Transcript by Kensho.

Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership team.

Lindsey Hall: Welcome to ESG Insider, a podcast hosted by S&P Global, where we explore environmental, social and governance issues that are shaping investor activity and company strategy.

Over the past few weeks, we brought you a special series of episodes featuring key interviews from Climate Week NYC. We'll be bringing a lot of the big ideas we heard at Climate Week to COP28, UN's climate conference taking place in Dubai later this year. And if you'd like to read more about those takeaways, we'll include a link in our show notes.

Esther Whieldon: In today's episode, we'll explore several of those themes through interviews with guests from a wide range of perspectives. We'll hear how Climate Week was marked by a focus on implementing concrete solutions at speed.

There was a pervasive sense of urgency and also a widespread recognition that stakeholders are not moving quickly enough to address the climate crisis. We'll also hear about the challenges around data availability and disclosure. And we'll hear how the physical impacts of climate change are affecting the insurance sector specifically.

Lindsey Hall: We'll talk to Gerbrand Haverkamp, Executive Director at the World Benchmarking Alliance, which is a nonprofit that assesses and ranks the world's most influential companies on their contribution to the UN's Sustainable Development Goals or SDGs.

We'll also talk with Carine Smith Ihenacho, who is Chief Governance and Compliance Officer at Norges Bank Investment Management. The firm manages the Norwegian Government Pension Fund Global and has about $1.4 trillion in assets under management. Carine heads up responsible investment there.

Esther Whieldon: We'll also speak with Sonia Khanna, who is Managing Director of Sustainable Finance at Forbright Bank. The bank is based in Maryland and is focused on accelerating the transition to a sustainable clean energy economy. Forbright as of 2022 had about $9 billion of owned and managed assets.

And we'll also hear how climate change is posing some real financial risks to the insurance sector from Charlie Sidoti. He's Executive Director of Innsure, which is a nonprofit focused on fostering innovation in insurance and on closing the protection gap that exists between economic losses tied to climate change and insured losses.

Lindsey Hall: Now one theme we heard at Climate Week was a growing understanding that solutions to climate change must incorporate the role of nature and nature-based solutions. During Climate Week, the Taskforce on Nature-related Financial Disclosures, or TNFD, released its long-awaited final recommendations.

And these recommendations are intended to guide companies in disclosing their dependencies and impacts on nature. Another question in focus was about how to put a value on nature. And that means understanding how companies impact nature and also how they depend on the ecosystem services that nature provides.

Esther Whieldon: That's right. In fact, during Climate Week, I heard Elizabeth Maruma Mrema, who Co-Chairs the TNFD, speak at the Sustainable Investment Forum on September 19 on these themes. She said, "Literally our entire world is dependent on nature. It is the food we eat. It is the water we drink. It is the air we breathe."

She also talked about the importance of companies not treating nature risk as an externality. She said, "We must account for how we use and how we deplete nature and how we contribute to climate change." She said companies need to include climate and nature in their account books, public finance statements and sustainability reports.

Another theme we heard about involved progress. Specifically, financial institutions, companies and others are looking for concrete examples of progress. While at the same time, I heard multiple times how people are getting impatient or frustrated at the current pace of change, that is, it isn't happening fast enough.

Lindsey Hall: On that first point about looking for concrete examples of progress, let's turn to my interview with Gerbrand of the World Benchmarking Alliance. He started off by talking about how there were 2 sides to the Climate Week conversations.

Gerbrand Haverkamp: Here in New York there's 2 sides, there's outside the UN and there's inside the UN. Maybe to start with inside the UN. There was the summit by the UN Secretary General, that hosted the Climate Action Ambition Summit.

And I think that was quite a moment because it was the first time sort of a real shift where only those countries and those companies that were leading on climate were invited in the room to speak. And there was for the first time an explicit ban on countries that are not leading on climate and to be left outside of the conversation.

So I think that's a very new development, a very interesting development. And a lot of voice being -- and a lot of time being given to a new generation, a younger generation in their concerns and what they want to see. And I think maybe one notable thing there is that the U.S. President Biden was not speaking there but the Governor of California was.

