Morgan Stanley, Citi, and The Carlyle Group discuss why sustainable finance is good for the world - and companies' bottom lines
- Leaders from Morgan Stanley, Citi, and The Carlyle Group spoke about the importance of sustainable finance.
- The panelists agreed there are financial and ethical incentives to sustainable investing.
- The discussion was part of Insider's virtual event "Financing Net-Zero," presented by IDA Ireland, which took take place on Thursday, May 13, 2021.
Business leaders from three power players in the world of sustainable finance discussed the future of the practice with Insider's Reed Alexander at Insider's "Financing Net-Zero" virtual event, presented by IDA Ireland.
Megan Starr, global head of impact at The Carlyle Group, Melissa James, vice chairman of global capital markets and co-head of the ESG center for excellence at Morgan Stanley, and Sandip Sen, co-head of the natural resources and clean energy transition group at Citi provided overviews of how their firms are looking to incentivize and institutionalize environmental, social, and governance (ESG) standards.
The growth of sustainable investments was significant in 2020.
"Financial firms today are coming to the conclusion that doing the right thing when it comes to ESG, particularly sustainability, isn't just the right thing to do ethically or altruistically, but it has a meaningful impact on their bottom line," Alexander said.
Morgan Stanley's Melissa James cited data showing that issuance in the ESG-labeled bond market was up significantly in 2020, with an 80% increase over 2019.
"Companies now recognize that investors are wiling to reward them for incorporating sustainability features into their debt issuances in the form of a lower interest rate," James said.
Citi's Sandip Sen explained how the bank is working to bring clean-power companies into the fold of its investment banking division.
"The thought behind setting up this group is to formalize and put discipline around the coverage and the nurturing of what we believe will be a new subsection of clean-energy-transition companies," Sen said.
Discussing private investments, The Carlyle Group's Megan Starr said that the ethos of the company focuses on defining impact as "change over time." Echoing James and Alexander on how better businesses translate to better bottom lines for companies, Starr said that a focus on ESG is not just a moral obligation - it's a financial one.
For James, sustainable financial practices simply allow companies to "get rewarded for doing the right thing."
The Carlyle Group has put this idea into practice, Starr explained, by tying CEO and executive compensation to diversity, equity, and inclusion-focused targets, among other initiatives like rolling out unconscious-bias training. There are also incentives that Morgan Stanley has used, per James, to allow companies meeting ESG targets to get points off their debt. Sen added that Citi has observed that companies with high ESG scores often trade at higher multiples than their less socially-minded counterparts.