Wes Miller, MS '22
Graduate Fellow,
ADN Capital Ventures
This summer, while working at ADN Capital Ventures, I focused on the rapidly changing universe of sustainable finance. Made possible by Stanford’s Sustainable Finance Initiative, we performed research on the key drivers of value that attract, mobilize, and secure private capital engagement towards sustainable and impact-oriented investments. We interviewed a diverse group of capital allocators to identify common strategies, perceived risks, and the general sentiment associated with these investments. This experience invigorated my motivation to pursue a career in impact-oriented investing.
I learned that there is much enthusiasm by investors, globally, to allocate capital towards investments that not only meet their fiduciary obligations, but achieve critical Environmental, Social, and Governance (ESG) related goals. This movement is fueled by a growing realization that, irrespective of values, incorporating an ESG focus into investment due diligence is crucial to evaluate expected risk and return profiles of investment prospects.
Every single investor interviewed described a lack of relevant, standardized, and unbiased ESG metrics to inform investment decisions. Investors are expected to be knowledgeable of all financial factors that drive the value of an investment. But there are other factors associated with ESG, which are difficult to measure in monetary terms, that also affect risk and return profiles.
The financial world’s important emphasis on ESG has unintentionally created perverse incentives for companies to selectively communicate, greatly exaggerate, and sometimes provide misleading information about their green future initiatives [1]. This practice of misinformation is frequently referred to as greenwashing. The proliferation of greenwashing warrants decentralized reporting of accurate climate and environmental metrics. A potential breakthrough in addressing this challenge is the field of “Spatial Finance” [2]. Spatial Finance is the independent assessment of investment prospects using local data, remote sensing observations, and modelled insights, made possible by innovations in AI and blockchain technology.
Spatial Finance and the emergence of Sustainable Finance Platforms to capture operational ESG performance is particularly relevant for distributed assets such as infrastructure, renewable energies, electric vehicles, and power grids. Data on these assets can be collected at a range of frequencies (as needed) and placed into a blockchain layer to store an immutable, verifiable record, providing much needed-transparent reporting for the industry. Spatial Finance is just one fascinating subject I was oriented towards while exploring sustainable finance. I am eager to explore this topic and its implications further in the future.
I believe that the overall sentiment shift towards ESG and impact investing will counteract the excessive focus of some corporate leaders, analysts, and investors on quarterly earnings and a lack of attention to long-term thinking. Ideally, a change in focus will result in long-term value-creation for companies and investors while positively impacting the world.
Learning about the sustainable and impact-oriented investment universe this summer, particularly through a practitioner lens, has been an invaluable experience. I am grateful to both ADN Capital Ventures and Stanford’s Sustainable Finance Initiative for this awesome opportunity.
Source: Spatial Finance: Challenges and Opportunities in a Changing World, Figure 2 – Details of the value propositions and users of a Sustainable Finance Platform, WWF, 2020
[1] Carbonwashing: A New Type of Carbon Data-related ESG Greenwashing, Working Paper, Soh Young In, PhD, Kim Schumacher, PhD, July 2021
[2] Spatial Finance: Challenges and Opportunities in a Changing World, WWF, 2020
