighted by Michael Bloomberg in the Financial Stability Board launched with Mark Carney and the Task Force on Climate-Related Financial Disclosure, was this measurement and this management that we’ve been talking about, and the absence of data. Now clearly, in my role in a sort of worldwide strategy firm for a big tech company, that, therefore, was something I wanted to create a strategy for us to embrace, because we think we had good answers around data, using things like the Internet of Things and sensors, and planetary computing as a way of actually bringing data to the financial services industry.

So I explored with like-minded colleagues, we did some big engagements with a couple of very large financial services industries, and we established that this was a good area for us to work on. And I wanted to do it 100% of my time because I think once you get the passion of conservation combined with your day job of financial services and technology, that’s what you want. That’s all you want to do. So I wasn’t able to do that.

So I left and set up ResponsibleRisk. But one of the key things I had seen was that over the previous ten years or so, we had been trying to explain the role of cloud computing. And bear with me for a second; I think there’s a parallel here. We’ve been going to the world and saying, “You’ve got computers in your offices. We’d like you to put your technology, your data into computers in our offices, if you will, in the cloud.”

It’s not that complex an idea or process, but it took billions of dollars, consulting, papers, advertising, salespeople, consultants to make that happen. And to a certain extent, for me, the biggest tipping points were when we would find — as I worked very closely with a company called ClearBank, which is based out of London, the first new clearing bank in 250 years — that they built their platform on the cloud. And it was a very seriously regulated entity.

And at that point, everybody went, “Aha! I see how it can be done.” And then people started to copy. Now, it wasn’t just that one moment, but people need to see examples, and they need to be able to copy. And so, with ResponsibleRisk, I thought, “How do we create that situation for climate, biodiversity, and sustainable finance?” I haven’t got billions of dollars, and I’m never going to, for the rest of the world. 

So I want to use an ecosystem, a network of all the people I’ve met through my career. And I want us to build examples. If at the beginning they have to be fictitious scenarios that subsequently become proof of concept, that subsequently become very large established companies, that is the way I will address it. While others are focusing on policy, regulation, law, etc. I can’t influence that; that’s going to happen; it’s going to take years. I’ll focus on creating case studies.

ResponsibleRisk was set up to do that. And fundamentally, what we’re trying to do is storytelling. What are the best cases and examples out there? Matchmaking, bringing people together, multidisciplinary, and then coaching, trying to get the best ideas to be successful.

Educating the industry: learning by doing together

Lucas Korol: We would like to ask you about the goals that you have in ResponsibleRisk. As I understand, your main goal is to educate the decision-makers in the financial industry on how to apply this idea and how they can change their business to follow the concept of sustainability in practice. Is this correct? 

Richard Peers: Yes.

But I want to go further than education in the sense of just telling you what to do. We really wanted to learn by doing together because I don’t have all the answers, and nobody does.

But we know that it takes a village, it takes time, it takes a community to roll up their sleeves, multidisciplinary and group to solve such complex problems. So as a sort of unencumbered entity, as a small organization without a particular financial goal in mind or a specific need to hire these people and deliver this project by this time, which would give me bias, I have to feed that army.

What I wanted to do was to build this network. Think of it as the Hollywood model, if you’ve heard of that, where the director says, “Right, we’re going to create the movie,” and then along come the lighting people and the makeup people. And everybody comes together. They’re all freelancers, but they all know what the mission is. And they all put together the project. In a way, I’m operating like that. And the movie that we’re trying to produce is the movie that says — this is how we can solve for sustainable finance, the data needed for it specifically so that capital can be allocated to project’s downstream, many invariances that will make an impact on climate, carbon, and biodiversity. 

But it’s the data and the financial services industry specifically. That’s where I’m focused. But when I say making the movie, it means we get together, we look at the biggest problems and hurt, and opportunities, and then we say, right, let’s figure out in a public environment how we can discuss these things, how we can get the best inputs from the audience, how we can capture the resolutions and the ideas. And then how we can make that available to people, so that they can say, “Oh, OK, I want to make a business in that,” or “I want to refine that and make that better.” So it’s not just telling you; it’s working with you to try to find new patterns and practices.

Creating businesses “green at heart”

Małgorzata Łabanowska: I’m curious if it has already happened that you are maybe working on some specific cases of creating a business that is sustainable at heart?

Richard Peers: Yeah, one of the things just from our very last workshop, we had focused initially on climate-related issues, but we realized, particularly with COP-15 coming up, that we should focus on biodiversity and natural capital. So in May, we did a workshop. And what we tend to do is we try and look at it from the investor lens. What’s the challenge and the opportunity for the investor, but also for the investee. What’s the challenge and opportunity? 