And the Governor of California made a very, very explicit deal sort of echoing the UN Secretary General by saying that the climate crisis is, in fact, a fossil fuel crisis, and calling out the role of oil and gas companies that are undermining progress on the Paris agreement. And I think that sort of shift in tone is certainly something that I haven't seen in previous years.

Looking at sort of the world outside the UN that's happening in all the side events. I think there's something similar in the sense that the conversation seems to mature a lot more, and it seems to become a lot more stricter.

There's a lot more talk about credibility, about integrity and corporate accountability because what we see is that there is a real need for the actions and the performance of companies on climate but to also become consequential to the success of these companies.

Because what we're seeing is that there is -- in nearly every sector, there's real leadership on climate by some of the companies, but there's just a long tail of companies that are lagging behind. 

We looked at 2,000 companies with the biggest impact on our world. And you have to understand that these are companies that have emissions that quite often exceed those of countries. They produce the cars that we drive and the energy that we use. So these companies are hugely influential.

There's frankly no pathway towards achieving the Paris Agreement or staying within below 2 degrees without the private sector going through this transformation. And we are particularly interested in the most influential companies and financial institutions because they, in a way, set the pace for everyone else.

And what we are seeing is that, well, there has been a lot of leadership and there were some leaders highlighted also during the Climate Ambition Summit. We see that there are too many companies, particularly in the fossil fuel sector, companies lagging behind in the automotive sector, companies lagging behind in the financial sector that are not pulling their weight.

They're not effectively taking responsibility for the impact that they have. And I think what we're seeing is a real shift at least from the UN side to no longer have these companies in the room because they're not -- it's no longer felt that these are the companies that are contributing to our global agenda.

Esther Whieldon: What Gerbrand said about looking for more corporate accountability and credibility was something I also heard from Carine of Norges Bank Investment Management. The firm on September 15 released an updated list of expectations for companies that, among other things, asked them to provide more details on their transition plans. Here's Carine outlining how those expectations have evolved.

Carine Smith Ihenacho: For us, it's important that the companies in our portfolio get to net zero in 2050, but also start to set medium and -- or even short-term targets. And so to be clear, in the dialogue with companies on what we expect, we published just before we came here sharpened expectations to the companies when it comes to how they should manage climate risk and also opportunities because there are a lot of opportunities.

And I think the main gist of our expectation is really -- it's great to set targets, but in addition to setting targets you really need to have a clear strategy on how to get to your target, a so-called transition plan that sets out the actions the companies need to take. So the companies need to go from target setting to also do actions, and then finally, report on them.

Esther Whieldon: Had you published investor expectations before? And if you had, how has this one changed from what you said before?

Carine Smith Ihenacho: Yes, we actually worked with climate for more than 15 years. I think we were one of the first investors to really look at that from a financial risk perspective. So we've had expectations to companies for a long time.

What's different now is that there are much more detail when it comes to the, sort of, actions we expect to see from the companies. I think the world now has really moved a lot in the last few years because even just a few years ago, it was all about target setting.

And we see a lot of companies have done a great job in doing that, not all, but quite a few. And what we want now is the focus the shift from target setting, which is getting more to actions, how to make sure you get to your target. And that's the sort of new angle in our expectations.

I mean it's easy to set targets, but you really need a plan and a strategy backed by the Board for how you get there. What's your capital expenditure going to be? Where are you going to invest? How many people do you need to do that? What about your supply chain? So we sort of need to understand the details of, are the companies really going to be able to get there?

Lindsey Hall: So investors are looking for signs of clear progress from companies. But on the other hand, we also heard a clear sense of frustration or impatience about how slow the pace of change has been thus far. Here's Gerbrand again from the World Benchmarking Alliance talking about why progress isn't happening faster.

Gerbrand Haverkamp: There's huge differences in the expectations that stakeholders have of companies. These expectations are partly geographic, but they also vary widely across sectors. And that makes it very hard for companies to choose one direction that they can be sure of that it meets the needs of all stakeholders.

So because of that diversion in stakeholder expectations, we see that a lot of companies are still not willing or able to fully go for that transition. Many stakeholders are not using their full influence over companies to make sure they go through the transformation.

We see a lot of pickup on that in terms of investor engagement, in terms of civil society following the part of litigation. But collectively, that action is not yet strong enough to drive the majority of companies into the transformation need.

