The Green Finance Podcast Ep. 7: Connecting capital to sustainable projects with Trenton Allen, CEO of Sustainable Capital Advisors

Climate change awareness is growing, and it's starting to bring more capital along with it.

New investment prospects, paired with pressures coming from the public and regulators, are driving up interest in sustainable investing.

Today, we are chatting with Trenton Allen, CEO of Sustainable Capital Advisors, a DC-based financial advisory firm serving the sustainable infrastructure industry.

Trenton is an expert in energy and capital markets, and leads the firm's efforts behind connecting developers and capital providers to support global sustainable infrastructure projects. He has lots of insightful things to share with us, so let's dive right in.

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The following excerpts have been edited for clarity.

There is an increasing recognition that capital markets can be a part of the solution by investing in projects that help us transition to a net zero future. How has this sector evolved over the past few years and what does it look like at the moment?

Trenton Allen: I would say that the markets have continued to evolve with regards to the interest in sustainable infrastructure. And I use that term broadly – being everything from energy generation, clean energy generation, to water, to resiliency, to agriculture, to transportation, to our built environment.

There's just a tremendous interest in thinking through how to invest in the infrastructure that we need today, that best helps us deal with the changing climate and how we become more resilient. As a result, you're seeing a lot more capital coming into these particular markets. Some capital providers have an understanding of infrastructure finance, but there’s also a lot of capital that's coming in thinking through how to really mobilize the funding necessary to effect sort of a larger transformation.

From large institutions, all the way down to individuals, there's an increase in this particular market that we were hoping for a decade ago or even more. But now we really see the interest being built from the bottom up all the way to the top with regard to the sort of scale and size of investors. And so, that's really, really a good thing to see and have in our political markets, because it gives us a chance to grow and also meet the challenge of climate change that we have before us.

How are investors thinking about climate risk and sustainability? What's the general mentality of the investment community that’s participating in the sustainable investments sector?

Trenton Allen: Investors are diverse, there's not a monolith that is out there. There are those investors as described before, who are looking at opportunities as pure infrastructure investments and infrastructure plays, and those are looking to provide capital to large scale. That’s wind farms, solar installations, and other types of what are more known, market-tested clean energy technologies. And that's interesting.

We are seeing much more traditional infrastructure market players that are participating – you have pension funds, who are looking into those particular investments, insurance companies, some private equity funds and other types of large funds. They are thinking about how to deploy their capital at scale, which is really, really important when you see sort of this next band of projects, which are not necessarily mature technologies, but sort of have more of a venture type flavor to it.

And then one of the things that we see as a trend overall is the alignment of not just climate impacts, but also impacts as it relates to environmental justice or inclusion. And so, we see a significant interest from investors who are trying to twin these types of impacts together, climate and inclusion, to figure out how to provide capital or support for projects that are in previously underserved communities, whether it be low-income communities, whether it can be communities of color, and that's generally through whether it might be energy efficiency upgrades that could be through the deployment of solar, particularly community solar types of projects. That's one of the other trends that we've seen, the ability to think through not just climate impacts, not just on how you grow or market, but also think of how do we twin these together in a way that really sort of drives climate impacts, but also climate justice and inclusion in a way that has a much more intentional direction as far as how we think through this energy transition.

When investors reach out to you looking to deploy capital in sustainable projects, what are the questions they usually ask? What does that sort of onboarding process look like?

Trenton Allen: When we engage with investors who are looking to participate in a space, there’s usually two different types.

There's the investors who know exactly what they're looking for. So they've already gone through the questions like, ‘What is the return profile? What's the risk profile? What does this market look like that I'm trying to enter?’. And now it's just a question of how to identify more opportunities that look like that. So there are some investors who have an understanding or are keenly aware of what they're doing, why they're doing it, and sort of what they're looking to expect. It's just a question of identifying where these other investment opportunities exist, and we work with investors to do that. 

But most of the time, we are working with investors who are newer entrants into the space, and they're trying to figure out those questions. We work with investors who are exploring the space, and really try to guide them to determine their particular investment thesis and approach, and then try to work with them on how to figure out sort of where those projects exist. 

We don't come to them with a ready-made solution, we don't have any particular geography or technology, we're really trying to focus in on matching up sort of what their views of their particular capital and what they're trying to get from a return and risk standpoint, to align with what the market is actually able to produce. And in doing so, we’ve been able to have them successfully participate in a particular market, to reduce some of the strain that exists with investors.