And quite often, it’s a big disconnect. People say, “I’ve got a need and an idea,” and the investors are saying, “I’ve got money,” but they can’t meet, and it can’t turn into a project. And we were looking at that saying, well, what is that in the world of natural capital? And the investors were saying, “Well, it’s because we need to take three, four, five years to pull together all of the stakeholders to create a project big enough for us to invest in, to make a really big impact.”

And a lot of the conservationists were saying, “Well, I’ve got lots of small projects. They’re not 20 billion. All I want is two million or five million.” That’s a disconnect, unfortunately. So to answer your question directly, we tried to find an alternative, and we looked at the case of rewilding, particularly in the UK, where the government is changing agricultural incentives. So instead of saying, “Just keep growing things” or “just leave farming land fallow,” what we want you to do is to bring that back to its wild state and reintroduce the species in the natural environment, meanders of rivers as opposed to canalized rivers, etc.

But the problem is the subsidy is not quite sufficient to give the farmer the incentive to do this. So we found a conservationist, a rewilding specialist that was deeply knowledgeable and engaging in the field. And then, we found a tokenization expert in Switzerland who was very focused on low carbon blockchain solutions. Whereby we could think of a model of looking at the rents and leases and trophic, taking photographs of animals or sponsoring an animal, all of the different revenue streams that could come. Bohning away from evidencing them, tokenizing them, and then actually making that token available as an investable asset.

So both, giving revenue as well as being an investable asset. It was only at the beginning of May, but we are exploring this whole concept now. So this went from just an idea to a workshop, to people now trying to establish that. But in other areas, we’ve had other companies who said, “Right, I’m going to go from just being a consulting firm. I’m going to build a product to build a really high-quality ESG system, so I can ingest data, normalize it, and evidence it to financiers, so they can feel a high degree of confidence in the data that’s coming their way.”

So hopefully, we’re genuinely moving from talk to activity.

Lucas Korol: Thanks for this example. The idea that you can connect the problem of biodiversity and blockchain seems like science fiction, and it’s quite amazing. Are there any initiatives or projects that you are involved in right now besides ResponsibleRisk?

Richard Peers: Yes. With Finextra, where I do the storytelling as they kindly gave me the opportunity to be the Contributing Editor there. And usually, I’m on the other side of the interview to you on Sustainable Finance Live, which is the workshop series I’ve just spoken about. But then, I’m very excited to work with people like Earth Knowledge. Earth Knowledge is a company of climate scientists, earth scientists who for 20 years have been shouting and saying, we have got the data that will help you make good decisions on urbanization and rewilding, environment, and so forth.

Even when I was at Microsoft, I was helping them get that data and put it into the cloud so that it was much more accessible and they could do more modeling with that. And now they’re bringing that to the financial services community with 200+ indicators which allow you to put in a geospatial area, understand where your assets sit within that, and then the risks associated with it from a whole lot systems analysis, not just water, flood, or fire, but the whole temporal and spatial timeline associated with that asset.

So that’s interesting. But again, I don’t want to be pushing one company. We have others on the advisory board who I don’t know very well, but I’m really happy to push. Cervest, which is a British company that’s been part of our advisory board. And then OXIO, which is coming out of Oxford University. Everybody is welcome if they’re trying to produce good quality data to help us in this crisis.

Expert’s view on greenwashing

Małgorzata Łabanowska: It is really interesting and insightful, and I also think it’s happening right now. It’s impossible to ignore how important it is for us to ensure that we are sustainable in our everyday lives, but also FinTech. And there are more and more FinTech companies that claim to be green at heart. But some businesses exploit this idea. So how does one differentiate a truly sustainable practice from a greenwashing one? What’s your stand on this?

Richard Peers: It is difficult, and it’s very easy for people to throw rocks at it and say… Well, Tesla — the consumer thinks it’s green because they’re driving electric. But they’re using rubber in their tires, and the rubber comes from Indonesia and operates in a forest. It’s a very complex thing.

And I don’t think that anybody other than the most committed environmentalists is going to go through the whole supply chain analysis to understand who’s behind a particular product and its claims.

But what we’re doing is we see, particularly from the European Union, focus on things like the SFDR. And the SFDR is targeted at the financial services industry. It’s saying that as an asset manager, you’ve got to classify your portfolio, your funds, etc. And you’ve got to tell us how green it is. And people talk about 50 Shades of Green because that is the spectrum.

But I’ll read from the quotes. The SFDR requires specific firm-level disclosures from asset managers and investment advisors regarding how they address key considerations. And then, they talk about Article 6, Article 8, and Article 9. These define whether ESG is integrated. Are you promoting social-environmental characteristics, but it may not be your core objective, or is it really its key objective? So they’re starting to weigh and look at their portfolios in this way. Over the next three years that will become clearer.

