Meet Olaf Weber
Olaf Weber is Associate Professor at Waterloo’s SEED and EDC Chair of Environmental Finance. Previously, he was a managing partner at GOE, a Swiss consulting firm, developing systems to assess credit risks, and the environmental, social and governance performance of firms. He has also served as a senior researcher at the Swiss Federal Institute of Technology in Zurich and head of the Sustainable Finance Group.
Is “doing good” good for investment and business results? Putting rigor to this question is Olaf Weber, EDC Chair in Environmental Finance at the University of Waterloo’s School for Environment, Enterprise and Development (SEED). This unique interdisciplinary program is one-of-its-kind in Canada and well beyond.
Here Weber looks at the case for responsible financing, and what it means for business and the economy.
What is your key role or mission as Canada’s first-ever Chair in Environmental Finance?
My main tasks are research and teaching, particularly on integrating sustainability or corporate social responsibility (CSR) aspects in financial-sector decision making—relating to credit risk management, project financing and other major investments.
Another question is how to create new financial services that meet sustainability criteria. In my role as Chair, I aim to create new knowledge in this field that could be adopted by the financial industry in Canada or other countries.
How would you define sustainable financing?
It is about taking sustainability issues—for instance, social, human rights, governance and environmental factors—into account in decision-making on all types of loans and investments.
At best, financial institutions fully integrate these indicators into their analysis. Evidence shows that this approach can help manage the risks of both the banks and their clients.
It also can encourage businesses to take on new sustainable development opportunities, for example, by increasing support for businesses that develop renewable energy initiatives.
Why is there so much more attention to sustainability nowadays?
If you look at mining and human rights risks going back 20 years, there were a lot more dictatorships around the world then. Now we see many more democracies or emerging ones.
So if people don’t agree with certain policies or activities today they can cause greater problems for governments and projects.
And with today’s social media, there is also much more transparency than there used to be. It can expose issues in a once remote rain forest. So the risks didn’t change, but the environment did… and keeps evolving.
Furthermore, environmental risks, such as climate change, have increased and become material for business and society. Consequently, they too are increasingly integrated in business decisions.
From your research so far, describe the connection between a company’s level of CSR integration and its financial performance.
One study showed the impact of CSR integration on cash flow. We looked at whether the integration of recognized sustainability measures can create greater cash flow, help reduce a company’s costs and create better markets.
We found that borrowers with higher CSR performance have lower credit risk. For financial institutions, this means CSR criteria can help predict the financial performance of a debtor—such as whether or not a project could be at greater risk of default.
A recent report in the Harvard Business Review shows that sustainability has really become part of core business in North America, not an add on—especially in the financial sector. Today, some 90 per cent of commercial lenders take social and environmental factors into account in their lending.
Many financial institutions, like EDC, also actively help spread these best practices. Consumers too are more aware of the importance of CSR issues, so a business can’t ignore them anymore.
You recently published a report on environmental, social and governance (ESG) reporting in China. What surprised you the most in your findings?
How quickly ESG reporting and integration is happening in China! We looked at the past five years—less than five per cent of companies listed on Chinese stock exchanges had CSR reporting at the beginning. Today it’s more than 80 per cent. We did not expect such a big change.
It won’t take long before CSR reporting grows to even more companies, especially since most are government-controlled in China; if there are new regulations in this area, virtually all will have to comply.
So do you see China and other emerging markets catching up to many CSR practices common here?
China is realizing that strong economic growth is creating serious environmental and health issues and that if people get sick they won’t be able to operate. This is also happening in Brazil and other big mining countries in South America. So growth and development is really pushing sustainability practices.
I’d say these markets are not only catching up to North America and Europe, they may one day overtake them. Their advantage is that they can immediately use the best technologies and practices, which took much longer to develop in North America and Europe.
What research are you planning for the future?
We’re trying to find out how the financial sector can better take into account non-financial results and impacts on investment—the social return on investment. This knowledge is still very limited.
For example, if a company is investing in renewable energy, can we use something like CO2 reduction as a performance indicator? We also need more consistent measures, otherwise it’s hard to compare the social value of one project over another.
Weber’s role as Chair in Environmental Finance was endowed by EDC as part of its community investment initiatives, to encourage environmental and social leadership by Canadian firms. Since 2010, the Chair has had 25 publications issued, and the undergraduate program has grown from 30 graduating students per year to 120. The University of Waterloo also launched a Sustainability Management Master’s program this fall.