This topic of ESG and sustainable investments is getting quite politicized in the US, so I’m wondering if any investor could still participate regardless of their belief system. Is there something for everyone to do when it comes to sustainable investments?

Trenton Allen: The question for us, specifically, is how do we think about the climate impact of investing? Our work has been for over a decade around climate, energy and environment. My focus has been on how do we help our investors really think about, first and foremost what their climate impact is, and then as markets evolve, how do we actually expand that opportunity for climate impact into more areas across the country across the globe.

I think there's a space for this with regards to investors that are able to look at the climate-friendly nature of financial products. And I think that's key, and it's important, because it allows you to hopefully avoid some of the debates and conversations that are happening out there with regards to ESG, which has become a term that has been challenged in a particular marketplace.

One of the things that we've done, and we were fortunate to receive funding from the Hewlett Foundation a year ago, to develop a sort of an online hub for climate-friendly financial products. And we started with one question: if you were looking to find a place to identify and really look for climate-friendly financial products, where would you go? And after spending a lot of hours and days and weeks and even months, we found that we couldn't find one, so what we did was, with the support of Hewlett Foundation, to create one that we'll be launching later this summer, to really provide this hub, and it's called Ask Sustainable.

It really is sort of a database of all the climate-friendly financial products in the United States, and what it does is it just provides information so that I and you and other investors can find a place for products that are marketed as climate-friendly, and to understand how those products are priced, the returns, and then also have more information about how they are impacting the climate and the environment.

We believe that it becomes part of what's necessary when we think about having a place or a home for investors to think through how they can impact the environment, what's the impact of their particular dollars, and then how can I see what the differences are to match a product with my own particular risk and return profile. And so we're excited about this, because we believe that this gives an opportunity for retail investors, institutional investors, we'd like to say, when you got 10 bucks in your pocket, or 10 million, you can find products that fit your particular ability to participate.

How are you guys thinking about providing that kind of information and helping investors discern between different types of funds, investments or projects without necessarily putting a stamp on things?

Trenton Allen: Our role is to provide as much transparency as we possibly can into this marketplace, that is climate-friendly products, so products that have been advertised as being beneficial to the climate, environmentally friendly, whatever. The unfortunate part is that there's 100 different ways that these products are described, and they all mean something slightly different. And so what we've done is to try to put these together in a way that provides some standards and some structure around it, you'll see all the products lined up in the same way, the same type of information is provided.

Our hope is that users, investors and people will be able to look at these particular products and be able to compare them. We try our best not to get into the conversation about greenwashing, what we're trying to do is provide the information related to impact, so a user or investor can look at those and determine which one meets its best criteria. And also, we will use this platform to be able to gauge and gather whether the rhetoric that's being used is matched by the actual data. So for us, we're really focused on actionable data that allows an investor to be able to make a decision and to discern. So our hope is that what flows out of this is that investors start to gravitate more to products that have a greater impact on the environment, whether it's removal of CO2, or reduced emissions or other types of climate impacts that can be charted and analyzed and data provided, but really to think through how we can do this in a much more analytical way as opposed to which product is marketed better.

What are some of the challenges that come with this type of project?

Trenton Allen: Data, data, data, data. Just access to data. Right now, there's just voluntary disclosures, the SEC has some proposed rules with regards to carbon disclosures that will be impactful for us to be able to gather the information that's necessary. But then there's just disparities that exist with regards to the different sizes of financial institutions. So for instance, if you are a smaller bank that offers checking accounts, you may not have to disclose certain information, like the number of users or accounts and things like that. And so what ends up happening is that our ability to provide sort of a standard calculation dissipates as a result of not having as clear of a view into the data. So there's some things on the data side that are challenging. 

No two entities right now are quite saying it the same way, so we've spent a lot of time going into numbers to better understand. When it comes to calculations, regarding carbon, there are some who are looking to do actual calculations of carbon emissions, or carbon reductions. There's others who are using estimators. And so there's just not a cohesive way by which we're gathering the information, and then being able to provide that to users in a way that we can compare. 

At the end of the day, we're trying to translate carbon emissions data in an understandable way. So it’s not only just getting the data, but making the data actionable, and relatable, not just to professional climate investors, but for the average investor who doesn't spend their life doing this. We think that's the bridge. That's what we're trying to do here. We're trying to make climate financial products much more mainstream and widespread and approachable in a way that accelerates the deployment of capital, so we can finance more projects that have a benefit to the climate that we're sharing.