A Reflection on Sustainable Finance Week
Pace of Action
Significant climate events are happening sooner than expected but not surprisingly. Guernsey-born Rachel Scott, a BBC producer and director of an episode of Frozen Planet II, presented by Sir David Attenborough, detailed the importance of tackling climate change at pace. ‘Wildlife has declined by 60% since 1970, and extreme weather events such as Typhoon Nanmadol, which recently struck Japan, show the impact on human life, economies and investments.’ Panellists agreed that we can pivot the risk into opportunity, but we have very little time left to make that transition.
As the world is now ‘open’ again it feels as though humanity is destined to replace one crisis with another. Only today, reading the morning news online, I was struck by the number of difficulties the world is currently facing. A few headlines: corruption in parliaments, war in Ukraine, cost of living hikes, the energy crisis, gender pay gap, climate change and possible fuel restrictions. Every one of these topics affects how we risk assess and run our businesses so there has never been a more appropriate time to consider how environmental, social and governance measures can influence our success.
As consumers we need to know who we are dealing with and who to trust in business. Knowledge and trust are driven from experience and reputation together with longevity, it is those businesses that recognise the risk in ESG, that are likely to endure longevity. The recent Edelman Trust Barometer report evidenced that trust in business is generally higher than trust in government with the rationale of the Governments reaction to ESG being ‘fickle and malleable’ due to revisiting policy for oil, mining and nuclear & defence. Seen to be a ‘mere fashion’ as a result of the Ukraine war.
Fortunately, the recent developments at COP 26 are still taking centre stage with recommendations from the Taskforce on Climate Related Financial Disclosures (TCFD) and the launch of the International Sustainability Standards Board (ISSB) suggesting that ESG is still a focal point but with regulation taking precedence amongst the financial sector.
As each year passes together with more conferences, seminars and COPs it unfortunately becomes apparent that there is still a huge culture change required, as the same topics hit agendas such as skills development and collaboration.
A lack of expertise and capacity is a challenge for firms looking to implement and service the increasingly specialised and complex world of sustainable finance. There is onus on firms wishing to upskill their workforce, to facilitate opportunities for education. However, to succeed, we will need environmental groups, the third sector, the government, the private sector and the regulator to share knowledge and collaborate. The very meaning of the word sustainable means ‘the ability to endure’, our obligation to consider the next generation in everything we do today that impacts nature means we must consider how we best apply capital in a way where investing in a future world addresses the risks of nature depletion.
Dual approach to understanding the risk
The clear distinction of the twin crisis we are facing was evident throughout Sustainable Finance Week– the erosion of nature and biodiversity and climate change. As Emma Howard Boyd, Chair of the Environment Agency said: “We need to green the financial system, but we also need to finance green.” The focus has been on carbon and reaching zero in the financial world. However, nature should have a significant role to play in both agendas. There was a consistent theme stressed by various speakers that environment and nature must be placed at the heart of decision-making, investment decisions and how we manage our businesses.
A true understanding of that risk is hampered by a lack of consistent, comparable data, which could limit capital deployment, impeded by dilution from the mass number of frameworks.
The classic: What you measure, you can manage. Methodologies for measurement are coming fast however it is apparent that we need a holistic approach to ensure a comparable and efficient transition. We are fortunate to have experts and technologies locally available in this area, such as FutureTrack @ ESi Monitor and panellists endorsed the requirement for frameworks to aid understanding and provide comparability. Providing more local structure will be the forthcoming fiduciary framework due to be released by the International Sustainability Institute Channel Islands (ISICI) on the 12th October 2022. This should generate some positive momentum in the private wealth sphere but we need to remain vigilant that partnerships are crucial in the development of standards, in sharing data and in creating new frameworks.
Demand will change supply
Another consistent message was ‘investors care’ as demand is being driven by the capital and there is a growing pool of conscious investors driving change.
A highlight, frequently reaching headlines at present is the prevailing fact that those who are most impacted are often those who can least afford it, for example the wealthiest consume the greatest proportion of energy but spend the lowest proportion of their income on it. The consequences for low-income households cannot be ignored, particularly as energy is correlated to GDP. As Harry Manisty confirmed, we’re still a long way off with the renewable energy supply needing to double 27 times in the 28 years we have leading to 2050. It was also noted that the minerals needed for green energy technologies posed challenges with supply chain uncertainties adding to the complexity of rapidly scaling up production. We can also expect to see RAG rated carbon impact labelling for consumer goods coming into play soon.
Sustainable investment/green finance was a hot topic as firms are pushing back on environmental regulators to understand the positives and negatives of investible opportunities to try and avoid any unintended consequences in how people invest. We are already seeing a shift toward conscious ‘green’ investing driven by demand.
Overall we can expect to see a global drive for change and more action now than we’ve ever seen before, however we need to remain loyal to our local environment and community by ensuring our own shores are nourished, flourishing and green where naturally this divides and conquers the collective power for climate change, nature and biodiversity.
Changes in relation to the PII requirements have been made to the Fiduciary Rules, the Capital Adequacy Rules, the Insurance Managers Rules and the Insurance Intermediaries Rules following feedback from recent consultation papers.