Conversation Series: Impact & Finance with Danijela Piljic

Welcome to our Conversation Series, where we discuss topics relevant to our work around impact and sustainability. In this piece, Beatriz interviews Manager Danijela Piljic, who joined the team in October. Danijela is a Manager of Impact Policy and Regulation and prior to joining Steward Redqueen, she was a policy strategist at the Dutch Central Bank. In this interview, Danijela talks about her experience in the Central Bank, her pioneering research on environmental risks in the financial sector, and what this new role means to her.

Hi Danijela, it’s great to have you on the team. You have more than 14 years of experience in the Dutch financial sector, having worked at a ministry, a bank, and the Central Bank. How did you first get into the field of sustainable finance and what attracted you to it?

What attracted me to sustainability, and sustainable finance, was the fact that I could use my knowledge – I am an economist by training – to contribute to a greater good. And that was something my team and I got to do at the Central Bank. As part of the strategy department, we focused on the analysis of sustainability trends from a risk perspective. When I joined, we had already produced a couple of reports on climate risk, and we wanted to expand to environmental risks, such as biodiversity and water scarcity, which was quite new for the Central Bank. We were the first ones to put out a report on biodiversity (Indebted to nature: exploring biodiversity risks for the Dutch financial sector), which caused a real earthquake; it started a discussion within the Netherlands and internationally. The report forms the basis for the European Central Bank’s guide, which sets out supervisory expectations regarding environmental risks.

I was in high school studying economics around the time the 2008 crisis hit, so I associate Central Bank interventions with austerity, and never as a good thing. What kind of positive impact can Central Banks have?  

The impact and leverage of a Central Bank is huge. However, the acknowledgement of climate risks’ impact on financial stability is a relatively recent phenomenon. It was only in 2015 that Mark Carney, the governor of the Bank of England at the time, in his “Breaking the tragedy of horizon speech, issued a warning that the financial sector could face huge losses stemming from climate risks. And although only a minority of central banks currently have specific sustainability objectives, a majority is taking steps geared towards mitigating climate-related risks to the financial system. From 2015 onwards things developed quickly. For example, we have the establishment of the Network for Greening the Financial System in 2017 to conduct research and develop policy on managing climate risk, and ECB’s supervisory expectations regarding climate and environmental risks. Central banks and supervisors have at their disposal supervisory instruments necessary to drive change in the financial sector.

I agree that we need policy and regulation, but this often puts a risk lens on sustainability, and is coming very much from a ‘do no harm’ approach, rather than ‘doing good’. And policy and regulation can also be quite hard to implement in practice, taking away time from work that creates actual impact, arguably.

It is quite a lot. There are more and more regulations and policies, and it is a challenge for institutions to implement them all. In this context, central banks and supervisors can help by formulating explicit expectations regarding the integration of sustainability risks into core activities of financial institutions, or by providing the financial sector with good practices and interpretations of certain legislations. By emphasizing risks, it is a first step in making financial institutions become aware and understanding of the relevance and materiality of the problem we are collective facing together. But you’re right, I would be more interested in seeing financial institutions adopt sustainability intrinsically. In an ideal world, financial return should not be the only important metric and investments should have a measurable social and environmental benefit to society. I would be very happy if we move more and more in that direction.

Yes, exactly, this is where the impact investing space is having some breakthroughs – coming up with some really innovative ways to bring that environmental and social impact measurement dimension to the traditional financing space. What are you most excited about in your role as Manager of Impact Policy and Regulations?

I am excited about how much the impact space is growing, and to see where it’s going. There are still no common definitions and metrics, so it’s exciting to see these new reporting requirements and regulations coming up, for example the EU taxonomy or SFDR, and impact becoming mainstream in a way. But I think we must tread carefully – the opportunity for impact washing is huge. I think this is where having common definitions and standards will help us. The learnings from the field of sustainability risks are that frontrunners set the agenda and regulators follow. I think the same will happen in the coming years on impact – and I want to contribute to that journey.