One hundred days to COP26
This Friday (23rd July 2021) marks one hundred days until COP26. One hundred days until the ‘last best chance’ of avoiding the very worst climate change scenarios. But with unprecedented flooding across Western Europe and China, North America and Siberia on fire, a record high temperature in Antarctica and the Amazon rainforest now emitting more carbon dioxide than it absorbs, one hundred days seems a long way off.
The transition to Net Zero is not breaking records at the same pace as extreme weather events, at least beyond what seems to be a record number of commitments. It is enough to lose hope. But, as Professor Tim Jackson reminded us at last week’s Radical Old Idea, who are we to think that hope would ever abandon us? He also spoke of the antidote to despair – action. Over the next 100 days, we at GEFI are turning to our Path to COP26 campaign and its signatories for hope and action. Day to day, we see the inspiring work that many of them are doing, some backed by billions, others by nothing but their own will to face up to the greatest challenges of our time.
We look to our partners for ‘Finance for Nature’: Global Canopy, Nature4Climate, the Scottish Forum on Natural Capital and the UNDP. They will join us during the first week of COP26 to, among other things, mobilise finance to meet the goals of the Post-2020 Global Biodiversity Framework. The finance sector is seriously lagging when it comes to biodiversity. As Global Canopy founder Andrew Mitchell puts it, the ‘E’ in ESG is really a ‘C’ for climate, a slight (!) oversight due to nature's fundamental role in our survival, not to mention the part it will play in the battle against climate change. Global Canopy will lead conversations at our COP26 venue on the newly formed Taskforce for Nature-related Financial Disclosures (TNFD) and deforestation metrics. Nature4Climate will showcase Nature Tech and bring together stakeholders to discuss deforestation free finance. The Scottish Forum on Natural Capital will use the opportunity to present potential investible initiatives that will start bridging financing gaps.
We see the work being carried out in the developing world by our ‘Faith in the SDGs’ partners. The Islamic Development Bank (IsDB), UKIFC and UNDP Indonesia will showcase action at COP26 through the innovative use of Green Sukuk (Islamic Finance Green Bond). We witness first-hand the relentless efforts of IsDB’s Dr Sindi Hayat to empower innovators and scientists to solve development challenges through the Transform Fund. There is the work being done by the State Bank of Pakistan, who represent a financial system that is one of the most vulnerable to the impacts of climate change, to galvanise the finance sector in Pakistan to meet not just the challenges posed by environmental crises, but also by poverty and by malnourishment. Then there is FaithInvest, spearheading a global multi-faith environmental initiative through its Faith Plans programme.
Hope comes from our work with Royal London on ‘Adam Smith at the COP’, where we are bringing together leading economists from across the world to rewrite Smith’s The Wealth of Nations in the context of today’s market. The authors will explore some of the macro systemic questions around our economic system and its relationship with the natural environment. During COP26, we will present these reflections, and through a lecture series, re-examine Smith’s legacy.
Action heals despair in our work on ‘Net Zero Pensions’. Alongside our partners Aberdeen Standard Investments, we look to launch at COP26 a roadmap for pension providers to achieve Net Zero, helping them to make commitments that are not just soundbites, but are realistic and with clear milestones and targets.
More widely, we see the work being carried out by our signatories across the board, not necessarily as part of our own workstreams. For example the Chartered Banker Institute, as they revolutionise education for bankers so that sustainable, ethical decisions are the standard rather than the exception; Sterling Bank, as they put HEART into the Nigerian banking sector; and Global Impact Initiative, who are not just mitigating against the devastating impacts of climate change in Australia, but also addressing social challenges the country faces.
All over the world, people and organisations are not just maintaining hope, but creating it. More than 60 of them have signed up to our Path to COP26 campaign. If you see something here that gives you hope, or some action that you want to be a part of as we make the final push for a successful COP26, reach out to us.
If you would like to get in touch, email matthew@globalethicalfinance.org
https://youtu.be/maPzUDFq3Mw
Path to COP26 open letter issued to Alok Sharma
At Ethical Finance 2021, the Path to COP26 campaign signatories issued an open letter to Alok Sharma, highlighting the need for the finance sector to act together to achieve decisive action at COP26, the most important summit since Paris in 2015.
Read the full letter here.
The economy needs to decarbonise at a rate of 11% every year to meet our 2050 Paris commitments, and every year this fails to happen, the annual rate of required decarbonisation increases. The scale of economic change required is unprecedented and global leadership needs to set clear expectations for society and business to deliver. Market forces, divestment and shareholder activism are making a difference, but they are not enough. Government policy is imperative to effecting the necessary changes, but recent research has shown that, on current plans, governments’ policies will only deliver a one-third reduction in the carbon intensity of balance sheets by 2050.
The letter calls on Alok Sharma to deliver a deal that contains credible, timebound, investable plans for Net Zero.
In your role as COP President, we ask that your negotiations deliver a deal that is not only unambiguous in delivering a fair set of country nationally determined contributions (NDCs) but also delivers credible timebound transition plans for reducing carbon intensity through pricing, taxation and appropriate trading mechanisms. The Pensions Scheme Act 2021 is a demonstration of how greater transparency in carbon intensity and climate risk can be achieved. The finance sector now needs clear investment proposals from governments and companies based on an understanding of how NDC transition plans will affect operations across the globe.
Climate change: Ethical finance can help deliver a 'Marshall Plan for the planet' - Omar Shaikh
This article originally appeared in The Scotsman at https://www.scotsman.com/news/opinion/columnists/climate-change-ethical-finance-can-help-deliver-marshall-plan-planet-omar-shaikh-3001747
Faced with the biggest pandemic in a century grinding the global economy to a halt, or our ecosystem being on the cusp of the irreversible extinction of species caused by climate change and our insatiable demand for natural resources, or indeed the rupturing of deep structural barriers causing gender and race discrimination highlighted by the Black Lives Matter campaign, people are no longer willing to accept the status quo.
