Top Voice: Delfina Freijido, MPA



For this installment of Top Voices in Sustainability, we're eager to speak up about the broader influence created by technological change in finance and the effect it continues to have in the practice of sustainable development across the globe.

One story rings heavy to this tune, and that's the story of Fasset, a newly launched Ethereum Blockchain platform that aims to gradually circumvent the traditional frameworks which are used to leverage infrastructure finance by public and private participants.

Today, we shall be speaking extensively with Delfina Lopez Freijido, a sustainable infrastructure professional, who currently works for Fasset in Argentina.

Here's the transcript to the full interview:

The Interview

Q: How have you been keeping during the lockdown period, what have you been up to? 

Delfina: Fasset has a global remit, and as such, its team is dispersed in different regions, hence the experiences with the lockdown have varied across team members.

In my case, I am based in Buenos Aires, Argentina, where the lockdown has been up beyond the +100 days. I have been able to adapt fairly fast since I have worked remotely at different stages of my career. I have also adapted quite well since I am able to better manage things due to the reduced commuting times and finding greater flexibility from people to coordinate (virtual) meet-ups. I believe in certain cases this has allowed projects to move faster, especially those involving the engagement of different stakeholders.

Beyond my immediate daily life, it is notwithstanding a period of mixed feelings as the pandemic has heightened the stress on longstanding social debts across the board (regions, industries, cities, etc.), while at the same time opened up windows for other more positive trends and for a much-needed reflection.  

Q: Tell us a bit about yourself and your trajectory towards a high-impact career and what brought you to this specific sector. Where do you draw your inspiration from?

Delfina: My literature at 7 years old included a book on "Sustainable Development" -it was indeed not a book for kids. During high school, I was drawn to the concept of economic development, where I found all the economic-related courses to come together and make sense. I found as well quite disturbing reading about "negative externalities". After my undergrad studies on International Relations, I started gaining experience in public policy at different government levels, including the international level. Given that the sustainability agenda was often kept in a silo under departments or agencies specifically focused on 'the environment', I have engaged throughout my career in various complementary projects of different nature (research, consulting, advocacy). Though sometimes frustrating at the time, that allowed me to deep dive into different angles of sustainability, understanding multiple lenses.

The past 8 years have seen me mostly focused on sustainable and impact investment. This has involved igniting the development of the first social impact bond in Argentina, leading the sustainable finance agenda at the G20 under Argentina's presidency, and being heading the development of the Sustainable Finance practice at Banco de la Nación Argentina, which is the main commercial public bank in Argentina.

What brought me to this field has been the concentrated power of the financial sector to drive economic changes and the potential in adapting financial models and structures to cater to the sustainable and development needs. Through this, I have increasingly engaged in the infrastructure space, as it represents a good deal cutting across the Nationally Determined Contributions and the SDGs. For the past 4 years as well, I have become especially interested in the role digital technologies have to play in supporting the sustainable transformation of finance.

It was with the believe in the role of digital technologies to transform the way we develop and finance infrastructure that led me to join Fasset's team in bridging the physical, financial, and digital worlds to create value that matters.

Q: Can you explain a bit about the idea of sustainable finance in infrastructure?

Delfina: Infrastructure cuts across most SDGs, either directly or indirectly, and is a fundamental component underlying the NDCs. It shapes our choices by enabling or deterring options. Ensuring that infrastructure is developed sustainably, demands sustainability to be embed into the project development as much as in the finance that comes in to support such development. In that sense, sustainable finance can act as a driver of sustainable infrastructure development, either by requiring minimum standards or targeting specific impacts.

There has been important underinvestment in infrastructure in the past decades, at the same time public budgets have been more constraint to fully fund infrastructure development -sometimes implying new greenfield projects, sometimes brownfield projects that involve improvements of existing infrastructure. In this context, there has been a strong call for the private the sector to step in and there are various initiatives looking to combine efforts to overcome the challenges to scaling up infrastructure finance. 

