A new dawn for green bonds

This article originally appeared on the CharteredBanker.com blog at https://www.charteredbanker.com/resource_listing/cpd-resources/a-new-dawn-for-green-bonds.html

The green bonds market is expected to reach new highs this year after more than $200bn in green bonds and loans were issued in 2019 – a new global record.

Green bonds – also known as climate bonds – are fixed-income investments issued by governments and corporations as debt capital to fund climate and environmental projects.

“Green bonds are those where the proceeds raised are allocated to environmental projects or uses,” explained Simon Thompson, Chief Executive, Chartered Banker Institute. “They might be used to raise capital for a wide variety of purposes, including renewable energy projects, clean transport infrastructure, sustainable buildings, flood defences, or sustainable forestry and agriculture.”

The Climate Bonds Initiative – which promotes and tracks the green bond market internationally – reported in October that $202.2bn in green bonds and loans had been issued in 2019 – an all-time high for the green market.

The US issued the most bonds, followed by France, China, Germany, Netherlands and Sweden. Energy dominates overall use of proceeds at 33%, followed by low carbon buildings on 29%, low carbon transport 20%, water 9%, with waste and land use each at 3%.

Green trillions

In 2020, the initiative forecasts global annual green bond issuances to hit between $350-400bn. But to make a real impact, ‘green trillions’ is the goal.

“New sovereigns are entering the market and pioneers like France, Poland and Nigeria are now repeat green issuers,” said Sean Kidney, CEO and co-founder of the Climate Bonds Initiative.

“Bond size and diversity of issuers is increasing, and noteworthy is the presence of leading European and Chinese banks amongst the largest issuers.

“But $200bn or $400bn a year is not enough to address the climate emergency and provide the capital at the scale urgently required for large scale transition, adaptation and resilience.

“Generating that first $1tn in annual green investment by 2021/22 is now critical. It’s the benchmark from which to measure year on year growth in climate-based investment towards 2030.”

Critical role

In the UK, there are more than 100 green bonds from 16 countries listed on the London Stock Exchange, with the amount raised more than doubling since 2017 from $10.5bn to $26bn.

Globally, green bond issuance has climbed from $45bn in 2015 and $168bn in 2018.

The Institute’s Simon Thompson predicts that debt capital through green bonds will play an increasingly important role in financing the world’s shift to a low carbon economy.

“The scale of investment needed to finance the transition to a sustainable, low-carbon world – $6tn per year – will exceed both the capabilities of the post- financial crisis banking sector and the constrained balance sheets of utility companies,” Thompson said. “This is why the debt capital markets will be significant in facilitating the continued operation of existing projects via refinancing, and the development and construction of a wide range of new projects supporting climate change mitigation and adaptation.”


Path to COP26: Chartered Banker Institute launch Green Finance Essay Competition

The Chartered Banker Institute (CBI) has launched a Green Finance Essay Competition. The professional association, one of the partners of the Global Ethical Finance Initiative’s (GEFI) Path to COP26 campaign, has called for applicants to answer the question of “How can finance professionals actively encourage changes in consumer behaviour to achieve society’s goals on climate change?”, making reference to the UN’s Sustainable Development Goals and the Paris Climate Agreement.

The winner will receive £100 of ethical gift vouchers and have their essay published in the “Pathway to COP26 – the Role of Green Finance” essay series from the CBI and the Social Market Foundation (SMF), as well as receiving the opportunity to present their paper at GEFI’s prestigious Ethical Finance 2020 summit.

“Safe stewardship (of customers’ money) has been a fundamental principle of the Chartered Banker Institute since it was established in 1875.  Today, we consider stewardship in its broadest sense – beyond finance to encompass the safe stewardship of our environment and resources.

The transition to a sustainable low-carbon economy is possibly the greatest global challenge for this and future generations, with green finance and green finance professionals playing critical roles.”

Chartered Banker Institute

The competition is open to people of any age in the UK or internationally, and entrants do not need to be members of the CBI. Answers to the question should be no more than 1,500 words and will be judged by a panel including the CEO of the CBI, Simon Thompson. Essays should be submitted, along with a short biography about your career and interest in Green Finance, by Friday 31st July 2020 to the Chartered Banker Institute at this link.


