Sean Gilbert
Sean Gilbert is the Chief Investor Network Officer at the GIIN, where he oversees membership. He has over 20 years of experience in integrating sustainability into business and finance, including leadership roles at KPMG and the Global Reporting Initiative. Prior to joining GIIN, he led partnerships and outreach for the NDC Partnership at WRI, where he launched a global initiative to support countries in achieving climate and development commitments.
So at the level of moving the entire industry or the market, I don't think it's a product design problem or a product design challenge. I think it has much more to do with philosophical orientations that people have about what they expect out of their money or what they're willing to accept for their money. It has to do with some of the basic policies that underpin market economics. I think where you have opportunities where more creative product design might offer some breakthroughs and be a few kinds of pick more something more specific than finance, and took a geography or took a theme or took a problem. I think then that would probably be an easier place to start thinking about design.
— Sean Gilbert
Interview transcript
The research we're conducting consists of 25 sessions with 25 individuals we have identified in the network. We believe they can provide valuable insights to inform our process. You are one of those individuals. The outcome of this research will be open, and before we publish any statement or quotes from you, we will check with you first. The goal is to inspire new ways of doing things and design innovative solutions. Everyone who has been part of these conversations, and beyond, will be open to the platform. Our network is also very open, like Jean's. With that said, it would be great if you could introduce yourself, and especially share how you got into the impact practice and profession. Your role is crucial, and you are one of the key people we have identified in the whole system.
Yeah, well, thank you for your introduction. You're interested in how I personally ended up in this role?
Not in a particularly direct way, I suppose most of my working career, if you've looked at my profile on LinkedIn, as people often do for these things, you'll see that my work has always been centered around some aspect of sustainable business and finance. I have gone back and forth between working at the level of individual organizations as a consultant and working in nonprofit organizations and networks, trying to develop change at an industry level. So I have worked with individual companies on integrating sustainability or something in terms of industry standards. Most of my career, probably the majority of it, has been closer to working on the business side. However, I worked for much of that time in the area of disclosure with the Global Reporting Initiative, developing standards. Part of what we were trying to do at the time was figure out how we could get investors to make more use of sustainability information in their investment processes. It was a different part of the market than I work with now. And very different investors, kinds of investors, different motivations, different personalities, and different possibilities. But that was where I guess I had my first exposure to the financial markets and the finance side of things. There were mostly companies listed in equities and publicly issued bonds, just starting at the time in terms of trying to integrate some sustainability. The step into this particular role was when I had been working at the World Resources Institute, in their sustainable finance team, but I ended up working on helping to get a big climate initiative that they were starting off the ground. It's called the NVC partnership, with no direct connection to finance or any businesses, it was much more rooted in international climate negotiations. The purpose of the partnership was to try to make sure that governments would have access to the resources they needed to implement or act on the commitments they've been making to the NDC process. It was a change for me in terms of the subject matter because I had been broadly familiar with climate, but most of the people that I was working with had been working on climate only for 10 years or more, a couple of them in attendance at every single one of the conferences of the parties negotiations since the beginning. They were also working much more in policy and development finance, except to the extent that there was finance involved. It was interesting, but I suppose I reached the point where I had something to contribute at the beginning when it was just getting started. It was a lot in terms of how to make an initiative work, but as time went on, I became more and more aware of what we needed in that program were people that had 15 years of climate expertise or had been working in government policy for a long time and so on. So I started keeping an eye open for other opportunities. This role that I'm in right now happened to come up, and in my case, it was a particularly good match for some of the specifics of the role because GIN has a part of it that looks a little bit like what I used to do at the Global Reporting Initiative, requiring broad knowledge about sustainable business and finance. It's a network organization, so having some understanding of stakeholder management. A number of things converged that made sense to them, where I made sense to them. And the job was appealing to me.
As you mentioned, it's not a straightforward topic, but Sean, can I ask you something that brings it back to the more human and psychological side of things? Was there a specific moment in your life when you realized that you wanted to dedicate your career and profession to sustainability and impact? You've mentioned that you've been in sustainable business and finance for a long time, but was there an epiphany or a moment of awareness that made it clear to you? Or did you just find yourself naturally drawn to it?
