Opening the ‘Opportunities for Sustainable Growth in Europe’ event in the Guildhall in London last month, Lord Mayor of the City of London, William Russell, said that as a world leading financial centre, the City was committed to spearheading the sector’s push into a new sustainable finance era.
One of the ways that the City aims to accelerate the greening of the global financial system is through the Green Finance Institute, which it recently helped launch. The Institute seeks to mobilise capital to support the world’s transition to a zero-carbon and climate-resilient economy.
“Working with international partners such as Brazil and China and incorporating a variety of stakeholders, from economists to members of government to scientists, we want to create truly viable and sustainable financial solutions,” said Russell.
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Event moderator and Chair of the Green Finance Institute, Sir Roger Gifford, said he had high hopes for this new body.
“It’s a very exciting new venture, set up this summer to act as the primary interface for both the public and private sectors in finding commercial solutions to change, particularly around green finance and sustainability. Dr Rhian-Mari Thomas is our first Chief Executive, a capital market banker from Barclays Bank, and we are optimistic about what the new institute can achieve.”
Latvia’s Ambassador to the UK, Baiba Braze, emphasised the need to underpin green financing activities with “concrete policies and instruments”. These, she believed, could help shape a “national and global response”.
Braze said that overcoming silos between the private and public sectors, civil society and academia would be crucial to the EU’s ambitions to become carbon neutral by 2050. “Governments alone will not be able to succeed”.
“As President-elect Ursula von der Leyen has said, Europe must lead the transition to a carbon-neutral economy and new digital world. To achieve that, economic, social and sustainable aspects must go hand in hand” European Commission Vice-President Valdis Dombrovskis
Turning specifically to the issue of green finance, Braze said Latvia fully supported the European Commission and its work to date. However, as with any new standards-setting regime, there are practical challenges, such as the quantification of criteria for what constitutes as a ‘Green’ project.
“The solution, again, is to be as unified as possible on EU standards, taxonomy and better data exchange between actors and the financial sector and business to government.”
Keynote speaker at the event, European Commission Vice-President Valdis Dombrovskis, told participants that for the new Commission, the next five years will focus on managing policies effectively and fairly.
“As President-elect Ursula von der Leyen has said, Europe must lead the transition to a carbon-neutral economy and new digital world. To achieve that, economic, social and sustainable aspects must go hand in hand.”
Turning to the main focus of the event, Dombrovskis praised the EU’s “global leadership” on sustainable finance, reminding attendees that the EU was the first jurisdiction to pass hard legislation aimed at incentivising capital flows to green and sustainable projects.
However, he warned that financing the transition to a climate-neutral economy would require trillions of euros of investment in the coming decades. “We will need both public and private funding,” said Dombrovskis.
He revealed that the new Commission will draw up a flagship Sustainable Europe Investment Plan, aimed at unlocking around one trillion euros’ worth of sustainable investment in the next decade. “To stimulate private investment, we have also incorporated sustainability in the EU’s next long-term budget, which we will use to leverage private investment.”
“We want the City to become an engine of the transition to a low carbon economy, a global hub for green investments and also for green arbitration, accounting and technology. But in all, it’s absolutely vitally important that we work in partnership across borders” Catherine McGuinness, Chair of the Policy & Resources Committee at the City of London Corporation
Closing with some inevitable words on Brexit, Dombrovskis said the UK’s departure would be a loss for the EU. He announced an extension to the 30 March 2020 temporary equivalence rules for UK clearing houses saying, “regrettably, the risk to financial stability has not yet been fully removed. Therefore, I intend to propose to renew this time-limited equivalence decision beyond that date, to prepare for any eventuality”.
Rebecca Self, CFO of Sustainable Finance at HSBC, welcomed Dombrovskis’ announcement on a Sustainable Europe Investment Plan, saying that sustainable finance was a huge opportunity for growth.
She explained that from the investment bank’s perspective, sustainable finance was worth more than $40bn and covered several areas, including green bonds, sustainable development bonds and impact funds.
“But it’s not without its challenges, particularly those relating to data, consistent definitions and disclosures. And in this respect the taxonomy will be helpful and having those consistent definitions which we can all work towards is something to be welcomed.”
Steffen Hörter, Global Head of Environmental, Social, and Governance (ESG) at Allianz Global Investors called the issue of taxonomy, “the Holy Grail” of the proposed Sustainable Europe Investment Plan.
“The taxonomy connects the real economy, so it economically evaluates activities against sustainability. What the taxonomy aims to achieve, in the best case, is to minimise transaction costs and build a point of reference for financial market actors, especially in the bond market. So, the EU green bond standards link to the taxonomy, for example, that’s very useful and welcomed by the financial industry”.
Summing up, Catherine McGuinness, Chair of the Policy and Resources Committee at the City of London Corporation, said that whatever happens regarding the future UK-EU relationship, it was clear that everyone recognised the importance of continued cooperation and engagement between the UK and EU.
She welcomed Dombrovskis’ announcement on temporary equivalence for UK clearing houses, saying, “What you’ve said about the extension will be very good news not just for the UK but for the financial sector generally. We all recognise the need to be realistic about financial stability, so your comments will be well received.”
Reflecting on the discussions, McGuinness reiterated the City’s determination to play its part in championing sustainable finance, citing its strong track record, including the first issuance of certified green bonds through the London Stock Exchange and the City’s involvement in helping establish the Green Finance Institute.
“We want the City to become an engine of the transition to a low carbon economy, a global hub for green investments and also for green arbitration, accounting and technology. But in all, it’s absolutely vitally important that we work in partnership across borders.”