Round Table: Path to COP26 - Financing a Green Future

The Ethical Finance Round Table ‘Path to COP26 – Financing a Green Future’ was held on Feb 27th at Baillie Gifford in Edinburgh. Following a short welcome, Omar Shaikh, GEFI Managing Director outlined GEFI’s plans for 2020:

This was followed by short presentations from Jonathan Taylor, former Vice President of the European Investment Bank for Environment and Climate Action, and Gary Lapthorn, Head of Sustainability & Responsible Business, Commercial Banking at Lloyds Banking Group.

Jonathan Taylor outlined the history of climate change action, through initial scientific warnings, to the establishment of the United Nations Framework Convention on Climate Change (UNFCCC) at the Earth Summit in Rio in 1992, and the first landmark international treaty agreed at COP3 in Kyoto (1997). Experts from the International Panel on Climate Change (IPCC) then warned that, despite the Kyoto Protocol, global warming was still set to worsen, leading to the all countries agreeing at COP21 in Paris (2015) to a global framework designed to avoid dangerous climate change by limiting global warming to well below 2°C and pursuing efforts to limit it to 1.5°C.

Coming 5 years after COP21 and the Paris Agreement, COP26 in Glasgow event offers an opportunity to take stock of progress since Paris and update the Agreement where necessary. In particular, countries will present their plans and progress beyond current declared intentions, which IPCC calculate will lead to 2.6°C – 3.2°C temperature rises.

More attention than ever is focused on the role financial services can play in the fight against climate change, acting as an enabler and transition mechanism for policy, risk management and liquidity. There has been optimism around the UK’s leadership on climate-related regulation in finance, particularly through the Bank of England’s Taskforce on Climate-related Finance Disclosures (TCFD). Ensuring Glasgow is a success will require the right template to be in place for all parties to work and agree upon, and this can only happen with significant bilateral diplomatic efforts. The Global Commission on the Economy and Climate calculates that, while a lack of progress poses huge risks to the world economy, bold climate action could deliver at least $26 trillion in economic benefits through 2030.

Gary Lapthorn next outlined Lloyds Banking Group’s commitment to supporting the UK’s transition to a low-carbon economy through leadership in financing sustainability in businesses, homes, vehicle fleets, pensions, insurance and green bonds. One issue found at Lloyds was lack of knowledge and education. Many experienced financial professionals are keen to act and support the transition, but lack confidence in their ability to lead on environmental issues. To address this, Lloyds partnered with the Cambridge Institute for Sustainability Leadership to provide training.

Lloyds is making concrete commitments in terms of both its own operating emissions and those associated with its loan book. It has pledged to halve emissions associated with its loan book by 2030 and to cut operating emissions by 60% over the same timeframe and is currently ahead of schedule. It has also pledged to move to its energy consumption to being 100% derived from renewables and its vehicle fleet to 100% electric. In addition, Lloyds provides financing for a number of environmentally beneficial projects, such as £273m of direct funding for the worlds biggest offshore windfarm, Hornsea Project One.

The presentations from the two speakers were followed by a lively audience discussion, in which participants and speakers explored the practicalities of combatting emissions through finance. The discussion centred on:

  • The extent to which financial institutions are making explicit trade-offs between profit and purpose – Lloyds are willing to accept slightly lower returns when companies agree to do the right thing
  • Whether looser capital requirements can be used to encourage climate-related lending
  • The role of innovation, and specifically financial innovation, in addressing environmental challenges
  • Executive renumeration, and the extent to which commitments are enshrined in incentives for decision-makers
  • Whether moves towards sustainability are making financial services an attractive career for graduates again, moving on from the “lost decade” experienced after the global financial crisis


COP26 – FINANCE SECTOR MEETS IN SCOTLAND TO BUILD GREENER ECONOMY

PRESS RELEASE FROM THE GLOBAL ETHICAL FINANCE INITIATIVE

EMBARGO: IMMEDIATE

COP26 – FINANCE SECTOR MEETS IN SCOTLAND TO BUILD GREENER ECONOMY

Leading financial institutions will come together in Edinburgh today (THU) for the start of a ‘Path to COP26’ campaign to build a greener global economy. A round table event will explore the role of the finance sector in the transition to a low-carbon and climate-resilient economy in the run-up to the global climate change summit in Glasgow in November.

To start the process of accelerating the combined efforts of the industry, the event will be addressed by Jonathan Taylor, former Vice President (Environment and Climate Action) at the European Investment Bank, and Gary Lapthorn, the head of sustainability and responsible business at Lloyds Banking Group Commercial Banking.The round table has been organised by the Edinburgh-based Global Ethical Finance Initiative (GEFI), which oversees, organises and coordinates a series of programmes to promote finance for positive change.