No, I mean, my life is usually not punctuated by moments of clear realization of anything.
So, I always enjoyed animals and nature as a child, and I was interested in environmental work as a result. I'm not sure why animals and nature appealed to me, but it was just a part of growing up. I lived in New York City, so it wasn't like I lived in nature or anything. I actually hated getting taken out to state parks and hiking when I was a little kid. After college, I became interested in environmental work. I wasn't specifically looking to do the kind of work that I'm doing now, which involves market-based solutions. That was probably more of a conscious choice, mostly because I saw that regulation was moving too slowly from all angles. I don't think market solutions are good for everything, but they are insufficient on their own.
This is interesting. And, as you mentioned, there is a connection between animals and nature. That's one of the reasons why we opened in Costa Rica, as it aligns with our narrative and goals for impact. But, to rephrase the question, can you envision pursuing a career outside of sustainability or environmental impact? Is that something you could imagine doing?
No, but probably not for that, probably not for the best of reasons, I'm not really sure what else I would be doing. Otherwise.
As discussed, we want to identify areas for improvement in pollution, especially with the help of digital technologies. Looking at your work and knowledge, as well as your website, what are the top three critical areas for impact investment? In other words, what are the biggest challenges that we still need to overcome, and what are the three strongest barriers to doing more impact investment?
It depends a little. Well, first of all, during these interviews, you will probably find that depending on who you ask, they will have somewhat different ideas of what impact investing is. So there is a lot that is now being marketed as an impact investment that five years ago probably would not have been, and it is largely due to the specific term and the work that the GIIN started 12 or 13 years ago for one particular section of the financial markets. It was private people and firms that were mostly working in private market investing, which, as someone said in the beginning, do not have a lot of direct experience in finance. But it would basically be all kinds of investments that are not available to the general public. So it is not like a mutual fund that allows you to buy shares and put some of your savings into it. It is more like money that would go into startup companies and venture capital firms, and things like that. Generally, these are the kinds of investments that are only available to institutions and extremely wealthy individuals, and impact started out of that part of the market, not the part that I had been working in at the time. I do not know what kind of background you have in banking, Diana, but these days, there are a lot more people that are using sustainable finance and trying to look for language to explain how they make a difference for people in real ways. So there is stuff that the original group would not have really thought of as an impact strategy because it is not really investing where from the very beginning, and all of the choices you are making are built around achieving outcomes. Rather, it is people pointing to investments and saying: "Well, I made a difference somewhere, therefore, I am an impact investor". As you do these interviews, one of the things you will probably want to do is situate people along the spectrum of impact investing. The second thing, when you ask what the barrier is to doing more impact, there is an inside industry answer, which would be things like the investment funds that are available are too small or have not been running for long enough, or do not target the right kind of markets to be able to absorb big capital like pension money and insurance money. Then there is a different kind of answer, which is more philosophical, about why more investors are not willing to try to combine some sort of real-world outcome with their financial goals. That is sort of a different thing. It is related to the first answer to some degree, but it is a different thing. This other one is talking more about things like the economic beliefs that most people in mainstream finance kind of grew up with and are taught. It has to do with regulation. And like in the US, now, the political fights over what you should be allowed to do. So maybe give me a little orientation about what sort of barriers you are interested in?
Sure, I can add to that. My background involves working for Goldman Sachs for eight years, where I spent some time in equity sales, working with equity research analysts to analyze different sectors. Recently, I spoke to Gabriel from Fidelity who is based in Hong Kong. Do you know Gabriel?
Okay, cool. I used to work with him quite early, and he's a good friend of mine. We had a session with him last week, during which he mentioned the challenge of connecting impactful projects with capital that wants to make a difference. Additionally, it is very difficult to link institutional money, like pension funds, to smaller-scale projects that require a ton of due diligence.
Do you have any thoughts on how to address these challenges? If you had a magic wand, what would you use it for? How would you solve these nuances and charts?
