Leading the green finance debate
Ensuring banks help mitigate – not contribute to – climate change is now a global priority.
How can banks and investors help tackle the climate emergency and drive the world’s transition to a lowcarbon economy? A new series of essays commissioned by the Chartered Banker Institute is sharing insights and opinions from financial services, academia, media and public policy to help drive informed action.
The greatest global challenge
Created in partnership with cross-party think tank the Social Market Foundation, the essays feature contributions from high-profile figures including Sir Roger Gifford, Chair, Green Finance Initiative;
Ben Page, Chief Executive, Ipsos MORI; Dr Paul Fisher, Fellow at the University of Cambridge Institute for Sustainability Leadership; Ingrid Holmes, Director and Head of Policy and Advocacy, The Hermes Investment Management; Mary Robinson, Chair of The Elders and former President of Ireland; Richard Monks, Director of Strategy, Financial Conduct Authority and Dr Jun Ma, Chair of China Green Finance Committee.
The sustainable finance essays were published on 2 July 2019 at the Green Finance Summit in London, an event which brought together industry experts, policymakers and influencers. Their discussion focused on investing, accelerating and delivering on green finance commitments.
"Green finance is a way for us banks to reconnect with customers and society." Sir Roger Gifford, Green Finance Initiative
“We want to explore the role of financial services in driving the move to a low-carbon economy, and helping to develop the infrastructure and industries that will support this sustainable economy into the future,” explains Simon Thompson, Chief Executive, Chartered Banker Institute.
“I firmly believe that green finance values and principles must form the foundation for the future of banking and financial services worldwide. Mitigating the effects of climate change and managing a successful transition to a low-carbon world is, in the view of many, the greatest global challenge for this and future generations.”
Facilitating this transition will require the combined and sustained efforts of global bodies such as the United Nations, national governments and the private sector, Thompson adds.
The Global Commission on the Economy and Climate, a major international initiative to examine how countries can achieve economic growth while dealing with the risks posed by climate change, estimates around $93tn of global infrastructure investment between 2015 and 2030 will need to be green to meet climate-change commitments. Most of this – 80% – will come from the private sector, facilitated by the financial services sector.
The green finance sector is already growing rapidly, with the green bond market alone growing by 78% between 2016 and 2017 to $155bn in issuances.
The Social Market Foundation conducts research and runs events examining a wide range of economic and social policy areas, focusing on economic prosperity, public services and consumer markets. It will oversee the editing, publication and promotion of the sustainability essays.
Other authors who contributed essays for the project include Professor Kern Alexander, Chair for Law and Finance, University of Zurich and Fellow at the University of Cambridge Institute for Sustainability Leadership; Peter Blom, Chief Executive, Triodos Bank; Simon Howard, Chief Executive, UK Sustainable Investment and Finance Association; Huw Evans, Director General, Association of British Insurers; Ben Caldecott, Director, Oxford Sustainable Finance Initiative and Nick Robbins, Professor in Practice – Sustainable Finance, Grantham Research Institute on Climate Change and the Environment at the London School of Economics.
"Green finance values and principles must form the foundation for the future of banking and financial services worldwide." Simon Thompson, Chartered Banker Institute
“In the UK, climate change is now very clearly on the radar of financial regulators,” Thompson says. “Many central banks from around the world are also joining forces to warn about the financial risks of climate change.”
The UK’s Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are leading a body of work in this area, in consultation with industry.
They warn that the effects of climate change and the associated transition to a low-carbon economy may have a major impact on financial markets and on products that serve those markets.
This April, the PRA – part of the Bank of England that ensures financial firms are well capitalised, have adequate risk controls in place and are run in a safe and sound way – published a Supervisory Statement setting out new expectations for banks and insurers on managing the financial risks from climate change.
Its motivation is that while firms are enhancing their approaches to managing the financial risks from climate change, few are taking a strategic approach that considers how actions today affect future financial risks.
WHAT IS GREEN FINANCE?
The United Nations defines green finance as the flow of finance from the public, private and not-for-profit sectors to sustainable development priorities. This might include investing in green technologies or extending microcredit to community enterprises involved in environmental projects.
In a recent Bank of England report on the impact of climate change on the UK banking sector, Bank of England Governor Mark Carney says: “Climate change is a tragedy of the horizon which will impose major costs on future generations that the current one has no direct incentive to fix. The catastrophic impacts of climate change will be felt beyond the horizons of most actors. Once climate change becomes a clear and present danger to financial stability, it may already be too late to stabilise the atmosphere.
“The good news is that with foresight these risks can be managed in an orderly, effective and productive manner. And the main actors in the quest for sustainability – governments, markets, financial firms and regulators – are already transitioning their thinking and actions.”
The Task Force on Climate-related Financial Disclosures (TCFD) was set up in 2015 by the Financial Stability Board to develop voluntary, consistent climate-related financial risk disclosures, and is emerging as the global, voluntary standard in this area.
The UK’s new Climate Financial Risk Forum could also be used to agree a common approach to climate risk reporting on issues and developing voluntary market standards or guidance for such reporting.
The Forum, which met for the first time in March 2019, was set up by the PRA and FCA to build capacity and share best practice in advancing financial sector responses to the financial risks from climate change.
The Chartered Banker Institute’s Green Finance Certificate™, launched in 2018, is the world’s first benchmark qualification for green finance. This encourages financial services professionals to enhance their knowledge of green finance; develops the pool of green finance professionals; and helps position the UK as the global hub for green finance.
“The change we seek in mainstreaming responsible, sustainable finance needs to be led by increasing numbers of finance professionals with an understanding of the critical role of financial services in supporting the transition to a sustainable, socially just world,” says Thompson, who is also contributing to the essay series. “Professionals with the knowledge and skill of finance to be able to develop and deploy products, services and tools that will mobilise capital to support that transition, address climate-related and societal risks, and help customers and communities direct investment to responsible and sustainable finance opportunities.”
Download the sustainable finance essays here.