As part of the ‘Path to COP26’ campaign, GEFI will also host a series of events in the UK and beyond, ahead of the November summit. The campaign is designed to encourage banks, asset management firms and other financial companies to demonstrate their commitment to the climate agenda. According to the United Nations Environment Programme Finance Initiative, the climate transition will require additional investment of at least $60 trillion from now until 2050 – meaning private sector commitments are vital to tackling the climate crisis.
Bold climate action could deliver at least US$26 trillion in economic benefits through to 2030, compared with business-as-usual, a recent report from the Global Commission on the Economy and Climate found.

Gail Hurley, senior consultant to the Global Ethical Finance Initiative and former senior advisor to the UN, said:
“The eyes of the world will be focused on Scotland when senior politicians from across the globe convene at COP26 in Glasgow in November to negotiate the global response to tackling climate change.
“Climate change is a large, systemic financial risk that will change asset values as investment moves away from high carbon assets towards a low carbon economy.
“For financial institutions to become enablers and catalysts they must therefore understand the commercial risks and opportunities and know how to act on them.
“Finance can be a positive force for change, and we call upon organisations from across the globe to sign up to our Path to COP26 declaration to help us assist the financial sector to commit to practical efforts to tackle climate change.”

Jonathan Taylor, former Vice President (Environment and Climate Action) at the European Investment Bank, said:
“COP26 in Scotland will be a key milestone on the road to a successful conclusion to the fight against climate change.
“Expectations are high that countries should commit themselves to demanding targets to meet the agreed goal of the Paris Agreement to limit global warming to below 2 degrees above pre-industrial levels.
“So we should all think about what we can do to help ensure success, including financial institutions.
“The GEFI round table’s ‘Path to COP 26’ initiative makes an excellent contribution, and I am delighted to be part of it.”

 

Gary Lapthorn, head of sustainability and responsible business at Lloyds Banking Group, Commercial Banking, said:
“Lloyds Bank Commercial Banking is delighted to support the GEFI round table exploring the role financial institutions are playing in the transition to a low-carbon and climate-resilient economy.
“As part of the UK’s leading financial services group, Lloyds Banking Group, we can make a real difference to tackling climate change by helping to finance a greener future together.
“This will require new ways of living, working and investing for our business and our customers.
“That’s why we’re setting ourselves an ambitious goal to accelerate working with customers, government and the market to help reduce the carbon emissions we finance by more than 50 per cent by 2030, equivalent to removing the emissions produced by almost a quarter of UK homes.”

 

ENDS

NOTES TO EDITORS

More information is available at www.pathtocop26.com

Broadcast interview opportunities with GEFI are available.

A photo of Gail Hurley is available for download here.

A photo of Jonathan Taylor is avilable for download here.

What is the Global Ethical Finance Initiative?
The Global Ethical Finance Initiative (GEFI) oversees, organises and coordinates a series of programmes to promote finance for positive change. It brings together the world’s business, political, and social leaders to build a fairer finance system for people and the planet. The organisation is based in Edinburgh, and hosts the global ethical finance summit. More information is available at www.pathtocop26.com/ethical-finance-2020/

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 £40billion, 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.


Launch of 'Path to COP26' to address climate emergency

PRESS RELEASE FROM THE GLOBAL ETHICAL FINANCE INITIATIVE

EMBARGO: IMMEDIATE

LAUNCH OF ‘PATH TO COP26’ TO ADDRESS CLIMATE EMERGENCY

An Integrated Campaign in the run-up to the UN summit in Glasgow has been launched to bring the world’s finance sector together to address the climate emergency. The Global Ethical Finance Initiative (GEFI) will host a series of events in London, the USA, Gulf States and Asia ahead of the pivotal COP26 summit in November. The ‘Path to COP26’ initiative is designed to encourage banks, asset management firms and other financial companies to demonstrate their commitment to the climate agenda. That includes ethical investment decisions which help the environment, financing the clean energy sector, and offering ‘green’ options to clients for assets and pensions.

As well as the flagship Ethical Finance 2020 global summit in Edinburgh in October, a number of events on climate finance will also be held in Glasgow in November alongside COP26.
GEFI has already attracted six major partners – the Scottish Government; the United Nations Development Programme; Baillie Gifford; Royal Bank of Scotland; Chartered Banker Institute; and Shepherd + Wedderburn – and is inviting all organisations with an interest to take part. COP26 will be the largest gathering of world leaders in the UK since the opening ceremony for the 2012 Olympics, and the Prime Minister this week focused on the event at the first Cabinet meeting of the year.
It is widely seen as the most important gathering on climate change since the Paris Agreement of 2015.

