Navigating the future of sustainable finance

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Roshan Ahmad: Hello, and welcome to What's the Deal? on J.P. Morgan's Making Sense Podcast. I'm your host, Roshan Ahmad. I head our global Sovereign Advisory business here at J.P. Morgan, and today, I'm joined by our returning guest, Arsalan Mahtafar, who is head of our Development Finance Institution. Welcome, Arsalan. Thank you for joining us today.

Arsalan Mahtafar: Thank you, Roshan, for having me.

Roshan Ahmad: Before we go into the meat of the conversation, can you tell us since you've taken on this role in 2023, a little bit about the development finance institution's journey since and also your background?

Arsalan Mahtafar: Sure. So I spent my career first in management consulting where I was working with developing country governments on helping them implement country growth strategies, how they put policies and investments in place to grow their GDP and do so sustainably and inclusively. And I joined J.P. Morgan about eight years ago, first in our internal strategy team and worked on the strategy for launching this new J.P. Morgan development finance institution. And as of 2023, as you mentioned, I took over as head of the team. And so this is our fifth annual report. We launched the DFI in 2020 and it was always thought about as a commercial solution to financing sustainable development. We have a lot of public development banks out there, but we think the private sector could also play a very constructive role in mobilizing capital for sustainable development. Especially that this coincided with the rise of sustainable investing in Wall Street as well, and J.P. Morgan as a sell-side institution can play a critical role in being an intermediary between companies and governments that need capital for sustainable development and investors that are seeking opportunities for investing their capital towards sustainable development.

Roshan Ahmad: That sounds very good. So before we go into the details of the 2024 report, how about we take a step back and ask you to walk us through the latest trends in the sustainable finance industry?

Arsalan Mahtafar: I'm seeing about three things evolving in the industry over the past couple of years. One is that investors are moving more from ESG and moving more towards looking at impact, meaning that they're looking for social and economic outcomes that their investments produce, versus thinking about how being exposed to certain environmental and social risks might actually reduce their financial performance. The second thing I'm seeing is that they're looking at that more at the overall entity level of a company that they're investing in. One thing that I hear from investors is that, "I don't wanna just invest in a sustainable bond. I wanna invest in a sustainable company, that is doing positive things for social and environmental outcomes." So that's another big shift, and that really expands the range of possibilities that investors have for investing. And the third thing, and this might sound counterintuitive to a lot of people, is that we're actually seeing growth in this space. Despite a lot of the headwinds that we also see, year-over-year assets under management managed by sustainable investors grew by about 8% over the past year, though that growth is different by geography, and we do see the bulk of that growth come from European investors and now some Asian investors as well.

Roshan Ahmad: So now to bring it closer to home, what are we, the Development Finance Institution, doing in this space?

Arsalan Mahtafar: Well, we had, a really good year in 2024. In fact, we had a record number of client engagements. We engaged with 22 clients as their development finance structuring agent, where we helped them measure and disclose their development impact, often in conjunction with raising capital on the capital markets, and we supported crowd and impact investors in about $5.6 billion of capital that we raised for our clients. We also were the co-chair of the Impact Disclosure Task Force, an effort to expand beyond doing this just at J.P. Morgan and helping build an ecosystem that can mobilize capital at scale for the sustainable development goals by creating a standard for how impact is measured and, and disclosed. You know, we hear this all the time. All of the investors say, "We need to simplify. We need to harmonize the way that impact is measured and disclosed," and we spent two years on actually doing that, and when we published the guidance in October 2024, we now have an industry consensus on how to do that, and we think that's gonna take a giant step in mobilizing capital at scale for the SDGs. And then lastly, one of our roles is also measuring the impact of J.P. Morgan itself, and all of the corporate investment banking transactions, regardless of whether we were involved at the time of execution to crowd and impact investors. And there, we also broke a record, and we evaluated $ 139 billion of CIB transactions to have development impact.

Roshan Ahmad: So Arsalan, another interesting thing that I read in this year's report was that the DFI is now expanding into clients based into higher income jurisdictions. Can you tell us a little bit more about that? Because that doesn't really go hand in hand with development finance.