The gap between the rich and the poor has never been bigger and – despite all our advancements – the UN has called for the urgent implementation of the Sustainable Development Goals (SDGs) so that no one is left behind.
We sit at a key juncture and there is an unrivalled opportunity to rewire the system – for those nations, markets and companies which can demonstrate vision, leadership and courage.
And we have no time to lose: this must be the decade of action.
Change the world
Five years have passed since the countries of the world came together to set the SDGs – a blueprint to achieve zero hunger, quality education, decent work and climate action, among other targets by 2030.
Despite the challenges we all face, at the Global Ethical Finance Initiative (GEFI) we believe that when we come together to share insights and commit to action, we genuinely can change the world.
The plans that governments and institutions produce must be more about renewal than just recovery, building a responsible, inclusive, sustainable and green future. We must encourage bravery and allow our leaders to be courageous, because we will only achieve as much as their vision and courage allows us to.
At the heart of this is reframing capitalism – and the blood supply for this is ethical finance.
Last week, from our base in Scotland, we convened – virtually – over 1,500 professionals from 86 countries to shape a better finance system. Some of the world’s largest banks and asset managers attended the Ethical Finance 2020 summit, representing over $20 trillion of assets.
Ethical finance is a fairer system of financial management that combines profit with better outcomes for people and the planet.
There is a reason why we are based in Scotland and why the summit is convened from Scotland. In rethinking capitalism, Scotland, as a global citizen and with its heritage going back to Adam Smith, can play a unique role in this. The financial services and academic talent, progressive thinking and inherent culture provide an enabling ecosystem for solutions that can once again shape the world.
Financing a green recovery
A recent report from the Ethical Finance Hub found that Scotland’s £9.5 billion UK-domiciled responsible investment already represents 11 per cent of the UK responsible investment market, compared to the country’s seven per cent share of the total market.
There is an unrivalled opportunity for Scotland’s £800 billion financial services industry to tap into, service and grow the market.
We need to consider where climate finance can help fund the green recovery and create jobs through facilitating foreign direct investment (FDI).
There is therefore a prerogative for those in charge to demonstrate ambition and moral leadership. The Scottish Government has already demonstrated a willingness to think beyond GDP, with Nicola Sturgeon rightly talking about the fundamental need for health and well-being. Ministers now need to take the next steps to progress this agenda and organise and commit to realising the financial innovation that is required.
Finance firms too must continue to take action. It is encouraging that Aviva this month set a new 2050 net-zero carbon emissions target for its own auto-enrolment default pension funds.
Steve Waygood, chief responsible investment officer with Aviva Investors, told our summit that “we need a vision for a Marshall Plan for the planet”, echoing the words of Prince Charles last month. Steve highlighted the COP26 climate change summit being held in Glasgow next year as arguably the most important conference that the UK has hosted.
Make My Money Matter
Preparatory work over the next six-to-nine months will reveal the world’s ambition to tackle climate change and determine whether the summit in Glasgow is considered a success.
With the fifth anniversary of the Paris climate agreement coming this December, governments including the UK Government should soon be setting out their commitments and ambition to tackle the emergency.
Our ‘Path to COP26’ campaign has now become the largest financial services sector movement in the run-up to COP26 with over 40 firms registered. The initiative is designed to encourage banks, asset management firms and other financial companies to demonstrate their commitment to the climate agenda by sign-posting existing initiatives and standards for them to sign up to.
For Scotland, there are great opportunities for asset owners to invest in the clean energy sector and deliver greener pensions. Investments in wind power and green hydrogen present considerable, unique opportunities to Scotland that can attract energy-intensive businesses and allow Scotland to become a leading net green energy exporter.
All this needs to be financed and our pensions are an important source. As part of our ‘green your pension’ campaign, we know that only 13 per cent of Scots who have a pension actively chose their own investment portfolio.
We have partnered with the Make My Money Matter campaign led by Richard Curtis, encouraging the public to shift their pensions away from harmful assets and in line with their values.
There is an opportunity in the months ahead to make a positive difference.
For the sake of all people and the planet, we must seize it.
Ethical finance poised to unleash the green recovery
Ahead of next week’s Ethical Finance summit, Shepherd and Wedderburn Senior Associate Peter Alderdice and Solicitor Daniel Boynton explore the challenges and opportunities of green and responsible investment – and how pension funds are uniquely placed to deliver ethical finance and support the transition to a decarbonised economy. Click here to reserve your free place.
The COVID-19 pandemic has made one thing abundantly clear: when disaster strikes, major societal change is possible overnight.
The measures taken around the world to save lives and protect public health systems – such as shuttering non-essential businesses, furloughing almost 10 million workers in the UK and putting children’s education on hold – had been the preserve of dystopian fiction until earlier this year.
As governments start developing policies to rebuild our economy after this time of unprecedented disruption, we should not lose sight of the lesson that fundamental transformation is not only possible within a short period; sometimes it is essential.
That lesson and, in particular, the need for a green recovery, is of critical importance for achieving the targets set by the Scottish and UK governments of reaching net-zero greenhouse gas emissions by 2045 and 2050, respectively.
The challenge posed by those targets is enormous – not least in the midst of the biggest public health and economic emergency in recent times. However, the coronavirus pandemic has demonstrated that society can adapt to major change when it has to. As the saying goes, “needs must when the devil drives”.
