JP Morgan DFI's new chief on scaling sustainable finance

The key issue holding up more private sector financing for sustainable development in emerging markets and developing economies isn’t raising money, it’s finding projects or companies to invest in, according to Arsalan Mahtafar, the head of J.P. Morgan’s Development Finance Institution. “A lot of sustainable development can be done commercially,” he said, echoing his remarks at Devex’s Climate+ event on Thursday in Dubai. The binding constraint to more private money flowing to sustainable development is not a need for more de-risking or blended capital, but a need for data and information. Investment banks must meet their fiduciary responsibilities but also want to say they are doing so in a sustainable way that is verifiable. JPMorgan Chase along with a group of other major financial institutions — Citi, Deutsche Bank, Bank of America, Goldman Sachs, and more — and industry groups have created the Impact Disclosure Taskforce to tackle the challenge. The aim is to help corporations and governments disclose their efforts to reduce gaps to achieving the Sustainable Development Goals. “We want to focus on what we think is trillions of dollars of development finance that is out there that could be done commercially but it’s currently not flowing because of this lack of information,” Mahtafar told Devex in his first interview since taking the top job at the J.P. Morgan DFI in late August. The majority of sustainable capital — some 85% — goes to developed economies, but the task force wants to help more of it reach emerging markets and developing economies, he said. And just how much capital could it unlock? Extrapolating from J.P. Morgan DFI’s work, the institution believes that if the major banks adopt the task force guidance it could generate $200 billion a year in sustainable finance, he said. And that could grow. The task force will create a framework using existing standards and provide guidance to companies and governments so they can create a standard SDG disclosure and make it easier for investors to identify and support a sustainable investment. The disclosure assessments will evaluate a company’s positive and negative impacts and help them identify the most important areas to focus on. A company in a water-stressed country, for example, should prioritize reducing water use because of the development impact, whereas a business in a country with a significant unemployment problem may need to set a target related to creating jobs. At the same time, the task force will try to build consensus among investors to use their sustainable finance investment pools to back the projects with the standard disclosures it wants them to adopt. It’s a group of the largest institutional investors and investment banks “focused on operationalizing or moving capital at scale rather than doing theoretical work about definitions and taxonomies,” Mahtafar said. This new disclosure system is not just dressing up existing transactions, it creates a different product, he said. It replaces an opaque product that lacked transparency and accountability by putting a new set of obligations on the entities involved. Anecdotally, based on J.P. Morgan DFI’s work, companies and governments in emerging markets and developing economies that struggle to access capital are likely to improve their disclosures if it means expanding the pool of money they might get by 10 to 20%, he said. While there is significant opportunity, not everything can be financed by commercial capital, which has to abide by risk and return requirements as part of its fiduciary responsibility. Development banks should focus on where private capital can’t go, including frontier or fragile states where markets don’t exist, Mahtafar said. Development banks should target project preparation that helps companies complete studies, environmental assessments, and legal agreements needed to make a project bankable. They should also share their best practices in impact measurement and monitoring, but also the decades of data about investment risks their private sector arms have generated that they don’t currently share. They should also have more robust processes when they use de-risking instruments or blended finance products to ensure money is being directed to the places the private sector won’t go, he said.