Arsalan Mahtafar: Yeah, so if you look at the public development banks, there are clients that are mainly based in lower income jurisdictions because it makes sense. Development finance is often defined as helping improve the quality of life of people in developing countries, and so financing entities based in developing countries was our initial scope of clients as well. However, we saw that there are a lot of clients that are multinational, and while they're based in developed countries, they have extensive operations and therefore extensive impact in developing countries as well. Last year for the first time we started helping those clients to measure the impact of their operations in the global south and help them attract impact focused capital for expanding those pieces of their business to have more development impact. So one example is the Korean Export-Import Bank, Kexim, which generally finances Korean companies to export goods and services to developing countries. But they wanted to come up with a new development finance strategy where they would finance projects in developing countries regardless of whether it had a Korean nexus or not, as long as it had demonstrable development impact.

Roshan Ahmad: Mm-hmm.

Arsalan Mahtafar: And so we served as their development structuring agent to help them design the development impact framework they would use to measure investments that would be eligible for that strategy. And we also then served as their underwriter to raise $500 million of capital to support that expansion of their development finance strategy. And what was really interesting for me here was that while Kexim doesn't necessarily struggle with raising investor capital, for this specific bond, they wanted to attract investors that valued their development finance objectives and had alignment of criteria themselves with these development objectives and so our team really helped identify those investors and crowd them into this order book so that that alignment of interest is realized.

Roshan Ahmad: Very interesting. So, now we're looking forward to 2025. What are you most excited about for this year?

Arsalan Mahtafar: So, there's a couple things that I'm really excited about. One is just growing our geographical footprint. We've done a fair bit of work in Latin America and in Central and Eastern Europe, Middle East, and Africa. I think we've been less penetrated in Asia, and that was partly due to the fact of how our team has just been laid out across the world. We have more people in the U.S. and in Europe that can serve these markets. But we're now, expanding my team to have resources on the ground in Asia-Pacific, so that we can look at clients in Asia that wanna attract impact- focused investors, especially as we are seeing a rise in impact capital coming out of Asia as well, especially with the Japanese investors, that have already grown their assets under management from zero to 70 billion over the past couple years and aim to increase that to about 600 billion by 2030. So, we are really looking at doubling down on Asia over the next year, and I think devoting more resources to that part of the world is going to really help us do so. The second thing that I'm really, excited about is to facilitate the implementation of the guidance that I just mentioned. So we wanna simplify, harmonize impact data. We took a big step in that direction by putting out this guidance, but still, applying the guidance takes time, take resources. And we're in a unique time in the world, where we have technology. We have generative AI. We have LLM models. And so, this guidance coming out at the same time that these new technologies are also being applied at scale provides us the opportunity to create technology that will apply this on an automated basis, produce these impact disclosures automatically for companies, and integrate that data into financial decision-making in a much more streamlined way, so it removes the burden from developing country entities that need that impact capital, and increases the benefit much more for them.

Roshan Ahmad: So to wrap it up, Arsalan, I did want to follow up on a point that you mentioned on using AI and LLM and all the technology that's available to us today. So how are you and the DFI thinking about employing that for 2025?

Arsalan Mahtafa: So we're currently working with several members of the impact disclosure task force to create a multi-dealer impact data platform. This platform, what we want it to be is to be the go-to hub for all impact data provision and engagement with companies to show more transparency on how they're making progress against those intentions and ultimately increasing the accountability for delivering on these development impact objectives. it will pre-populate an impact disclosure in a harmonized and standardized way for all emerging market entities. It will become a go-to source for the impact investors so that they can go and search and filter through this platform to find companies that meet their impact objectives. So if you have an investor that is looking for a company that has impact on food security in Latin America, they will filter for SDG two and they will see every single company that claims to have such impact, what their plans are for having such an impact, what is their theory of change for whether their actions will actually achieve those food security outcomes and what are the KPIs that they're gonna be using to track whether they succeed on those objectives or not. So all of that information is gonna be somewhere that is gonna be easily accessed by investors. And again, this is how we think we can bring more engagement and connection between people that are accountable to impact on STGs and investors that are seeking such investments.

Roshan Ahmad: And collaboration across the board. It reminded me of the good old common app for those of us who applied for U.S. universities. It standardizes the information, right?

Arsalan Mahtafar: Exactly.

Roshan Ahmad: Well, very exciting. I'm excited for it. Thank you, Arsalan, for sharing your insights today with us. The work that you and the Development Finance Institution does, is really important, and not only to just mobilize capital, but also to amplify the conversation around sustainable finance. So thank you again for joining us today. To our listeners, thank you very much for listening in. Stay tuned for more episodes on What's the Deal? on J.P. Morgan's Making Sense podcast. My name is Roshan Ahmad. Until next time, take care.

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