This is all linked to labeling. I think you’ll end up a bit like that organic food or whatever, where the label should become clear to the consumer. The underlying construct is clear to the provider of the product with the label. Then obviously, the body that can interrogate and prosecute, because there is manipulation, if you will, is able to do so because there is a clear definition and regulation and law that can be followed up to prosecute if the notion is abused.

How to become a sustainable business?

Małgorzata Łabanowska: And from your perspective as an advisor, what are the essential steps for a financial company that would like to start implementing a sustainable policy?

Richard Peers: Well, I think if you look at TCFD (Task Force on Climate-Related Financial Disclosure), this is a very clear route to go. And this talks to the executives of the financial firm. It says you’ve got to allocate specific roles; you’ve got to do certain things. And it’s very much at a management level of putting the right people in place. What tends to follow, I think, is people go, “Well, what do I do next? I mean, that was relatively easy.” 

I was very touched by Daniel Klier when he was the Head of Sustainability at HSBC, and he spoke at a conference about the steps that run at HSBC. So they said the Bank of England is going to run stress tests which have just started. The purpose of the stress test is to maintain financial stability. So your book of loans, the equities that you hold, etc., represents the company’s value.

And HSBC is an organization where stability is crucial to overall global stability. This is the same for that class. So we need to know: do you understand which assets you’ve got which are at risk of climate change? Do you know how to measure, do you know how to manage that? And you need to report that to us. So that was the genesis of why the Financial Stability Board and the TCFD put this pressure onto the financial services industry.

Klier then went on to say what they did was they ran a pilot to make sure they were ready for the stress tests, and so they did three steps. They defined the Bank of England scenarios and the network of greening the financial system, the NGFS. And those bodies will give you a lot of data. If you don’t have data, they’ll give you a lot. 

And so they ran the stress tests. Then they checked on their exposure. They looked at ten portfolios, six industrial areas, four real estates, residential commercial, applied physical stress tests, and transition stress tests. And then finally, they looked at their management, and they said, do you have the data? How will you respond? What would you do with our products? How will you engage our customers? So I think that the playbook is starting to become clear for any financial services organization.

And I think that we’re already in the mature economies starting to exercise the scenario and the training muscle. So the next question is, how do we unwind ourselves from perhaps long holdings that we have? And that’s why I said I think you sometimes hear some prevarication because people are trying to look after their shareholders and stakeholders and protect their revenues and share prices. So that’s why I think they know. But then they have to sort of gently unwind positions without everybody making a fire sale.

Financial innovation in the spirit of sustainability

Lucas Korol: Before we finish, we would like to ask you for some inspiring use cases to illustrate some innovation that is done or is being done in the spirit of sustainability.

Richard Peers: As I said at the beginning, I think I’ve got to find good use cases, good evidence that this is achievable. One of the real inspirations for me is a bank called Triodos. Triodos is originally a Dutch bank; there’s an association of banks with good values, many of them coming from Holland. Triodos now has a bank in the UK, and Bevis Watts, who’s the CEO, is somebody that inspires me all the time.

We did an interview recently, and he spoke about natural capital. What they’re doing is going into trying to rewild the wetlands in the… I think it was the northeast coast of England. So literally, a bank is going out there trying to initiate projects such as flood protection. So if you get the water into the marshland, the marshland is soaking up that water, which stops the downstream flooding of cities and properties. But you need to bring together citizens, insurance companies, farmers altogether and then find the revenue streams from it that are investable so you can build a bankable asset.

But ultimately, you might not just be taking cash. You might be taking carbon credits, and, who knows, in the future, biodiversity credits.

I find that really inspiring that, as a bank, they can lead that, working hand in hand with NGOs. And I think that’s a great example. But then they’re not alone. Mirova, the asset manager, basically went into this area, trying to build a fund some five years ago and has subsequently gone on to do blue ocean funds and forestry, as well as others, pioneering the way, trying to find a way to find the projects to invest in.

And then people like Tribe Capital, which is a small impact investor who is tooth and nail pursuing the purity of investing in solutions. So I think you can see wonderful examples. WWF produced a great book called The Blueprint for Bankable Nature Solutions. And there are dozens of great inspirational solutions. But the key thing is behind it. There’s a diagram which says this is where the money came from. This was a special purpose vehicle. This is where the income came from. This is how we got the money to fund these projects. So if anybody wants a blueprint, that’s a great place to look.

Lucas Korol: Thanks, Richard. It was a great pleasure to talk to you. It was not only insightful, but we actually had an occasion to learn a lot about the sustainable aspect of finance. And I hope it will be very valuable for all of our audience. Thank you very much.

Richard Peers: Thanks for having me. And I look forward to learning from all of your great listeners and audience some more new stories I can tell.

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