Esther Whieldon: This idea about the role of investors is similar to a theme I heard from Carine of Norges Bank Investment Management. Here she is.

Carine Smith Ihenacho: So what we are talking about is how we, as an investor, can help move the climate in the right direction. And for us, it's clear that climate risk is financial risk. And I think if I pick up on the conference today. The things I've heard that really stood out is the urgency in doing something with the climate and getting emissions down.

I think another thing I've heard today was really interesting was how we need strong leaders to really inspire others. Company leaders to inspire other companies to set net zero goals and really drive down emissions and have clear actions towards net zero.

And also, there has been a ESG backlash here in the U.S., and we also want to be a clear voice to say, for us, as an investor, client risk is finance. And so we investors really need to continue pushing and we need to want them get that message out there, both the companies, but also to other investors.

Lindsey Hall: Okay. Let's now turn to another of the themes we mentioned at the top of the episode, which is about data. Now this topic about the lack of data and the challenges around disclosure is certainly something we hear come up every year.

But this year, there were some new nuances, including around the role of standards in improving disclosure. And that makes sense because in June, the International Sustainability Standards Board or ISSB, issued its first 2 sustainability disclosure standards.

And during Climate Week, we heard ISSB Vice Chair Sue Lloyd, say that the organization is working to reduce the complexity of the landscape while also consulting the market to decide where to focus its efforts next. To understand how this data landscape continues to evolve, let's turn to Gerbrand of the World Benchmarking Alliance.

Gerbrand Haverkamp: The data landscape has partly improved dramatically over the last 10 years. But we still see that a lot of the companies are not disclosing to the best standards. So we need to see a real shift towards a much more mandatory landscape when it comes to disclosure, particularly around climate.

I think there's reasons for optimism partly because of what is happening in jurisdictions like the EU but also globally with the adoption of ISSB. It should lead to much, much better data and more and more companies disclosing that kind of data. Another gap still sits around the issue of standards and frameworks but this is perhaps the area where we have seen sort of most progress in recent years.

I mentioned earlier, ISSB, the work that's happening in the European Commission. I think the momentum that TNFD on nature has been received. So we see really, I think, is the area where we see most progress and most source of optimism.

But then we need to sort of assess and make sure that we contextualize the data that comes out of the company so we can actually say something about performance and impact. And here is probably an area where we also need to get -- most of that -- now 90% of those assessments are based on what companies disclose.

And I think we also need to get much, much better at using what we would call discover data being in satellite images, reports from those people that are actually impacted by companies because that will really tell us the true story and the full story of what the impact of companies is.

Esther Whieldon: So far, we've been hearing a lot of talk about larger companies, but our next guest talks about the challenges in getting data from small and medium-sized ones. Here's Sonia Khanna of Forbright Bank.

Sonia Khanna: Another theme that I think has been there for a long time, and it's still there is the lack of data availability. So especially for a bank like ours, a lot of our customers are smaller middle-market companies, and they don't necessarily have the data or track the data that we would need to properly disclose financed emissions.

So a lot of folks are feeling that pressure, and then a lot of the data then has to be estimated. It's more difficult to rely on that data as much. So like the public companies, a lot of that data is public.

And they're already tracking their GHG emissions, for example, but we could be asking one of our borrowers for their GHG admissions and they don't track it. So then we rely on estimates in order to track that data. So it makes it harder to really come up with our finance emissions.

Lindsey Hall: We heard a lot about the challenges around data. We also heard repeatedly that as quality and availability of data continue to evolve, the quest for perfection should not stop action. I don't know about you, Esther, but I heard this a lot at Climate Week. In a panel about the evolution of nature-related data, for example, I heard an executive from a renewable energy company Ørsted say, "Accept it's imperfect, try to have the biggest impact."

Esther Whieldon: This conversation around data was a through line across sectors and topics, including when it comes to measuring and managing physical risks from climate change. For example, in a prior episode of this podcast, we heard from the Chief Scientist for the National Oceanic and Atmospheric Administration, or NOAA. She explained why quantifying the cost of climate change is becoming a business imperative. Our next guest for this episode, Charlie of Innsure explains why the insurance industry is a prime example of these challenges.