If we are to succeed in achieving net-zero by the target dates, then the economic recovery from COVID-19 must be green. A key challenge in achieving this will be finding the investment required to turn ambitious targets into reality.
The transition to a decarbonised economic system will require unprecedented levels of investment; estimates from the Committee on Climate Change suggest that investment in the UK’s power sector alone needs to rise from around £10 billion to £20 billion annually to achieve this goal.
However, green investment is required not only in the energy sector, but across all areas of the economy if we are to tackle the impact of COVID-19 and climate change at the same time.
While some investment will come from government funds, measures to tackle the immediate impact of coronavirus have left the Exchequer’s coffers depleted. The scale of the net-zero challenge means the private sector has an essential role to play.
Many businesses may be contemplating restructuring to take advantage of the opportunities that the green recovery presents and need to be confident that investors are with them for the long-term in supporting the radical steps required to make the green recovery a reality.
Pension funds – whether in the traditional defined benefit sector, or up-and-coming master trusts in the defined contribution space – are uniquely placed to help meet the challenge of delivering ethical finance to support the green recovery:
- They have the capital. Thanks to automatic enrolment, more people than ever are actively saving for retirement and already by 2018 the value of UK pension wealth stood at more than £6 trillion. A green recovery offers many new sustainable investment opportunities for pension fund trustees and managers, such as green bonds.
- Members are demanding change. New disclosure requirements mean those running pension funds now need to explain how environmental, social and governance (ESG) factors are used in investment decisions. Recent high-profile campaigns have resulted in investment changes at the largest pension funds, and the pressure is set to build with greater public awareness of impact investing and fossil fuel divestment strategies.
- It’s good for business. A growing body of evidence indicates businesses that prioritise ESG factors perform better in the long-term. Being environmentally sustainable, socially responsible and well governed reduces business risk and ultimately improves the bottom line. At a time when historically low interest rates and gilt yields make returns harder for pension funds to find, harnessing the green recovery promises better outcomes for their members.
While these factors present pension funds with a great opportunity, more needs to be done to make sure that opportunity is seized:
- Pension scheme trustees can work with their advisers to develop better reporting tools to help them understand the ESG impact of investments.
- Automatic enrolment providers can offer default funds taking account of environmental factors and ensure that pension savers have the right information on those ESG points available to them.
- The UK Government and the Pensions Regulator can support pension schemes in their green recovery journey, recognising the importance of this issue to members.
As well as the patient capital offered by pension funds, the green recovery will also depend on businesses having access to working capital and shorter-term finance from sources such as banks.
The global financial crisis that befell us in 2008 led to systemic reform of the banking sector to rein in unethical behaviour and excessive risk-taking and to improve corporate culture and individual accountability in financial institutions. The increased regulatory scrutiny since then on responsible and sustainable conduct means the banking sector is now better placed than ever to meet the financing needs of the green recovery in an ethical way.
The deployment by banks of tools such as ESG ratings, more commonly seen in the asset management industry, to inform lending decisions is still in its early stages, but initiatives are already underway to help banks proactively accelerate the transition to a green post-COVID economy.
The Loan Market Association, a trade body for the syndicated loan market, has developed Green Loan Principles to promote the development and integrity of the green loan product.
On the international stage, the United Nations Environment Programme Finance Initiative (UNEP IF) is working with signatories to the Principles for Responsible Banking to increase lending that supports socially and environmentally sustainable economic activities.
The root-and-branch reform of our economic system required to achieve net-zero targets is daunting, but policy-makers should not be timid when it comes to proposals for the post-COVID recovery. Change is the only constant in life, as they say, and ethical finance stands poised to unleash the green recovery.
Shepherd and Wedderburn’s Head of Clean Energy, Clare Foster, will be speaking with Chris Stark, Chief Executive of the Committee on Climate Change, on climate action and the path to net zero at the opening keynote interview of the Ethical Finance Summit on 5 October. Click here to reserve your free place. You can find out more about the firm’s Clean Energy Group and the contribution it and its clients are making to a green recovery here.
Accounting for Sustainability at Ethical Finance 2020
“If you can’t measure it, you can’t improve it”. This quote, often attributed to Peter Drucker, gets to the heart of why accountancy is key to the sustainability revolution gripping finance and business. If we want to understand the impact that business activities have on climate change, biodiversity, society and more, we have to be able to measure that impact, and report on it in financial statements and annual reports.
At the Global Ethical Finance Initiative (GEFI), we are seeking to bring in the perspectives of accountants, as well as others from across the financial services ecosystem, for Ethical Finance 2020. Taking place on 5th-8th October 2020, the summit features an impressive list of speakers, including NatWest’s Alison Rose, Aberdeen Standard’s Keith Skeoch, Professor Michael Mainelli and Kate Forbes, Cabinet Secretary for Finance in the Scottish Government.
While accountants might not fit the public image of what a climate activist looks like, it is increasingly recognised that their participation is essential to creating real action on climate change. The WEF at Davos earlier this year saw a major step taken, with a push from the Big 4, along with other partners, to standardise ESG (environment, social and governance) reporting, creating consistency internationally and moving away from the current status quo where firms are faced with a plethora of reporting standards.
Several sessions at Ethical Finance 2020 will focus directly on the issue of sustainability in accounting, including GEFI founder Omar Shaikh (CA) interviewing Professor Michael Mainelli. Anne Adrain of ICAS and Louise Pryor of The Institute and Faculty of Actuaries will be showcasing the Green Finance Education Charter, a commitment from professional bodies including ICAS to include environmental skills in their curricula. Taking a wider perspective, Jeff Hales of SASB will be explaining collaborative efforts to standardise sustainability reporting worldwide.