Omar Shaikh, managing director of the Global Ethical Finance Initiative (GEFI), said:Omar Shaikh
“COP26 in Glasgow presents an unprecedented opportunity for the finance sector to come together to address the global climate emergency. “The launch of the Path to COP26 initiative will see events held across the world in the run-up to Glasgow, focused on developing commitments to the climate agenda and how to deliver impact. We already have six major partners and would encourage more to join the programme. “All financial institutions need to enhance transparency and choice by highlighting the impact of what they are financing and offering ethical options to their clients. “There are great opportunities for asset owners to invest in the clean energy sector, and public bodies and individuals are demanding greener pensions.
“We cannot miss this opportunity to deliver for future generations.”

Gail HurleyGail Hurley, senior consultant to the Global Ethical Finance Initiative and former senior advisor to the UN, said:
“All eyes are focused on the UK as this year’s host of what is arguably the world’s most important international conference. “Near the top of the agenda is how to mobilise the trillions needed for international climate financing programmes. “Within the financial services sector, interest has increased significantly over recent years in the ways it can – and should – look beyond short-term profit and shareholder value towards how it can drive positive social, economic and environmental impact. “Finance can be a positive force for change. The Path to COP26 initiative will accelerate the transformation towards a more socially responsible and inclusive financial system which serves both people and planet.”

ENDS

NOTES TO EDITORS

More information is available at www.pathtocop26.com

More information on the Ethical Finance 2020 global summit is available here: www.ethicalfinance2020.com

Broadcast interview opportunities are available.

A photo of Omar Shaikh is available for download here. A photo of Gail Hurley is available for download here.

What is the Global Ethical Finance Initiative?
The Global Ethical Finance Initiative (GEFI) oversees, organises and coordinates a series of programmes to promote finance for positive change. It brings together the world’s business, political, and social leaders to build a fairer finance system for people and the planet. The organisation is based in Edinburgh.

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 £40billion, 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.


Round Table: Ethical Finance Market Update - Keynote Interviews

Baillie Gifford – EFH Roundtable

16 December 2019, 16:00 – 18:00

Ethical Finance Market Update, Market Trends

Interviewer: Gail Hurley

Panel Participants: Andrew Cave, Thom Kenrick

Summary:

In a change to the usual format this session, once again hosted by Baillie Gifford, comprised of two keynote interviews which provided reflections (from the investment and banking sector) on the evolution of the ethical finance market and how the market will adapt to on-going political, economic, social and environmental uncertainty.

The interviews were conducted by GEFI Senior Consultant Gail Hurley who has recently completed 10 years with the UN in New York as a Senior Advisor.

Gail framed the session within the context of growing interest in driving a fairer, more sustainable financial system and the fact that 2020 will be a significant year for climate issues in Scotland as it welcomes the world to Glasgow for COP26, the UN climate conference.

Andrew Cave, Head of Governance and Sustainability at Baillie Gifford, was first up and he argued that ethical investing has moved from niche to mainstream. While in the past companies would not put their best people and resources into it, today the situation is changing. According to Andrew the overall direction is positive and there is a lot of interest from institutional investors. Continuing challenges include: the complications in defining a positive impact (as the market is still in its early days) and the intractable debate over what constitutes positive social impact.

Andrew offered some fairly candid views on confusion around terminology highlighting the fundamental difference between ESG, which factors issues such as climate risk, data privacy issues and regulation into existing investment paradigms, and responsible investing, which is more directive and it aims to reach a particular outcome. It was suggested that clear rules need to be designed to avoid a risk of diverting money away from those who can make a positive contribution. Another challenge mentioned by Andrew was the lack of quality data on complex value chains. A full view of impact requires improvements in disclosure and standardisation of data, which enables more sophisticated discussions about potential transformations in transportation and production systems.

Thom Kenrick, from the RBS Sustainable Banking team, was next in line to be interviewed by Gail. Unsurprisingly, Thom began by highlighting the major changes that have taken place in the banking sector in recent years and how this has driven RBS’s journey of reform and restructure. The financial crisis fundamentally changed regulation as banks were placed under greater scrutiny by both regulators and wider stakeholders. Thom described the growing interest in ethical finance from RBS customers but pointed out that many still struggle with the lack of consistency in terminology and approaches. In relation to social finance Thom suggested that this means financial inclusion to one, diversity to another and divesting from a power station to someone else. Unlike environmental impact, there is not a right or wrong answer as so many different aspects of social life have no scientific base.