Rasmus Jørgensen Yeah, so we actually make an effort to apply this across everything we do. Whether we work with education programs or mental health and psychosocial support, those are some of the thematic key areas we work with. In all of these areas, we are trying to shift power to the affected people we work with. We have a program called "Shift of Power to the South" that looks at how we can work more equitably with partners and communities in the south. This entails examining current procedures and processes, such as finance, that hinder us, not just as an organization but also as a sector, in terms of transferring money and power to partners in the south who lack strong local representation. Jakob, feel free to jump in here.
Yeah, so. So in terms of barriers to money flow, there are some challenges. For some types of investors, impact investing is relatively accessible. High net worth individuals, for example, can find products that may not always align with their interests, but are still available. Investment banks and private banks can put together portfolios that include obscure investments, but there is still enough interest. However, for foundations or high net worth individuals looking to invest in private markets, opportunities may be available but not perfect. For this part of the market, it's probably less about the barriers to having impact available and more about the friction in the sense that fund managers are scattered and it takes a long time to get a new fund launched. New funds don't always have an anchor investor, and it's difficult to get anyone to invest in them without a track record of performance. These challenges are not unique to impact investing and are similar to those faced by new asset types like hedge funds.
There are several types of problems when it comes to getting more institutional capital into impact investing, particularly from pensions and insurance companies, and to a lesser extent, endowments that are not philanthropic. One type of problem is the features of the fund offerings themselves. For many institutions, they tend to be highly regulated in the interest of financial stability. Their own internal risk measures mean that they can't hold more than 10% of a fund, they need to see a certain amount of track record, and they have particular concerns around diversification. They have limited amounts that they can allocate to some of the riskier asset classes outside of listed equities and bonds. Because impact investing is a relatively young industry, investing in emerging markets is very complicated because the risk-return profile usually looks less attractive than investing at home.
Another set of questions that comes up is whether or not institutions even believe that they're allowed to invest in impact strategies. This is particularly true in the United States, where there is a question of whether or not a portfolio of listed companies and engagement with them is allowed. Unfortunately, this question still comes up more in the US than in other parts of the world. It all rotates around the idea of what motivations are allowed legally to drive investment choices. Most of the law comes down to the way it's written, which is that you have to act in the financial interests, which are interpreted as financial interests. Responsible investment has been a workaround to come up with some sort of materiality argument that over a long enough timeframe, interests of the public and the private converge. If you're big enough, you own so much that you can't get away from something like climate risk.
Lastly, for some types of investments, there often isn't enough pipeline of projects, particularly for emerging markets.
And whether you hear that from development agencies or pensions, whether or not you believe that comes down to who you talk to. Because I can certainly introduce you to some members who would say that's garbage; there are a ton of projects. Let me introduce you to the investor, and I have plenty of things that they can invest in. I think the gap, for the most part, is in two kinds of people. One is the people who say, "There's not enough pipeline." These tend to be relatively conservative investors, development banks, and large institutions that basically want companies that have a track record, revenue, and a customer base. They have a relatively mature product in a market that's relatively well understood, and then they're comfortable investing. So things that are maybe not quite at a point where they're about to go public, but very mature companies, or they're willing to, in some cases, go for the complete moonshots. There are parts of venture capital, like climate tech, for example, that have attracted a lot of money, such as these battery makers that have no product or green hydrogen, people that don't even have the technology that are still able to attract venture capital because people think they'll catch the next Tesla. It's the things in the middle that usually struggle a lot to find investors. So things where you have a concept and maybe even a prototype and you need to start manufacturing it or taking it to market, but you don't actually have a client base. It's, again, kind of dubious whether or not there's no pipeline or whether or not there's a dearth of investors. I tend to think it's probably not a lack of entrepreneurs, it's the lack of investors willing to take on a certain kind of funding at a certain part of the capital lifecycle. Basically, everybody is kind of a line of people waiting at the other end for the ferry to arrive or end. But rather than being willing to go upstream a little bit, they're just sitting and complaining that nobody's bringing them a safe investment that gives them fantastic returns with limited risk.
If I may ask, first of all, thank you. I believe I understood everything despite my lack of knowledge of the language and your very clear views, so thank you for that.