Q: As a sustainable finance professional, where do you see the world of sustainable finance progressing to over the next few years?

Delfina: From a thematic perspective, growth in the search for social impact will be a clear outcome of the COVID-19 pandemic. This can already be seen in the bonds space, where growth in social bonds. This may be a defining characteristic for the next 2 years at least, which could (hopefully) drive greater advance in taxonomies on social impacts and risks. The environmental agenda will continue to be relevant, maybe going through a relative slowdown in the near future. Therefore, investments catering both (social and environmental benefits) will grow, in great part pushed by commitments to the Agenda 2030 targeting the SDG. There may be in the short run a surge in specific thematic investments related to economic recovery and health infrastructure revamping.

On the product side, linking cost of finance to performance on sustainability-related impacts will become more common and attractive. First, we already count with some principles to support their 1.0 development. Secondly, due to the increasing scrutiny of the public, demand by consumers and a sophistication in sustainable finance by financial institutions. Thirdly, I believe digital technologies supporting traceability and facilitating data, coupled with the advance in impact measurement will ease the growth of products like SDG/sustainability-linked loans or bonds.

From an overall perspective, the fintech industry is becoming more mature, and as it gains scale in the multiple industries within the financial system, we may well bridge into sustainable finance 3.0 within the next 5 years. Fasset is an example of a company engaging directly in that transition.  

Q: At Fasset, you have a specific focus on tokenization or distributed ledger technology as a tool for financing infrastructure, but how much of an adaptation is your solution from traditional infra PPP frameworks (i.e. hybrid capital)?

Delfina: While there is a call for greater investment in infrastructure, I prefer to make a call for smarter finance for better infrastructure, understanding that better infrastructure is not necessarily brand new infrastructure nor necessarily large-scale projects. Furthermore, not all countries have PPP frameworks at place, and not every country can access capital markets in the same manner (i.e. at a similar cost of finance). Flexibility and adaptability to the diversity of projects will be crucial.

Digital technologies such as distributed-ledger technology provides for the needed transparency and traceability in overly complex contractual arrangements, at the time, that it allows for adaptability for example in the ticket sizes opening up the door to a more diverse pool of investors. Nowadays, for example, only the largest investors can access infrastructure investment opportunities due to the magnitude of the investment.

Tokenization is one piece that can help overcome some of the pain points in the financing of sustainable infrastructure. Fasset uses blockchain technology to fractionalize a large asset (or a large pool of smaller assets), previously illiquid, representing these "fraction pieces" digitally -analogous to the case of traditional stocks in a company that reflect portions of ownership. These allow previously unavailable and unlisted assets to become liquid, easily tradable and more widely accessible to both, institutional and retail investors seeking to diversify their digital portfolios as much as to cater to their sustainable finance goals. In this way, the diversity of infrastructure projects can find in a more direct way the financial partners or the liquidity needed without compromising the sustainability-related qualitative features of the projects.

About the Top Voices in Sustainability Series

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How does the interview series operate? Essentially, each and every quarter, we will publish an interview with one of the world's most influential professionals and place the interview on our website and weekly newsletter. The theme of the interview series is "sustainability in the energy sector".

"Tokenization is one piece that can help overcome some of the pain points in the financing of sustainable infrastructure. " - Delfina Lopez Freijido

Q: What role does equity play in supporting the scale-up of infra finance?

Delfina: The equity portion in projects vary largely according to the infrastructure subsector (e.g. renewable energy, transport, water, sanitation, ICT, etc.) and to the region and country. For example, in countries and/or infrastructure sectors where the public sector commitment (directly or indirectly through state-owned enterprises) infrastructure projects tend to reflect ratio closed to 50/50 equity-to-debt; whereas when projects involve a majority of private partners making investment commitments, the equity-to-debt ration comes closer to 30/70. Now, beyond these differences, sponsor equity investments play a crucial role in igniting the projects, around which the debt is structured. Potentially easing the challenges that sponsors or equity investors face would support the scale-up of funding for sustainable infrastructure projects. 