Thom felt that while international standards may help in providing consistency, he pointed out that while PRI (2005) and TCFD (2015) have been around for a number of years few signatories are genuinely delivering to the required standard. That said, according to Thom, the situation is changing as customers, investors and the public are increasingly scrutinising firms so whilst such standards are voluntary, the consequences of not following them risks deterring prospective / existing customers and investors.

Despite the challenges outlined throughout the session the discussion ended on a positive note. Younger generations are more conscious, and their demand is expected to drive ethical finance in the long term. Change takes time and previous developments in ethical finance, whether successful or not, will have played a part in shifting mind-sets and practices. Although nothing is yet set in stone leading market players, such as big Baillie Gifford and RBS, have established dedicated teams, products and services to raise awareness and drive finance for positive change.


2020 GLOBAL ETHICAL FINANCE SUMMIT ANNOUNCED

PRESS RELEASE FROM THE GLOBAL ETHICAL FINANCE INITIATIVE

EMBARGO: IMMEDIATE

2020 GLOBAL ETHICAL FINANCE SUMMIT ANNOUNCED

The 2020 global ethical finance summit has been announced, bringing hundreds of major investors, asset owners and finance leaders to Scotland.
Supported by the Scottish Government and the United Nations Development Programme, the flagship event will focus on building a more sustainable financial system.
With the COP26 UN climate change conference taking place in Glasgow next year, the summit’s theme will be protecting our future.
There will be a focus on how financial services can support inclusive economic growth without depleting natural resources, and how the sector can help deliver the Paris Agreement and the UN’s Sustainable Development Goals.
It comes after the COP25 climate talks in Madrid ended with a compromise deal on the global response to curbing carbon.

The ethical finance conference, to be held at the Edinburgh headquarters of RBS on October 6 and 7, 2020, is organised by the Global Ethical Finance Initiative (GEFI), which oversees, organises and coordinates a series of programmes to promote finance for positive change.
It follows a hugely successful conference in 2019, which included a keynote speech from First Minister Nicola Sturgeon and video addresses from former Prime Minister Gordon Brown and the Archbishop of Canterbury Justin Welby, and attracted over 350 participants from around the world.
The announcement of the 2020 summit was made today (MON) at GEFI’s latest ethical finance round table event in Edinburgh, hosted by Baillie Gifford, which addressed responsible investment and more sustainable models for the banking sector.

 

Omar Shaikh, managing director of the Global Ethical Finance Initiative, said:Omar Shaikh
“The 2019 ethical finance summit attracted major international attention, bringing global leaders together to discuss key challenges including products, culture, system change, regulation and maintaining returns in financial services.
“A new way requires holistic thinking which is why the summit uniquely convenes the banking and investment ecosystem, addresses the big challenges we face that rethink capitalism, and connects people to enable partnerships to produce ethical financial solutions.
“To build on this desire for positive change, we’re bringing the finance world back to Scotland in 2020 for our next global summit in October.
“With COP26 taking place in Glasgow just a few weeks later, it significantly enhances the global prominence of this year’s summit and provides an excellent opportunity to focus on climate finance.
“Moving from talk to action, our theme will be protecting the future for everyone.”

 

Kirsty Britz, director of sustainable banking at RBS, said:
“We are looking forward to once again hosting the Global Ethical Finance Summit next year.
“The conference will be an important milestone in an exciting year for Scotland, with world leaders set to come to Glasgow for the UN’s COP26 climate talks in November.
“As a founding signatory to the UN Principles for Responsible Banking, RBS has committed to further align our strategy with the Paris Climate Agreement and Sustainable Development Goals.
“The global ethical finance summit provides an excellent opportunity for us to work collaboratively with stakeholders, peers and partners who are leading the agenda.”

 

Andrew Cave, head of governance and sustainability with Baillie Gifford, said: 
“Following the success of this year’s event we are delighted to be supporting Ethical Finance 2020 in Edinburgh next year.
“The global summit is an important platform for facilitating collaborative and insightful discussions that challenge and inspire asset owners and financial institutions to invest responsibly and take practical actions to deliver positive impact for people and the planet.”