Regarding your question on reducing fear or increasing confidence in hesitant investors, there are a few things that can be done. One is to improve transparency in the pipeline of initiatives and projects, so that investors can better understand what opportunities are available. Another is to provide more information on the track record of successful projects, which can help build investor confidence. It may also be helpful to create a central repository of information on intrapreneurs and their projects, so that interested investors can easily access this information in one place.
Existence of pricing platforms is not completely lacking, although I have not heard of any solutions being put into action. One solution would be to change the incentives for more conservative investors. Development banks should take on very risky investments where the commercial market won't go, but they usually don't do that because the shareholders, which are governments, expect them to be financially self-sufficient. They don't want to keep putting capital into development banks. So development banks want projects that will be profitable, which is the complete opposite purpose of the development bank. Some argue that they don't get properly compensated for the risk they take on. I have heard some of the European Development Bank say that even when they do their job as a development bank and take on a hugely risky project, they still have to get paid reasonably for it, but that's how the whole system works. They take on the risk, get something to the point where it's more mature, then people pay them money so that they can then go back and do risky investments again. They don't get properly compensated for the risk they take on.
With more regulated institutions like insurance and pensions, it gets complicated because they have a lot of social pressure from regulators about being safe with their money. This is reflected in the accounting that goes into the way their money is managed. The more risky investments they have, the more cash they have to have tied up in a safe place. So it becomes comparatively more expensive for them to do risky things. It gets into much more complicated calculus because they can do more risk, which in theory should give them more return, but there's going to be more failure.
Another solution that I've seen people throw around is blended finance. You can leave incentives the way they are, but you just need to put philanthropically oriented people together with commercially oriented people, and then put the lawyers and the accountants to work and come up with the structure so that everybody's willing to feel like their mission has served. Those solutions work well in theory, but they're slow to put together and complicated because they're not standardized. There's a limit to the number of people that want to underwrite and subscribe Goldman Sachs clients because at the end of the day, the whole point of blending is, in order for you to be wealthy, I'm willing to benefit less, aside from like, my personal satisfaction that I've made the world a better place with my capital.
The last solution that I've heard is how to make even better projects. Those are posited on the idea that there'll be investors for them, right? That the capital is there, the problem is just that entrepreneurs don't know how to prepare a financial statement, or they don't know how to pitch a project, or nobody wants to spend the money on hiring a technical consultant to review a product and do a product market analysis and check the financial projections and things like that. I doubt that the big part of the problem is that there's a ton of poorly trained entrepreneurs, where if we just invested enough money to help them build up their skills, that suddenly everything else would fall into place, that they would find their funding, that they would then get the subsequent rounds that then it would get to the DFIs, into the big commercial institutions.
If you're trying to build that's, on the finance side, it's versus probably also incentive things around the business side of, you know, both the finance, the market and well, markets, whether it's to business owner financing, and it's kind of all based on the idea that if you focus on building a business that has a product that will be profitable, or if you focus on investing your money in a way that will optimize your return, that everybody doing that will somehow add up to a sustainable and inclusive economy. That's basically the paradigm of the world these days outside of a few countries. You've got things like the B Corp out, there is a certification that tries to invite sort of a different philosophy of the company. I don't know too much about the B Corp, I think that it probably would improve some of the culture around the edges and allow for companies that have more of a sense of a mission purpose. But at the end of the day, they still need to raise capital from investors that will be asking them what their return on capital is, what their profitability is, and how they intend to protect margins and all these other things. It's still at the end, keep pulling the whole financial and commercial system back towards how much money have I made and dependent on willingness to, in effect, share some of those profits as a way of either meeting the greater good or making sure that people are choosing to try to develop products and services in a niche that might not be as profitable as being the next Tik Tok.
I have two follow-up questions based on what you just shared. You mentioned that it would be great to have better projects for people to participate in. I remember when I spoke to Gabe, he mentioned a project he worked on indirectly while he was at BNP Paribas. It was a project with ADM Capital Foundation, BNP, and WWF, and they worked on forest projects in Indonesia. I thought that was really interesting and want to learn more about that project.
From your experience, have you come across any inspiring projects that you would like to share? Do you think there are any good examples of people coming together to collaborate on something impactful?