These sessions will discuss a range of issues, including whether we need to rethink our idea of the going concern. In the face of devastating climate change, as well as related issues such as biodiversity loss, is the traditional horizon of 12 months appropriate? Environmental damage, including climate change and deforestations, is already impacting supply chains, and stands to cause even more harm if left unchecked.
Then there are technical questions, such as how exactly to measure carbon footprints and other ESG impacts for alternative asset classes. Measurement and disclosures for listed equities are still imperfect but have improved markedly. The level of transparency is far lower in the world of private equity, debt and other asset classes, creating huge data challenges for ESG accounting.
Taken together, this raises the question of whether we are adequately reporting the negative environmental impact of business operations sufficiently. If we are depleting the natural resources of the planet or mistreating people, then the true costs of that are unlikely to be reported in accounts, which reflect the income generated but not the corresponding loss to natural resources. There are efforts to remedy this inconsistency at the national level, through initiatives such as ‘Gross National Happiness’, or the Scottish Government’s drive to measure natural capital.
These discussions are underpinned by the assumption that things can actually be measured: that we can “put a number on it”. But what if the fundamental data is qualitative, rather than quantitative? One area where ESG risks can easily be compared is the carbon emissions held responsible for climate change. The impact of finance on social issues and other environmental issues such as biodiversity and extinction is much harder to quantify.
The last few months have demonstrated the deep inequalities that exist within our society, with the Black Lives Matter movement being the most prominent example. In this climate, ignoring social issues simply because they are difficult to quantify is unacceptable. This point is underpinned by the recent Boohoo scandal around COVID. Despite being linked to unsafe working conditions, and labour rights abuses, the company had scored highly on ESG, ranking in the top 15% of their MSCI peer group index.
What does all this mean for ICAS members? Their involvement is key and they can make a huge impact, but to overcome some of the issues mentioned, accountants may need to broaden their skillsets beyond traditional financial accounting, into environmental, and social accounting, highlighting the need for education and training.
Reflecting our ambition to curate open, accessible debates, Ethical Finance 2020 will be free to attend. To find out more, including our full range of speakers and agenda, visit ethicalfinance2020.com now, or visit https://www.eventbrite.co.uk/e/ethical-finance-2020-tickets-82579199609 to reserve your free place.
NEWS RELEASE FROM THE GLOBAL ETHICAL FINANCE INITIATIVE
NEWS RELEASE FROM THE GLOBAL ETHICAL FINANCE INITIATIVE
THURSDAY 10TH SEPTEMBER 2020
GLOBAL SUMMIT IN SCOTLAND TO BUILD ETHICAL FINANCE SYSTEM
A major global summit will be convened virtually from Scotland next month to bring together over 500 leading professionals to shape a more ethical finance system. Ethical Finance 2020 has the theme ‘protecting our future’, with a key focus on delivering a green recovery after COVID-19 and seizing the opportunities of COP26 in Scotland.
Over 300 organisations, representing over £22 trillion in assets and including some of the world’s largest banks and asset managers, are taking part in the summit to help develop a sustainable finance system that works for people and the planet. The summit is staged by the Edinburgh-based Global Ethical Finance Initiative (GEFI) in conjunction with the Scottish Government and the United Nations Development Programme (UNDP). The Royal Bank of Scotland is the host partner and the global event is supported by Chartered Banker and the Chartered Institute for Securities & Investment. Speakers include filmmaker and campaigner Richard Curtis, NatWest Group CEO Alison Rose, Banking Standards Boards chair Dame Susan Rice, Baillie Gifford partner James Anderson, Aberdeen Standard Investments CEO Keith Skeoch and Bank of England director James Talbot.
GEFI is the driving force behind the ‘Path to COP26’ campaign, as well as a campaign for greener pensions. The Ethical Finance summit will be held over four days from October 5 to 8 and will explore how financial institutions can take practical steps to support inclusive economic growth without depleting natural resources or leaving anyone behind. GEFI works towards a fairer finance system for people and the planet, focusing on sustainability, climate change and social justice. Ethical finance in the UK is valued at around £40billion, creating thousands of sustainable job opportunities. Scotland has a long history of social enterprise with a growing reputation in ethical finance. A recent report from the Ethical Finance Hub found that Scotland’s £9.5billion UK-domiciled responsible investment represents 11 per cent of the UK responsible investment market, compared to the country’s 7 per cent share of the total market. There has been rapid sector growth of around 27 per cent per year since 2004, mainly in climate, impact and Environmental, Social and Governance (ESG) funds.
Gail Hurley, senior advisor to the Global Ethical Finance Initiative, said:
“It is now widely recognised that the financial services sector has a fundamental role to play in delivering universally supported targets such as the Paris Agreement and the UN’s Sustainable Development Goals, as well as supporting economic recovery from the COVID-19 pandemic. However, despite its potential, the current financial system can be a cause – rather than a solution – to some of the pressing challenges our planet and its people currently face. Ethical Finance 2020 will explore how the financial sector can support inclusive economic growth without depleting natural resources or leaving anyone behind. Scotland’s proud history in ethical finance makes this the right location for such a major summit, and with COP26 coming here next year it is vital that we come together to deliver a sustainable finance system for people and the planet.”
Thom Kenrick, head of social strategy at the Royal Bank of Scotland, said:
“Royal Bank of Scotland is delighted to be host partner for the Ethical Finance Summit once again this year. Over the past four years we have seen the conversation around ethical finance develop and mature at an incredible pace. Ethical Finance is a truly global summit of leading thinkers who are committed to developing social and sustainable financial systems. As Scotland looks forward to 2021 and COP26, this event is more relevant than ever. We look forward to being part of the conversation as we continue to embed purpose and sustainability into our strategy.”