 

ENDS

NOTES TO EDITORS

More details on Ethical Finance 2020 can be found here: https://www.pathtocop26.com/ethical-finance-2020/

A 2019 event summary can be found here:
https://www.pathtocop26.com/wp-content/uploads/2019/11/EF19-Summary.pdf

A photo of Omar Shaikh can be downloaded here


Round Table Explores Innovations in Social and Blended Finance

The 19th Round Table discussion continued the series of topics on the social impact sector and focused on recent developments in social impact investment and philanthropy. The underlying theme of the discussion was to understand how these can form part of blended finance supporting partnerships between investors and the public and third sectors addressing specific social needs.

Jonathan Flory (Director, Social Finance) started off by discussing the concept of social investment in the wider context of impact investing. Founded in 2007, Social Finance is a non-profit organisation working in the social impact arena, famously known for developing the first Social Impact Bond (SIB) in the UK. While the market for social investment is fluid, it forms part of a growing market of nearly USD 228 billion in impact assets and a larger movement in which governments, corporations, fund managers, investors and individuals are increasingly focusing their attention on achieving positive social outcomes by means of their investments. While social investment means different things to different people, unlike other investment approaches it focuses on addressing pressing social issues. As a UK term, it describes investments that intentionally target specific social objectives along with a financial return and measure the achievement of both.

While the Public Services (Social Value) Act 2012 clearly signalled the importance of social value in public procurement, a range of motivations continue to exist on the investor side. While international investment giants such as UBS support the “doing well by doing good” theory of impact investing, suggesting that financial returns do not have to be traded off against social objectives, they also recognise the need for softer, philanthropic capital. Given the spectrum of investors’ expectations, it is essential to align the interests of organisations with expectations of investors, but in many cases for a partnership to work there is a need for some element of soft capital in the overall funding structure.

Partnerships can play an important role in scaling up impact. A good example of this is the Positive Families Partnership, a London-based programme seeking to divert adolescents from entering the care system. The partnership brings together central government, local authorities, funders, and programme delivery partners. It applies the blended finance model and mixes grant and investment funding. Following a successful pilot by Essex County Council, the partnership model has been adopted by 5 other boroughs in London and now looks likely to be expanded to include all London boroughs.

The key challenge is putting the partnership together. For partnerships and blended finance to work, there must be a place where funders feel safe to partner. Potential solutions include building a new brand for the partnership, forming a joint venture or an innovative funding structure. The latter is particularly effective in bringing together investors with different financial needs and social objectives as the funding is often structured in tiers. An example is the Arts Impact Fund blending public, private and charitable funding in which the junior tier with first loss is provided by the Arts Council.

Social Finance is optimistic about future developments in social investment. It sees a lot of potential in improving financial inclusion by expanding affordable credit and social housing. In terms of partnership structures, more cross-developmental cooperation is on the way with funds pooled from separate budgets. There is a clear trend in themed funding, in which partners group around themes, which gives the partnership a clear focus.

Jonathan’s presentation was followed by a talk by Kenneth Ferguson, the Director of the Robertson Trust, and Christine Walker, their Head of Social Impact, who presented their innovative model of a public-third sector partnership. The Robertson Trust is a well-established organisation in Scotland with a 6o-year history of improving social outcomes for individuals and communities. It operates by means of providing grants to other charitable bodies and over the course of its history has awarded £250m to 467 organisations.

Back in 2012, the Robertson trust wrestled with the issues of sustainability and scalability of the impactful work charities were delivering. There were very few innovative financing models in Scotland. The Scottish government’s attempt to set up public-private partnerships (PPP) contained no obligation on the public sector to sustain a project while the Robertson Trust believed in the need for systemic change and moving away from high cost reactive services towards lower cost preventative models. They were eager to develop models that would expand impact to the national scale, achieving systems change on the one hand, and providing charities with much needed long-term funding on the other.

Their Social Bridging Finance concept aims to support this through the development of a contract with the public sector. The model has elements of both SIBs and PPPs, but is grant-funded. It is used to sustain projects that have already proved their effectiveness. The strength of its programme is its simplicity. The standard contract is only 10 pages long and contains a maximum of 3 success criteria. The crucial part of the process is defining the success criteria and making sure they are clear, measurable and meaningful. The success criteria are assessed at the outset by a third sector organisation in consultation with the public sector body, which creates a dynamic discussion between the two sides. TSDGe contract is signed, the Robertson Trust then fund the demonstration period, which usually lasts around 2 years. If the success criteria are met, the public body ensures the continuity of funding thereafter. This gives the charity the certainty of stable funding and for the public body it de-risks change. If the project is not successful, there is no obligation on anyone to pay back the funds. This way the Robertson Trust assumes the financial risk by providing the bridging finance to facilitate the switch to a low cost preventative model.

