Sibos 2025 exclusive: It’s never been more urgent for ESG front runners navigating sustainable finance - Trade Treasury Payments

In a time where environmental sustainability has moved from a side concern to a main investment focus, the changing world of ESG practices shows both its potential to transform and the real challenges of implementing it into practice. At Sibos 2025, in the “Sustainable finance: Building an interoperable future for green assets, data and risk” panel, industry leaders discussed the complex reality of sustainable finance, offering insights that go beyond simple ideas of green investing to address the detailed infrastructure needed for real market change.

The panel discussion, led by Denis Francis of McKinsey & Company, brought together Katharina Nickel (BNP Paribas), Yulu Pu (China Central Depository & Clearing Co.), Shona Tatchell (European Bank for Reconstruction and Development), and Ramu Thiagarajan (State Street), each sharing different views on the ESG field.

The hierarchy of ESG implementation

BNP Paribas’ Nickel began with a strategic review of implementation priorities, showing a ranking that prioritises negative screening and active ownership over thematic investing. Nickel grouped market participants, sorting ESG investors as “pace setters, study performers, and followers”, providing a framework for understanding the different approaches to ESG integration across the investment world.

The pace setters stand out through significant investments in four key areas, which include their own data systems, specialised talent development, comprehensive active ownership programs, and careful selection of strategic partners. 

“They are not only using external data, they are really investing into talent, into own methodologies, own ESG scores,” Nickel observed, highlighting the competitive edge gained through these investments.

Challenges to ESG implementation

The panel highlighted several barriers that continue to hamper the adoption of ESG practices across global markets. Tatchell from EBRD identified working together across borders as the central challenge in growing sustainable finance. Apart from that, she mentioned three key barriers.

The first one is the interoperability and the fragmentation. She explained, pointing to the difficulties of comparing “apples with apples” across the EBRD’s 42 operating countries, from Mongolia to Sub-Saharan Africa.

The second challenge involves data collection in a world that is “still not harmonised from a technological perspective”, where “different data islands don’t all talk to each other.” This requires coordinated action from organisations like “the WTO, the ICC, BAFT… and the World Customs Organisation” to align data schemas at the semantic level.

The third obstacle centres on capacity building: “How do we enable everyone from the smallest micro SME through to the largest corporate bank to understand the importance of this?” Tatchell asked, emphasising the need to help smaller entities invest in sustainable technologies and practices.

Physical risk is becoming a big concern 

While transition risk has dominated the ESG conversation, State Street’s Thiagarajan shifted attention to the increasingly urgent question of physical risk assessment across geography, discussing how investors are incorporating increasing physical risk into their investment decisions. 

“One of the things that the world is realising… is what we call convective storms,” he noted, citing approximately $90 billion in direct damages from 25 storms in the US since January 2024, with additional supply chain disruptions exceeding $300 billion.

Through a series of striking examples. From a North Carolina town’s destruction to New York subway flooding from a hurricane 1,200 miles away, Thiagarajan showed how physical climate risks spread through connected systems in ways that traditional risk models fail to capture.

The assessment tools remain new, with Thiagarajan identifying three essential elements still being developed: “First is what we call exposure assessment… The second is what we call vulnerability… The third is, of course, the economic impact.” The complexity of this analysis has driven innovation, with insurance companies using dynamic models and artificial intelligence to assess risks previously thought to be outside modelling parameters.

Yet significant challenges remain, from basic data gaps to model uncertainty and the protection gap, where “60% of the damages are with people who are not insured.” This reality complicates pricing and policy development, requiring what Thiagarajan described as “incredibly complicated and out of the box scenario analysis testing.” He also mentioned that we need organisations with harmonised standards.

Standards are the foundation of scale

The splitting of ESG standards across countries and sectors remains a major barrier to market growth. China Central Depository & Clearing’s Pu outlined China’s multi-level approach, which spans national frameworks like the China Green Bond Principle, industry standards such as the green bond environmental benefit disclosure indicator system, and regional initiatives.

This comprehensive framework has enabled CCDC to develop critical infrastructure, including “a green low carbon transition bound database” covering more than 15 trillion RMB in bonds and serving over 600 institutional investors. The system supports the full lifecycle of green bonds “from the beginning of the insurance to registration, depository, settlement, valuation, collateral management and information disclosure.”

Pu also detailed CCDC’s innovation in green bond collateral management, creating mechanisms to enhance the market and liquidity, while lowering the financing costs for issuers and investors alike. 

These efforts have supported the issuance of the first due green cover bond and implementation of the carbon emission reduction facility in partnership with China’s central bank.

The role of public-private partnership

Scaling sustainable finance to meet global needs requires innovative public-private partnerships. Thiagarajan stressed on the need for risk-sharing arrangements, particularly first-loss guarantees: “If you’re going to provide loans to agriculture… there is a lot of uncertainty with respect to repayment… if there is a default, who’s going to take a first loss?”

Government and multilateral development bank participation in absorbing initial losses could unlock significant private capital for sectors like regenerative agriculture. Beyond risk mitigation, Thiagarajan outlined distinct roles for public institutions as either market acceleration catalysts in mature sectors or market creator pioneers in emerging areas.

The call to action for the future

As the panel concluded, participants offered concise calls to action. CCDC’s Pu stated how “unified standards, enriched and shared data and innovative products” have already generated measurable benefits, with green bonds enjoying an 11 basis point cost advantage by 2024, a direct reflection of the high interest in the market about sustainable assets.

EBRD’s Tatchell boiled down the challenge to “interoperability of standards… and interoperability of data,” which together would enable innovations like digital product passports to track origin and standards throughout global supply chains.

Thiagarajan stressed urgency, declaring “there has never been a more urgent time than to raise awareness of the need to measure and manage climate trust,” while noting this need comes amid complex global challenges he called “the three Ds” – de-globalisation, debt, and demographic challenges.

BNP Paribas’ Nickel’s parting warning highlighted both opportunity and risk: “If you don’t manage ESG risks, you have a big, big risk in your portfolio… the World Economic Forum just stated that over the next 10 years, four of the top 10 risks will be ecological risks.”

The panel showed not only the substantial progress made in sustainable finance infrastructure but also the complex mix of standards, data, technology, and partnerships needed to grow these markets to meet global needs.