Simon Thompson, chief executive officer at the Chartered Banker Institute, said:
“Ethical and sustainable finance are more important now than ever before, as we rebuild businesses, communities and lives impacted by COVID-19 whilst continuing to meet the challenges of the climate emergency. Building a global community of finance professionals committed to embedding ethical and sustainable finance within their own professional practice, in their organisations and across finance as a whole is core to our purpose at the Chartered Banker Institute, and it’s one of the core aims of Ethical Finance 2020 too. That’s why I’m delighted to support the summit, and look forward to welcoming a large global audience to Edinburgh virtually in October.”
Photo for publication is available here. L-R, Simon Thompson, Gail Hurley, Thom Kenrick.
More information is available here: www.ethicalfinance2020.com
More information on Path to COP: www.pathtocop26.com
What is ethical finance?
A fairer system of financial management that combines profit with better outcomes for people and the planet. The full working definition of ethical finance: A system of financial management or investment that seeks qualitative outcomes other purely the management of returns. Outcomes sought may reflect ideas from faith, environmental and governance theories.
Why does ethical finance matter?
Although ethical finance is not a new concept the financial crisis has led to a growing interest in sustainability, climate change and social justice. This has seen a collective desire to create a fairer, more inclusive and responsible global financial system. Trust in banks is diminishing and today’s generation of consumers believes that investment decisions should reflect the issues they care about. Ethical finance in the UK is valued at around £40 billion, creating thousands of sustainable job opportunities. Today, with the world facing a climate emergency there is a pressing need to develop environmentally sustainable financial solutions.
Contact: Alan Roden at alan@quantumcommunications.co.uk or 07753 904 531
Ethical Finance Round Table: Impact Investing – Can it save capitalism?
The 24th Ethical Finance Round Table was hosted virtually on Wednesday 26th August 2020. Before introducing the session, GEFI Global Steering Group member and event chair Graham Burnside reminded us of the opportunities the virtual round tables have provided us, with the speakers taking part from three different countries.
Entitled ‘Impact Investing – Can it Save Capitalism?’, the session considered the role of impact investing as we shift from ‘shareholder capitalism’ towards ‘stakeholder capitalism’. Impact investing is an exciting and rapidly growing industry powered by 1,300+ investors (such as asset managers, foundations, banks, development finance institutions, family offices, pension funds and insurance companies) who are determined to generate social and environmental impact as well as financial returns. This is taking place all over the world, and across all asset classes.
The first speaker was Dean Hand, Research Director at The Global Impact Investing Network (GIIN). Presenting from New York, Dean introduced GIIN’s 2020 annual Impact Investor Survey report, which places the impact investing market size at roughly $715 bn. She focused on two key findings of GIIN’s research:
- The first was that whilst impact management and measures (IMM) practices have matured, opportunities remain for further refinement. Respondents to the survey highlighted substantial progress in research and the sophistication of IMM over the last decade. By far the biggest concern over the next five years, was the threat of “impact washing”. Almost all investors target social impacts (96%) and 60% targeted both social and environmental, which, Dean suggested, demonstrates how interrelated the two are for market investors. The most common SDG targeted was found to be SDG 8 (‘decent work and economic growth’) followed closely by SDG 1 (‘no poverty’). A number of frameworks to measure and manage impact have emerged in response to the growing interest in impact investing. 89% of respondents now use external frameworks, with the UN SDGs the most popular. This could go some way to address the issue of impact washing.
- The second key finding Dean covered, was that impact investors hold a positive outlook for the future, despite the headwinds. 99% reported that their impact was in line with or outperformed expectations and 88% also highlighted that this was also true of financial performance. Although many expect a financial underperformance as a result of the COVID-19 pandemic, 18% felt that their impact performance will still exceed expectations. The majority plan to maintain their capital commitment plans for 2020.
The next speaker was Tribe Impact Capital’s Amy Clarke. Amy started by posing the question as to whether we should save capitalism and whether it was the right tool for the challenges ahead? She positioned inequality and inequity as unintended consequences of the current financial system and, argued that while impact investing is part of the required system upgrade, it is not the whole solution.
Amy gave examples of several trends she has observed in the impact investing sector. The Make My Money Matter campaign was offered as an example of citizen empowerment where consumers are provided with the knowledge and tools to demand to better influence where their pensions are invested. According to Amy changing human capital is coming in the finance sector and the focus on increasing diversity and inclusion will ensure that financial institutions better represent the societies they serve. One thought that Amy felt would be controversial was that GDP should be laid to rest with real measures emerging as an alternative. Some cities are already transforming using Kate Raworth’s doughnut economy model. Amy concluded with a question around whether capitalism can survive the wave of change coming, or will it emerge as something different?
The third and final presenter, Azman Mokhtar, was speaking from Malaysia and offered his experiences of delivering true value in the wake of the Asian financial crisis. Azman began working at Khazanah Nasional in 2004, developing an investment style called ‘Building True Value’, delivering through financial, economic, and societal returns.
The project ran from 2004 to 2018, with the portfolio increasing in value 3.5 times, despite no inflow of funds. It also saw economic returns through job creation, transformation of strategic companies and knowledge development. Societal returns were improvements in education, poverty alleviation and reskilling. One example of the project’s work given by Azman was after the restructuring of Malaysia Airlines following two high-profile air disasters. The restructure meant laying off 6,000 employees and through the project, $50m was invested in a reskilling centre for those no longer working. To conclude, Azman felt that the project demonstrated that it is possible to deliver ‘true value’ over long periods of time.
As ever there was no shortage of questions during a lively Q&A session. Which covered topics including the drivers behind the confident outlook for the impact investment sector and how to develop an environmental impact investment approach in mature political economies.