An example of the model is MCR Pathways, one of Scotland's biggest PPP agreements, which aims to widen opportunities for Glasgow’s most disadvantaged young people by offering a school-based mentoring and employability programme. The Robertson Trust initially supported the project by funding the demonstration period, but the premature success of the programme allowed it to expand quickly to include 200 schools across Scotland. Importantly, the model has brought in systemic change. “This model has allowed us to create a new approach which is now business as usual”, said Maureen McKenna, Executive Director of Education Services, Glasgow City Council.

A lively question and answer session followed, in which participants shared their impressions of the results achieved by the Robertson Trust. It is important to have an organisation which takes the initiative and brokers the connection between the third sector and public bodies. There was a shared concern that some investors in the impact investment landscape have high expectations in terms of the financial return, which was thought to be inappropriate in the context of funding public services. It is believed to be of the reasons why the SIB model was not fully embraced in Scotland due to some of the ethical considerations involved. Jonathan stressed that social impact requires thinking about how to support vulnerable groups of people. Impact investing is about creating value as opposed to extracting value, and it does not always imply cashable savings; rather is about spending money better and in a more productive way.

However, given the genuine interest among mainstream banks increasingly seeking to put money where it is most impactful, how can we capitalise on institutional capital in attaining compliance with the SDGs? Kenneth believes that achieving scale is not possible for any one organisation and there is a spectrum, in which every organisation involved can contribute in its unique way. The Robertson Trust currently assumes the “risk bit” and their role is to participate in the early stages of a project to demonstrate its effectiveness while capital markets can bring the project to scale. For the model to work, though, there should be more discussion about making sure philanthropic funds are available.

While both organisations attempt to scale impact, there are some differences in their approaches. While the Robertson Trust suggests that scale should be achieved in cooperation with the public sector, Social Finance aims to do so by bringing in new capital and new players. However, both organisations continue to share common aspirations to achieve social change and there are already some early examples of their models converging.

EFRT on Social and Blended Finance Slides - June 2019


UN PRB Insights: Teething Issues

Teething Issues

The UNEP FI has begun a public consultation period, which is open until May 2019. It acknowledges that there are areas of weaknesses and invites suggestions. It also provides case studies of several institutions already practicing specific behaviours in accordance with the global goals, making it easier for practitioners to benchmark and contextualise how their institution can embrace the SDGs.

1. Over Encouragement

It encourages any change towards reducing negative impact and increasing positive impact however unprecedented or imperfect, giving an example of a bank that “does not yet have all the answers” (who does!) that has set an ambitious goal and linked it to targets. It also provides references to expertise that can support a bank’s journey towards responsibility. The materiality map by the sustainability accounting standards board (SASB) is a useful taster.

The UNEP FI goes further to encourage greater adoption of sustainability practises by making it easy for even the least prepared banks in the world to sign up. Although the ability to self-declare as a starter or intermediate when becoming a signatory will greatly reduce expectations for the first two to four on early stage banks, the UNEP FI team must ensure this mechanism is not abused by advanced banks trying to manage expectations.

Furthermore, this four-year honeymoon for some means that there may be a disproportionate number of signatories who only begin contributing significantly to the global goals from 2023 onwards. Given the timebomb ticking on our planet just now is that going to be soon enough? The Intergovernmental Panel on Climate Change (IPCC) report produced in October says we have “a little over a decade” from now (Maitland AMO Green Monitor).

C-Level Responsibility

Founding members must ensure seamless alignment within their organizations as they gear up for the signing ceremony later this year. It is easy to plug a team of junior sustainability professionals in the back office while bankers tap away on the trading floor working in silos from each other. Half of the heads of sustainability at a GreenBiz Conference Board meeting in the US in 2016 reported half an hour or more of face time with the CEO three times or less in a year. Really?

Let’s not read a report ten years from now that says what E3G’s Briefing Paper said in March 2017 of the UN PRIs: “Our analysis finds that 33% of signatories directly employ no ESG staff and a further 20% employ just one. This means over 500 PRI signatories, representing $6.9 trillion, directly employ one or fewer ESG staff. On an asset under management (AUM) basis, the average PRI signatory hires one ESG specialist per $14bn of assets managed.”