Charlie Sidoti: Innsure is a nonprofit. Our mission is to foster innovation in insurance. And we do that, we look at that through the lens of what does the world need from insurance. So we are a mission-driven nonprofit. And we have these 4 impact pillars that we think the world needs. We need -- and all through better insurance products and services -- we need to close the protection gap. The protection gap is the difference between economic classes and insured losses.

We need products that can accelerate the transition to a low-carbon economy, products that incentivize community resilience and we need products and services that promote nature-positive practices. Those are our impact goals. We think they also create huge markets for the insurance industry and it's good business, and we want to help the industry to achieve those social goods.

Esther Whieldon: Charlie went on to explain why the insurance industry's current business model structure no longer makes sense in the context of climate change.

Charlie Sidoti: So the insurance industry, their core capability is to transfer risk and they do it through contracts and insurance contracts, and they are very, very good at that. But the risks are just getting higher and higher, and higher.

And you can't just keep transferring it around because it's just too big for anybody to do. So the industry needs to focus more on creating products to create these incentives like that align to our -- the impact goals that I talked about. And the industry needs to get -- we know that risk transfer is their bread and butter, that's how they make money, it's unsustainable as risk goes higher. They can't just keep raising prices and exiting markets. And so we think that mitigation is a key piece of how insurance needs to kind of approach some of these -- especially the climate risks.

Esther Whieldon: And for our listeners who may not be aware, what is happening with the exiting markets? Like where is that happening? And sort of what is prompting that?

Charlie Sidoti: It's a hyperlocal thing that things are different in each state. And the core problem is that risk is going higher, significantly higher, whether it's wildfires in California or hurricanes in Florida. So you see it where the risks are the largest. And the insurance industry and like multiple insurance companies, I think, 17 insurance companies went bankrupt during some of the recent hurricanes.

So the risk is the core problem, but there's the regulators and the insurers. They should all be on the same page because they are literally in the -- their interests are completely aligned to insure the state, the community, at a reasonable price.

But it doesn't always work out that way. And it is difficult for both the insurers to figure out how they can insure communities when this risk trajectory is going high. And the regulators have a dual mission to protect consumers and also protect the solvency of the companies because if you don't have the companies, you don't have the products.

So the price needs to reflect the risk. But there are ways to mitigate risks to through like more resilient fortified homes, the Insurance Institute for Business and Home safety has a whole program to how to build back better and some of these things.

So we also think there are ways to really reimagine how insurance is actually delivered. So instead of selling insurance to every individual based on the risk of the individual, there's ways to think about insurance like group insurance for a community.

And then you can capture like the community can invest in mitigation through infrastructure at a community level to make sure that the drainage is better, it's more prepared, and also incentivize people to reinforce their homes, whether it's wildfire or flood or whatever.

And just thinking about doing group insurance at a community level, managing the total cost of risk, which is the mitigation investments, the insurance and risk transfer investments and also the losses. Like if you think about that as the total cost of risk, you would invest money differently.

Too much money is going into recovery, which is often too little too late. If you prefinance them with insurance through like a community-embedded insurance product and invest in mitigation, you don't have to invest as much downstream.

Esther Whieldon: So Lindsey, we've heard a lot of themes in today's episode around investor expectations and how they've evolved for companies, and how we're not out of the woods yet in improving the data landscape. We also heard how the insurance industry is facing some real challenges from the physical risks of climate change.

Lindsey Hall: And in next week's episode, we'll continue to explore themes from Climate Week that we'll be focusing on as we head into COP28. We'll cover the financing gap for climate change, the role of partnerships and collaboration in driving decarbonization. And we'll look at how credible and just transition plans will incorporate the needs and voices of local communities. So please stay tuned.

We're also really excited to be back in New York City next week for a special ESG Insider Live event. This takes place in person, October 19. And if you'd like to register, please see the link in our show notes.

Esther Whieldon: We hope to see you there.

Lindsey Hall: Thanks so much for listening to this episode of ESG Insider, and a special thanks to our producer, Kyle Cangialosi. Please be sure to subscribe to our podcast and sign up for our weekly newsletter, ESG Insider. See you next time.

This piece was published by S&P Global Sustainable1, a part of S&P Global.     

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