GEFI founder appears on Real Leaders podcast
GEFI founder Omar Shaikh joined Kevin Edwards for Episode 108 of the Real Leaders podcast to to interpret Milton Friedman’s essay on the Social Responsibility of Business, explore Adam Smith’s Wealth of Nations and how it applies to unchecked capitalism today, and ultimately discuss the humbleness and bravery that is needed to rethink today’s GDP construct and enter into the world of the unknown.
Listen now on Apple Podcasts or your favourite podcast provider!
Beyond Climate – Getting Nature on the Finance Agenda to Support a Green Recovery (The Herald)
This article was originally published in The Herald on 8th August 2020.
In November 2021 Glasgow will host the UN climate change summit, known as COP26. This is the most important climate summit since the landmark Paris Agreement in 2015 when heads of state committed to restricting global temperature rise this century to 'well below' 2°C above pre-industrial levels and to pursue efforts to limit it to 1.5°C. COP26 is first opportunity for nations to come together to review commitments and strengthen ambition.
Scotland is already leading by example with the Climate Change Bill making a commitment to becoming a net-zero society by 2045 – five years before the rest of the UK. The Scottish Government has also responded to the global climate emergency by adopting an ambitious new target to reduce emissions by 75 per cent by 2030. The Scottish National Investment Bank, which will be operational in the second half of 2020, will support the transition to net zero through a range of debt and equity products.
The financial opportunities and risks of transitioning to a low carbon, resilient global economy have catapulted climate change to the top of the agenda for investors, lenders and insurers across the globe. As well as setting ambitious targets to minimise their own greenhouse gas emissions many financial institutions are driving reductions in the climate impact of their financing activity by decarbonising their portfolios and increasing investments in solutions to climate change.
With Earth Overshoot Day looming later this month it is timely to reflect on the key role nature plays in regulating climate as well as helping us to adapt to and mitigate against climate change. By conserving nature and restoring ecosystems we reduce climate vulnerability and increase resilience.
The sustainable management and use of nature can help tackle wider socio-environmental challenges such as water security, water pollution, food security, human health and disaster risk management. However, with ecosystems declining in size and condition by 47 per cent globally, and species populations facing extinction, the wake-up call on nature loss arrived at this year’s World Economic Forum where, for the first time, the Global Risks Report ranked biodiversity loss as one of the top-five global risks in terms of likelihood and impact in the next 10 years.
Around $44 trillion of economic value generation – over half the world’s total GDP – depends on nature and its services and sustainable use of our environment in Scotland accounts for 11 per cent of our total economic output – worth £17.2 billion a year – and one in seven full-time jobs. The global coffee market had retail sales of $83 billion in 2017 but 60 per cent of coffee varieties are at risk of extinction from a combination of climate change, disease and deforestation.
Nature and biodiversity loss therefore represent a significant financial risk. Insufficient accounting for the risks posed by nature loss have unintended consequences, such as short or long-term risk mispricing, inadequate capital buffers, and in extreme cases the potential for stranded assets.
In boardrooms nature loss continues to be largely a hidden risk. This needs to change, and quickly.
The Scottish-based Global Ethical Finance Initiative (GEFI) is working with the United Nations Development Programme and Scottish Government on a 2 year programme of collaboration that aims to raise awareness and position nature at the forefront of the COVID-19 economic recovery and for the long-term well-being of people and the planet.
Within the programme, which forms part of our wider Path to COP26 campaign, we are actively looking to develop a financial instrument that accelerates nature-friendly investments at scale as well as draw upon our extensive global network to support other initiatives such as the Scottish Environment Protection Agency and Scottish Wildlife Trust’s challenge to unlock £1 billion of new investment for nature conservation in Scotland. We are also looking to explore the feasibility of a global framework for financial institutions measure and disclose nature-based risk.
With Covid-19 exposing the fragility of health security and financial systems there is a pressing need to build social, environmental and economic resilience. At GEFI, as we approach COP26, we are committed to working with our partners ensure nature joins climate at the top of the finance agenda to underpin a green and sustainable recovery. We will also continue to showcase and position Scotland as a leading global centre for ethical finance.
To find out about financing nature, and more, join us on 5-8 October for Ethical Finance 2020. To reserve your free place visit ethicalfinance2020.com
‘Putting the ‘eco’ back in economy’: Finance for Nature Virtual Global Series Kick-off
The kick-off of the Finance for Nature Virtual Global Series on 20 & 21 July brought together industry champions from finance, insurance, consumer goods companies, and standard-setting regulators, to tackle two questions on how to accelerate nature-friendly finance: (1) Why should nature be positioned at the heart of the finance and green recovery agenda? (2) How can private capital and corporations unlock nature’s potential to achieve impact for the planet and prosperity for its people?
Key takeaways from the series include:
- The financial sector is increasingly well informed on the impact of climate, but less so about how to account for biodiversity and nature in its portfolio. Industry champions called for the inclusion of nature and biodiversity loss, as climate change cannot be fully addressed without it.
- To move beyond the individual asset-based disclosure requirements, a framework for more systemic nature-related risk disclosure is needed, following the trajectory of mandatory climate disclosure.
- The finance community needs a greater focus on traceability of corporate supply chains around climate, deforestation and other nature-related issues. It also needs to build in systems of accountability such as standards, or certifications (e.g. RSPO for palm oil).
What’s the point of my pension fund if it contributes to a dead planet? We’ll finance ourselves into extinction. We need to put the ‘eco’ back in ‘economy- Andrew Mitchell, Global Canopy
Why should nature be positioned at the heart of the finance and green recovery agenda?