Well, I don't worry too much about projects these days. I think you're talking about a friendly extractive forestry project or a payment for ecosystem services approach. If you want complicated stakeholder-driven projects that get closer to an alternative model for how markets could work and have inspiring stories, look at conservation organizations. They have put together projects that spun out of this concept a long time ago. Conservation International has been involved in them, as well as Nature Conservancy. Their projects tend to be more sophisticated because the Conservancy has a lot of in-house financial expertise. They have always needed lawyers who understand financial transactions and people who can think of clever ways to get state money and talk to a farmer into selling land. Under their Nature Best program, they have done some creative things. However, stakeholder-driven projects are not scalable and cannot be directly replicable or standardized. Their ability to develop them is limited outside of forestry, particularly in ways that run into the fact that there are no policies in place in almost any country to place a value on natural capital or the stock of nature as it exists. If you cut down the forest, nobody actually debits anything from an accounting book, and nothing changes. National GDP goes up, and you don't actually have a loss of any corresponding asset. That's why it's hard to scale these projects because they are so specific to the place and time-intensive. The legal agreements are all different. The other type is trying to get voluntary carbon credits. You put those two together and come up with enough of the resource flow that it gives an alternative use for the landscape. The weaknesses of those projects are the dependent voluntary carbon markets, which are kind of dubious, and the total economic value that they create is attractive to a point, but they're still vulnerable.
Thank you very much for that. I remember when I spoke to Gabe, he mentioned a disparity between public markets and profit puck markets. In the case of public markets, many of these projects are not scalable, and it is difficult to standardize the metrics used to measure them. Do you think there are any interventions that could address these challenges and help overcome them?
Yeah, I wasn't listening too much, to be honest, to the argument about metrics or measurement. I've been hearing that for 25 years, and we'll probably hear it for another 25. It's solvable. The bigger problem is that it's usually a reason why people say they can't do something. If they really wanted to put money into projects, it's solvable. And, you know, it really comes down to two things. One, is the industry willing to commit to standardization and business, for that matter? Because that's a big trace that often they'll say, "Well, there are so many different ways to measure things. Nobody's made up their mind, so you can't do anything?" Well, no, you could actually sign up to a single standard and commit to using it and fix it over time. And then the second part comes down to the Science of Things, which does get more complicated, but it's solvable, with some extreme corners of ecology being probably harder to solve, and maybe a legitimate barrier. But yeah, I think that the problems are the opportunities for the things that would change the conditions around the ability to put together projects like those. I mean, there's a certain amount, which would be the same sort of thing that depending on which parts of Goldman Sachs you've worked in, maybe you would have come across about sort of standardization of ESCO agreements. And you have things that are sort of a new industry that starts to develop energy service companies, where, at the beginning, it might be a creative and novel project. So the idea of energy service companies being that you've got a building, which can become much more energy-efficient, I'll come in, I'll put in the equipment, I'll pay for the equipment, I'll manage the equipment, and then you don't pay anything upfront. You just pay me back on how much you save. So I get a percentage, and then in a period of time, there is a point in time where those are completely radical ideas. Banks had no idea what to make of them. This is a company that has a...But I understand where its capital comes from, they're gonna get paid back over seven years because like the building owner gets cost savings and how is that guaranteed, and yet nobody, I've never seen one of these investment agreements before. And then the model proved itself, and everybody got familiar with it. And liars came up with standard agreements. And then people started making databases of projects. And they started to feel they're predictable. And banks started hiring people that actually understood something about energy efficiency, and it all became. And so there's some part of these things like these complicated projects of the type that gave might have referred you to that at some point in time, the ability to create those standardized agreements, the ability for somebody to say: "Oh, I've seen a project like that for that Indonesian project is the same as the last 10 that I saw coming out of the Amazon or the Congo, or whatever. I don't think we're really at that point yet. I mean, yes, that would make things a little more efficient, and maybe instead of having 10 products, you'd get 20. But you're not going to go from a billion to a trillion dollars, or even a billion to 100 billion on that basis, because there's still the upstream problem that the economics just don't work very well. And a lot of these economics are more driven by policy limitations than anything else. It's the fact that there's no cost for, there's no capital charge for cutting down a forest. Even in the US, I think, at this point, or Canada, it's not like you pay the government for rights to mine timber, or the mining or timber, but at least in the US, and not in Canada, I mean, those are so hardly underpriced compared to the actual economic value of the resource because it's essentially a subsidy into the private sector. So and then there's no charge back to repay the nation for the fact that the capital base and the ecological base have been slightly degraded. In theory, it's in the price of the royalties, but the leases are so low, they're not priced. They don't price that in at least not offered the way any ecological economists would say they should be priced in. So that's, I think, the biggest barrier to those nature-based projects. You probably wouldn't have those kinds of barriers and maybe some creative social mechanisms. I don't know that I can't think of an example of a project off the top of my head. But you know, I think a lot of that kind of creative project structure, and it's, it is much more about sort of the underlying economics are not attractive enough to search and policy things, rather than things like we just don't have enough examples of projects that people are willing to give them a rating. I mean, yes, that's a problem, but I don't. So I don't I don't know how to get to enough volume and some of these other things that also some of the policy pieces falling into place.
