Carbon Finance: The overnight success 20 years in the making

June 6, 2023 by Susan McGeachie

On May 25th the University of Toronto’s Rotman School of Management and School of the Environment jointly hosted a celebration of the University’s pioneering work in carbon finance through its faculty members Sonia Labatt and Rodney White.

In 2002 Labatt and White published Environmental Finance, which gave the world the first theoretical framework for directing capital into environmental solutions through financial innovation. They then went on to create the first academic course in Environmental Finance to be offered by a university anywhere in the world. The course covered the investment and risk transfer opportunities associated with environmental factors created by new financial products. These academic concepts were being tested in the real world through a team of professionals in the nascent areas of finance, including ESG analytics, carbon markets, accounting, and law through U of T’s Environmental Finance Advisory Committee (EFAC), led by Labatt and White.

By 2006 the environmental finance course had evolved to include sustainable investing as a core theme. EFAC’s membership widened, and the committee launched professional development courses on financial issues related to managing carbon, water, biodiversity, and extreme weather. Labatt and White wrote a second book, Carbon Finance, which focused specifically on the financial implications of climate change. As with the first, this book illustrates the authors’ prescience. While the actual events and case studies are now dated, the underlying structures explored and developed established a foundational framework for a functioning carbon finance marketplace, which is even more valid today. The book opens with the following quote from Robert Bradley of the World Resources Institute:

One thing that we’ve really broadly started to appreciate more is that climate is not an environmental issue. Climate change is a systemic and fundamental issue about the way our economics work and the way
we get our energy.

Attendance in the voluntarily run EFAC courses proliferated. Committee members were invited to deliver these courses globally. Thanks to the early courage, perseverance, and insight of Labatt and White, it became possible for young leaders to think about the field as a career.

Toronto, which comes from the Mohawk word ”tkaronto” meaning “where there are trees standing in the water” punched above its weight as home to the launch of global catalysts propelling sustainable finance into the mainstream. In addition to Labatt and White’s course, the following global initiatives were all launched in Toronto:

•    Innovest Strategic Value Advisors, the first boutique investment research firm focused on identifying and assessing only those environmental and social factors that could have a material impact on a company’s future financial performance;
•    The Global 100, the first global corporate sustainability ranking; and,
•    Mercer’s Responsible Investment advisory service, the first multinational investment consulting company to offer solutions in this emerging field.

The innovative carbon brokerage firm CO2e was led out of Toronto following the tragic demise of its founders in 9/11. The firm was supported by a Toronto-based ecosystem of among the first lawyers to focus on carbon trading contracts and climate change law, the early work and increasing relevance of one of the power forces behind the International Emissions Trading Association, early climate and sustainability-related accounting guidance through what was then the Canadian Institute of Chartered Accountants (now CPA Canada), and the amalgamation of several global ESG ratings firms, which was led by the Toronto-based founder of the Jantzi Social Index. Toronto-based Martin Whittaker taught the first environmental finance and sustainable investing course in 2002 at the University of Toronto before relocating to New York to join the then nascent Environmental Commodity Markets team at Swiss Re Financial Services.

Sonia Labatt passed away in March, 2022, leaving behind a legacy of finance and business professionals better able to connect the environment’s value to business performance and finance, as well as fellowships for graduate students that enable dozens of students to actively contribute to positive climate solutions through research and work. Her death was preceded by Rodney White, who died too soon in 2012, leaving behind among his many legacies the School of the Environment, along with a scholarship program for students at the School and a graduate course in Climate Finance open to students from a range of disciplines, including Rotman’s MBA program, the Faculty of Applied Science and Engineering, and Munk’s Global Affairs and Public Policy graduate programs.
 

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