Susan Gardner, Director of the Ecosystems Division at UNEP and Omar Shaikh, Founder of the Global Ethical Finance Initiative expressed the urgent need to move nature further up on the finance agenda and to play a core role as part of the green recovery. And the audience agreed, with 87% of respondents to the live poll noting that their organizations consider climate and nature as interconnected in the context of investing. Further, when asked if they have a policy in place that integrates nature-based solutions into decision-making, 52% said Yes, 28% plan to have a policy in the future, and 21% do not have a policy.
Inger Adersen, Executive Director of the UN Environment Programme (UNEP), provided the opening keynote address, highlighting that the Covid-19 pandemic provides a stark reminder of human’s reliance on nature, particularly for health. About half of the world’s GDP is directly or indirectly reliant on nature, and the finance sector’s recognition of the physical risks posed by the destruction of nature is a positive step but more urgent action must be taken. Inger urged governments and the private sector to use the UNFCCC COP26 in November 2021 as a target to steer economies towards a green transition that maximizes growth, employment and resilience.
UNDP Administrator, Achim Steiner, stressed the importance of nature for sustainable and equitable development and recovery from Covid-19, noting that 2.5 billion people depend on nature. Failure to seize the opportunity to place nature firmly on the green recovery agenda could lead to delayed progress by up to 10 years and failure to achieve the Sustainable Development Goals (SDGs). Accelerating decision-making and delivering impact at scale will require rebalancing the economic system with incentives and frameworks to ensure nature is not a marginal consideration operating in a parallel economy but a valuable asset that is understood, measured and incorporated into transformational policy strategies.
De Nederlandsche Bank recently published its ‘Indebted to Nature’ report which highlights the Dutch financial sector’s exposure to risks from biodiversity loss. The report estimates that Dutch financial institutions have over €500 billion in exposure to companies with high or very high dependence on ecosystem services, or approximately 36% of the examined portfolio. Executive Director of De Nederlandsche Bank, Olaf Sleijpen, stressed that although the world is in the midst of global health and economic crisis we cannot lose sight of the threat posed by climate change and biodiversity loss. The current situation presents a unique opportunity to take steps towards creating a carbon neutral economy. Olaf called on other central banks to build on the approach taken in the Netherlands to further explore and develop best practice to enable financial services to catalyse change and to promote consistent standards and frameworks for biodiversity risk measuring and reporting.
Biodiversity and nature loss pose major economic, social and environmental threats that we cannot afford to ignore. - Olaf Sleijpen, DNB
The audience also heard from an expert panel, moderated by UNDP’s Head of Climate Promise, Cassie Flynn, with representatives from the banking sector, insurance, asset managers, and leading thinkers on sustainable investing. Speakers included, Philippe Zaouati, CEO of Mirova; Brooke Barton, Vice President of Innovation and Evaluation at Ceres; Stephen Hibbert, Managing Director at ING; Veronica Scotti, Chairperson Public Sector Solutions at Swiss Re; and Diandra Soobiah, Head of Responsible Investment at Nest Pensions. The keynote speakers outlined a vision for a nature-forward future and panelists discussed the key practical solutions needed to position nature in the finance agenda.
Firstly, as we have now reached a tipping point where the impacts of deforestation and climate change may be irreversible, deforestation must be recognised as a risk that is embedded across commodities, asset classes and industries. Ceres presented the Investor Guide to Deforestation and Climate Change: a tool which provides timely guidance for financial institutions to divest from deforestation and to engage with their portfolio.
Secondly, there is a need to build robust impact measurement indicators that could address the complexities in measuring biodiversity. Mirova is currently joining forces with other partners to develop a tool that includes impact measurement on biodiversity for listed companies, which could help reduce the risk of greenwashing in the industry.
Thirdly, coordinated efforts across asset classes will be essential to improve the existing toolkits and develop new methodologies, metrics and taxonomies to integrate nature into financial decision-making. As noted by Swiss RE, insurers have a key role to play in leading this movement: they understand risk and invest in the long term, so they are well placed to embrace finance for nature. Building from the TCFD experience for climate, ING highlighted that this collective effort for nature also needs to involve actors from the scientific and data communities, who can support the financial sector to address this challenge with greater confidence. Civil society and global investor movements are already calling asset owners to redirect finance flows to nature-friendly investments. Among them, NEST Pensions supports the Make My Money Matter campaign that is calling on pension providers to think of the planet and its people alongside making a profit.
Audience Q&A topics:
- Best practice in communicating effectively with customers
- Obstacles to achieving a pipeline of investable projects
- The role of central banks in the green recovery
- Ensuring that no one is left behind through the protection and creation of livelihoods.
How can private capital and corporations unlock nature’s potential to achieve impact for planet and prosperity?
The second day of the series focused on the financial risk of biodiversity loss and the role of the private sector to take action. Midori Paxton, Head of Ecosystems and Biodiversity at UNDP and Andrew Mitchell of Natural Capital Finance Alliance and Global Canopy facilitated the discussion. Elizabeth Mrema, Executive Secretary of the Convention on Biological Diversity (CBD), opened the session with an uplifting reminder that 2020 is still the ‘Super Year’ for nature. Now is the time to reassess human’s relationship with nature and to recognize that nature is a public good which has been over-exploited. $44 trillion of economic activity is largely dependent on nature, providing the economic case for increasing nature-friendly finance and since the private financial sector is a critical enabler of markets it can contribute positively to halting biodiversity loss. Ms. Mrema urged the financial sector to ensure that financial disclosure initiatives contribute to the 2030 Biodiversity Framework to protect 30% of earth’s lands and seas.