That's very helpful. Thank you for sharing. I'm also conscious of time. Simona, do you have any questions you'd like to ask?
I have many questions and I'm happy because I now understand more. Your insights have been incredibly deep, and we definitely have something to work on. One of my most important questions is about creating a better practice for impact investment. Imagine that we are a group of creative people who understand technology and want to unlock the potential for those who are still fearful or lack confidence in the old paradigm of just financial return. If we were to start tomorrow to think about new ways, products, vehicles, and methods to achieve this, what would be the key question that you would like us to answer? What should we focus all our energy on? Imagine we are your team and we can make magic for the future. What should be our focus?
I don't think I have a very good answer from you or for you because... so the industry-wide... So at the level of moving the entire industry or the market, I don't think it's a product design problem or a product design challenge. I think it has much more to do with philosophical orientations that people have about what they expect out of their money or what they're willing to accept for their money. It has to do with some of the basic policies that underpin market economics. I think where you have opportunities where more creative product design might offer some breakthroughs and be a few kinds of pick more something more specific than finance, and took a geography or took a theme or took a problem. I think then that would probably be an easier place to start thinking about design. I think if you talk to some people that are... if you can lead them into thinking with the right set of questions, there is much more. And I do have one person, we've got one person working on roughly this kind of thinking, there is probably something as well. And in terms of the industry maturation cycle, like I was saying at the beginning about hedge funds, or once this kind of obscure idea. Now there should have been established asset class emerging markets was once something which is not even really wasn't even a term. And it wasn't meant to buy, I think it was invented at Goldman actually, but one of the investment banks kind of was the first that popularized the term emerging markets as a way to. And so in that sense, there probably is something to be found in terms of general examples of fund vehicles that have allowed different asset classes to kind of emerge from being a single idea to something more widely used. So the way I understand at least some of these, it's kind of moved from strokes office family, and a lot of the big transitions, how do you go from family money to institutional money in a very general sense, because you just get to a very different skill of capital that you can invest when you kind of shift out of that individual institutional client base. And making that kind of jump is where it's hard because of what I was saying at the beginning about the way they're regulated, but there happen to be kind of examples of how people started using funds of funds strategies as a way to try to create some of the diversification that institutions want accepting in a... while also trying to see the creating sort of an installation for some degree against having to be exposed to a lot of new funds that are more expensive that way, so they had to be willing to make the trade-off in terms of costs. But you might find something in maybe as a product design question along those lines about what would be some of the... is there a sort of natural next evolution that would help create a bridge between individual money and institutional money? I don't think it would take you into a specific place about a stakeholder-driven philosophy of project design or stakeholder-driven philosophy of fund design. If anything, I think those ideas will take away from the ability to standardize and scale because you're introducing a new set of principles, a new set of assumptions about what makes a project successful, who should benefit, what should be measured. And that would kind of take you even a step backward from what impacts are managed to institutionalize because it's just something. It introduces new ideas. But if you wanted Sam the more traditional space, that would probably be what I would take a look at, and that's actually my 10 o'clock call, who's my boss.