Change of leadership can also dilute the process if sustainability is not properly plugged into the C-suite. Take the example of Yes Bank in India. It’s share price plummeted 34% when news surfaced in September that Rana Kapoor, its CEO, would be forced to leave (by the Reserve Bank of India) by January 2019. The fact that it has a dedicated Chief Sustainability Officer, who in fact sits on the Global Steering Committee of UNEP IF, provides comfort that this will not derail the bank from its UN PRB drive.

There have been many peer to peer initiatives that have worked hard to transform specific areas of the banking industry by producing results such as the Soft Commodities Compact that supports the reduction of deforestation, or the Equator Principles used as an environmental risk management barometer in project finance. However, an international initiative to infuse sustainability into every vein and artery of a bank across business lines indicative of the UN PRBs has rarely come to market. We welcome the boldness of the UN PRBs in spirit and urge those involved to ensure even bolder results.


UN PRB Insights: The Early Adopters

The Early Adopters

It has taken 12 turbulent years of uncertainty in the financial industry to get the sell-side to align with the buy-side which has embraced the UN PRIs. It now appears the balance could indeed shift IF the UN PRBs actually work, given their alignment with the SDGs and the Paris Agreement unlike the former which takes a softer dated ESG position. A strong signal will be if we have a few champion banks announce bold targets at the formal launch of the UN PRBs in May 2019. This is very likely given that many banks involved in the drafting of the UN PRBs have been actively implementing new standards of practice that align with the principles already.

Take SocGen for instance. Just four years ago (2015) SocGen was actively increasing its exposure to coal-based projects e.g. 770 MW coal fired power station project that would increase capacity by 80,000 tonnes in the Dominican Republic. Only a year later it announced that it would phase out its outstanding loans to the coal industry to less than 20% of its power production portfolio by 2020. BNP Paribas has taken similar measures and stepped it up with restrictions on some parts of O&G financing in addition to coal.

There are a myriad of banks in the founding group that are at very different points of their sustainability journey. This is very promising to see, as it reflects some level of initiative not seen before by an industry that has an inertia to positive change until regulation dictates otherwise. Take the case of Barclays, which continues to witness great friction with stakeholders. From activist investors (Ed Bramson’s Sherborne) and a CEO fined by the FCA for lack of diligence to protests by People&Planet at its AGM against the financing of the Kinder Morgan Pipeline in Canada. All of this happened last year. As a founding member of the UN PRBs, what can we expect from Barclays this year?

We could go through the list with a fine-tooth comb, but the point here is not to shine a torch on negative impact but to highlight a joint initiative that could lead to a lot more positive impact from an industry that continues to struggle with its past. The UN PRBs could catalyze systemic change that is long overdue. It is the first set of principles launched that takes a deep and holistic approach to sustainability integration into a major industry that has impact on all the rest of them. This could have a positive ripple effect on the entire economy, especially if the majority of global banks that continue to finance projects in laggard sectors that drag their heals towards sustainable practices sign up and deliver.

One such mass are the North American banks. Neither a Canadian nor a US Bank has participated in developing the UN PRBs. Just look into one arena as a litmus test: the financing of extreme fossil fuel power at “top companies” by banks over the three years from 2015 to 2017. The top 10 that made the league table (Banking on Climate Change 2018) are primarily Chinese and North American institutions: CCB, RBC, JPMChase, ICBC, Bank of China, TD, HSBC, ABC, Citigroup, and BoA. It is hopeful on the other hand to see a Chinese bank, namely ICBC that ranks forth on the league table, participate in the UN PRB initiative.

The UN PRBs not only link deliverables to the global goals but also to “other relevant national, regional or international frameworks”. Without a relevant national framework in every country around the world, the scope is limited. Brazil, for example, champions this notion. In 2014, the Central Bank of Brazil (BCB) published a mandatory Resolution 4,327 for financial institutions to have social and environmental responsibility policies. Lobbying with local governments and policymakers around the world will be essential to see more countries do the same. Rabobank is another strong role model, actively voicing its views of the role of government in sustainable finance. In its June 2018 position paper, for example, it talks about coordinating policies at the EU level and suggests “targeted – and temporary/ evolving – subsidies, such as for green loans, for green deposits”. Financial incentives will most certainly help Banks generate more positive impact.

Therefore to maximise the impact of the UN PRBs, the world will need a lot more than 28 signatures. It will need dedication, courage, and resources from all early adopters, crafters, and endorsers to summon the masses into the UN PRBs and pressure national and local government bodies to issue and revise policies, incentives and legislations to augment it.