A new reporting framework called the Task Force for Nature-related Financial Risk Disclosure (TNFD) was announced by Minister Zac Goldsmith, UK Minister of State for the Pacific, International Environment, Climate and Forests, and Animal Welfare. Ten financial institutions, the World Business Council For Sustainable Development and the UK and Swiss governments have backed the initiative, supported by UNDP, UNEP, Global Canopy, and WWF. It aims to increase financial flows at scale towards nature-positive investment and lending opportunities to allow people and the planet to flourish. In an audience poll, 89% of participants voted ‘Yes’ that disclosure of nature-related risk can drive real change and is not just a mere box-ticking exercise.
The pandemic is one symptom of our dysfunctional relationship with the natural world and we need to reset the relationship with nature. - Zac Goldsmith, UK
The expert panel included industry champions from private financial institutions like banks and insurance, and experts in private sector nature-related risk disclosure, including, Adam Kanzer, Head of Stewardship at BNP Paribas; Sonja Gibbs, Sustainable Finance Working Group at the Institute of International Finance (IIF); Mark Kenber, Managing Director at Climate Advisers; Rowan Douglas, Head of Capital Science & Policy Practice at Willis Towers Watson; and Bas Rüter, Director of Sustainability at Rabobank.
The three leading experts from the financial sector - BNP Paribas, Willis Towers Watson, and Rabobank - shared their insights on a private sector perspective of nature-related risk. They recognize the role of increased accountability to drive action and noted the role of government to provide the necessary enabling conditions but also of banks to fulfill their obligation to deliver valuable, long-term investments to clients and investing in nature is a valuable, long-term investment. They urged that climate risk disclosure should go further to account for nature as a climate change adaptation, not just mitigation. For example, Willis Towers Watson noted the importance of accounting for the physical risk of coral reefs or mangroves degradation which protect coastal communities and ecosystems from storm surges. When this risk is valued, there is much higher incentive to address it and prevent it.
The risk the world faces is not just biodiversity loss but the collapse of nature all together...We cannot preserve shareholder value without preserving nature and biodiversity.- Adam Kanzer, BNP Paribas
Deforestation is a major threat to biodiversity loss, mainly driven by cleared land for industrial agriculture and urgent action is needed to divest from deforestation. Banks have a role to play by providing the right incentives working with companies to create a better market price for sustainably-produced goods. One example is Rabobank’s efforts to offer lower interest rates for sustainable production in Brazil, where deforestation rates are high. Direct engagement with clients to ensure soft commodity supply chains are nature and climate-friendly, through a regional approach that fits the local context, is an impactful way investors can take action. However, there is a gap in knowledge on deforestation in supply chains - few investors are aware of the deforestation risk in their investment portfolio and the financial cost of that risk is high.
According to Orbitas Finance, presented by Climate Advisers, 44 financial institutions each have over $300million invested in palm oil alone and investors in 13 companies have at least $23 billion at risk. Orbitas provides a tool to assess deforestation risk in investor portfolios. Other related resources for assessing supply chain natural capital risk, noted throughout the series include: Encore and Gist Impact. A trend towards increased supply chain transparency, where companies are required to show where their assets are located, is helping to put pressure on companies to take action. Willis Towers Watson noted that the emerging use of spatial data to assess financial risk can help accelerate that pressure. Other examples of financial products and investor actions, as noted by IIF include, social bonds, debt for nature swaps, and biodiversity offsets and all rely on proactive and consistent measurement and reporting of risk. Ultimately, to account for nature loss, a collaborative and common approach to natural capital risk reporting and disclosure is needed and panelists underscored that a nature-related financial disclosure system like TNFD is a promising step. Just as the climate change financial risk task force helped channel private sector behavior through the TCFD overarching framework, this is what is needed for nature, and it must use the TCFD momentum.
Nature to be embedded into classic macroeconomic analysis...[We need] a nature-equivalent of scope 3 emissions for climate, e.g. ‘scope 3 depletions’ - Sonia Gibbs, IIF
Audience Q&A topics included:
- the methodologies for putting an economic value on nature assets and potential externalities
- the gaps in understanding nature-related risk and implementing actions to avoid it
- the role of governments to regulate nature-related risk
Finally, Nigel Topping, UK High-Level Climate Action Champion, expressed hope for a nature-related financial risk disclosure platform as the next big step for finance and invited the audience to join the Race to Zero November Dialogues, where discussions about finance for nature will continue and hopes that these discussions will influence positive outcomes for finance for nature at the UNFCCC COP 26 in November 2021.
The two inaugural sessions of the Finance for Nature Virtual Global Series laid the groundwork for future discussions that aim to advance the integration of nature-related risks and considerations in the international financial policy and regulatory agenda. Covid-19 presents a unique opportunity to build back an economy that repairs our relationship with nature and addresses biodiversity. The evidence is clear - $3.6 trillion in business opportunities from sustainable food, land and ocean use, representing 191 million new jobs over the next 10 years, and more than half the world’s GDP and 2.5 billion people depend on nature - Nature-friendly investments must be scaled up to protect people, planet, and prosperity and to ensure a green economic recovery.
More sessions in the Finance for Nature Series will be announced soon. You can view the full event report and recordings from the sessions on the event web page here.
About The Finance for Nature Virtual Global Series: Designed as a series of high-level, quarterly, virtual dialogues leading up to COP26, the Global Series will look to advance the integration of nature-related risks and considerations in the international financial policy and regulatory agenda. It brings together industry champions from finance, insurance, consumer goods companies, and standard-setting regulators, and aims to drive practical commitments on investing in nature. This series is organised by UNDP, UNEP, the Scottish Government backed-Global Ethical Finance Initiative, Climate Advisers and partners of the New York Declaration on Forests.
