Carbon securities the next game-changer

Paul Clements-Hunt, the man who coined the term 'ESG' more than two decades ago, says tradable and regulated carbon securities could be the next trillion-dollar market for investors.

Clements-Hunt, chief executive of the Blended Capital Group, will be at the Responsible Investment Association Australasia (RIAA) conference next week to talk about the industry's next frontier.

"There's a fundamental change happening now which in some ways very few people are aware of - it's a shift away from carbon credits and voluntary systems to tradable and regulated carbon securities," he said.

While conventional carbon credits have served companies and institutional investors in the early days, they're seen as a "liability on the balance sheet". By contrast, the next wave of securities catering to the ESG needs of investors would be seen as assets.

"The evolution of tradable securities, whether in carbon, in nature-based solutions and in social equity will be the piece that changes our sustainability markets from being worth hundreds of billions to trillions-and the largest financial institutions know that and they're beginning to explore it," Clements-Hunt said.

Speaking on greenwashing and the general shift away from the acronym he invented, Clements-Hunt said it's not about the labels.

"For the last 40 years, we've had the terms corporate social responsibility (CSR), ethical investing, triple bottom line investing ... and they are used by asset managers up until the point that they run out of marketing energy," he said.

"The problems don't change. The systemic risks don't change. The upside opportunities don't necessarily change, but the acronyms do."

He said while the term 'ESG' still has some mileage, it has also served its purpose.

"What we tried to do with 'ESG' was to say it's not about ethics and it's not about social responsibility. It's about financial materiality and the fiduciary duty of asset owners. The risks on their pools of capital are real," he said.

He is confident of the sector's growth, despite political headwinds, because of the evolution of ESG products, services and structures in the past 30 years.

"The market is in flux and will develop at a pace and to a scale we cannot conceive now," Clements-Hunt concluded.

Bloomberg data forecasts ESG funds could reach US$30 trillion globally by 2030.

FS Sustainability is a media partner of the RIAA Conference next week. For more details, visit RIAA's website.