Q: Where do you see a greater need for the sustainable/impact agenda to scale or become more established?

Delfina: On the sustainability front, I believe we are still to see this agenda seriously discussed at the international trade stage. While there is a lot of space for improvement in embedding sustainability in the financial and investment world, we can observe a step-change in the past 3-5 years. In the corporate world, the results are mixed, but the agenda has been up for a long time, and many things have advanced. It is important to support efforts made at making the supply chains more sustainable. But these issues do not seem to have even made it to the international trade policy plate yet, and when it does it happens at a very niche or siloed level.

The other big pending bridge I see is among the 'innovation agendas' -oftentimes the sustainability innovation roundtables and the likes are not conducted in tandem or in conversation with the digital and technological innovation efforts.

Coming from the digital angle, I believe solutions such as those offered by Fasset could support the catalyzation effect sought through blended finance, which could be also combined with other applications driven by blockchain. 

Q: What are your thoughts on the emergence of green/sustainability standards and taxonomies that have been developed to support the growth of renewables in emerging markets?

Delfina: Fortunately there have been advances on this front, mostly for certain financial products (bonds) and specific aspects at the real economy level (e.g. GRESB or Leed Certification for buildings). Climate Bonds Initiative, the European Union and China have come out with overall sustainable finance taxonomies which are being rapidly taken up by the investor community. It is of course an ongoing process of progressive improvement and evolution. They are mostly voluntary tools, but increasingly looked at (and starting to be incorporated) by regulators. The views on whether to have them mandatory or voluntarily have been conflicting, as there are benefits and cons on both sides. What it is clear is that further standardization and a certain level of regulation is necessary to generate the step change.

Furthermore, the pending debt keeps being the social side of taxonomies, as most of them, have focused on the 'green' side of sustainability. Several social aspects may be at times captured through corporate governance considerations and requirements; the SDGs have provided a somewhat common space for both components; but overall the harmonization of the environmental and the social is still pending and has proved to be a challenging task. This is a notorious issue when addressing sustainable finance in emerging markets and low-income economies. 

Q: What kind of regulatory environment does Fasset operate under?

Delfina: Given that the products that Fasset is offering at the moment involve tokenization services and trading of infrastructure assets operating under the digital asset environment classifying them as financial instruments, the applicable regulations governing the offering of the product pertains that of securities and payment systems.

As the context of digital asset and blockchain technology is relatively nascent and rapidly evolving, especially in the infrastructure space, different jurisdictions may adopt different approaches in governing such applications, which shall be observed by Fasset at all times. 

Q: What will the next 5 years hold in store for impact investments across the globe?

Delfina: The whole world is waking up to the different angles that make up for an environmentally, inclusive and fair economy, if not society at large. Besides climate change, biodiversity is moving upwards in the public agenda; as are concepts like regenerative agriculture and nature-based solutions (especially relevant for the infrastructure space).

I would say the next 5 years may see us, people in general but especially professionals in the 'sustainability & impact' space, getting closer to the revision of long-lasting economic assumptions. This will be happening in hand with transmission of wealth to a generally more broadly socio-environmentally aware generation, which will be starting to step into decision-making positions. The digital technologies will definitively play a role in accelerating the effervescence for such transformation, directly or indirectly by allowing information to run across people instantly.

I envision (and hope as well) that these technologies and decision-makers both work towards embracing complexity to address the challenges we are facing -leaving behind siloed appreciations and procuring systemic approaches to change.

Translating this into the sustainable/impact investment space, I can see the impact rationale cascading through the different financial instruments and financial business areas; as much as finally seeing integration of related considerations into regulation.

Thank you to everyone who made this interview possible. For more interviews in this series, follow us on Twitter @ibrgroupintl or connect with us on LinkedIn.