Annual letter from the chair and chief executive

This month marks the first anniversary of the Green Finance Institute.

Ordinarily, we would celebrate such a milestone with our many friends and supporters as we did at our launch last summer during the Green Finance Summit at London’s Guildhall.

These aren’t ordinary times.  As we draft this letter, the full impact of the pandemic on the health of citizens, businesses and economies has yet to be understood. The future is uncertain, yet from that uncertainty has arisen greater clarity: that short-term demands for stimulus measures arising from COVID-19 must align with the long-term imperative of transitioning to a net-zero carbon economy the world over.

The truth is that the pandemic does not make the urgency of addressing climate change any less critical or its potential impact less catastrophic. It is in fact a reminder of the need to build systems for resilience and inclusion in order to mitigate the impacts of future shocks, many of which we predict will be environmental and social in nature.

Before COVID-19, there wasn’t a coherent, scientifically supported high-carbon route to economic prosperity. There certainly isn’t one now. Instead, there is widespread recognition that the pathways to prosperity are the same as the pathways to net zero. A newly optimistic narrative for green finance is increasingly coming to the fore – one that focuses on creating new green jobs and rebuilding communities through investing in sustainable infrastructure, clean technology, resilient supply chains and healthy ecosystems.

In this latest chapter for green finance, our role as a finance community is to devise ways to overcome the specific barriers to investment within each sector of the economy to channel global capital towards local solutions that will both drive a recovery and mitigate environmental catastrophe.

Now more than ever we need examples of what can work: financial solutions that generate acceptable, risk-adjusted returns; investable policy pathways that are also informed by finance practitioners; and definitions, data and analysis that support financial innovation – all focused on deploying capital where it is needed in the real economy.

Our vision at the Green Finance Institute is of a greener future made possible by finance, a society transformed through better investment – and we recognise that the finance sector can only unlock the funding for the transformation of the global economy if we work in concert with governments, academia, regulators, business and the non-profit sector. Indeed, it is only through collaboration that we can hope to solve our global challenges.

To this end, and from our unique position sitting at the nexus of the public and private sectors, we have in the past year harnessed the expertise of broad groups of stakeholders – leading outcome-focused coalitions, supporting external working groups and initiatives and using our distinct platform to educate and inform.

Our approach is to be ruthlessly practical and grounded in urgency. Our coalitions comprise experts and practitioners who understand the market failures and investment gaps and can co-design the innovative financial products and mechanisms that combine both public and private finance to create attractive investment opportunities.

The Coalition for the Energy Efficiency of Buildings (CEEB) is our flagship programme. Launched at COP25 in Madrid, and with the support of E3G, we have convened more than 100 individual members from the finance, property and energy sectors and across policy, academia and non-profit organisations, to develop the market for financing net-zero carbon and climate-resilient homes in the UK.

In May 2020 the CEEB released its phase-one report assessing the market for energy efficiency improvements in UK homes and identified specific initiatives where finance and government can bridge investment gaps to drive systemic change. The report contains a portfolio of 21 demonstration projects, co-created by members, which range from developing green leases and US-style PACE financing structures, to building retrofit passports and loan principles.

Over the past year we were also pleased to lead the finance workstream for the Global Resource Initiative which published its first report in March 2020. Its recommendations aim to drive more resilient and sustainable food systems that avoid deforestation and environmental degradation overseas, while supporting livelihoods.

As well as supporting the report’s overall aims, the Green Finance Institute has contributed specific, practical financial recommendations which include developing and delivering a sustainable import guarantee; the creation of a centre of excellence for blended finance within government and calling for government support to re-establish London as a leading global centre for high-integrity carbon trading.

In addition to leading our own sector-focused coalitions, we have been engaged in the work of other groups and initiatives, connecting efforts to drive systemic change, including:

  • the Climate Finance Risk Forum, convened by the FCA/PRA, which recently published its guide to help the financial industry approach and address climate-related financial risks through sharing case studies and best practice;
  • the Zero Carbon Campaign, working through the practical challenges of structuring and implementing a carbon pricing policy for the UK, which recently shared an interim report of its findings and ongoing work;
  • the Coalition for Climate Resilient Investment, building a strengthened market for private and public-sector investment in climate resilient infrastructure;
  • the UK-China Green Finance Taskforce, which produced the Green Investment Principles to ensure climate resilience and social inclusion are built into new investment projects in the Belt and Road;
  • the Broadway Initiative, creating the governance frameworks and enabling mechanisms to invest in nature;
  • the Dasgupta Review, which published its interim review on the economics of biodiversity loss;
  • The All Party Parliamentary Group on Sustainable Finance, supporting parliamentarians’ understanding about sustainable finance to build political consensus for the changes required in the finance sector to help reach net zero;
  • The All Party Parliamentary Group on Fair Business Banking – Bankers for Net-zero, developing the policies and regulation needed to enable banks to finance the transition to net zero;
  • The Secretary of State for Business Energy and Industrial Strategy’s Economic Recovery Roundtable on Green Recovery, devising ways to capture economic growth opportunities from the shift to net-zero carbon emissions.

We also recognise the important role that can be played in furthering awareness and expertise in green finance with policymakers and financial actors.

We are proud champions of the first Green Finance Education Charter for financial services’ professional bodies, providing their members with the opportunity to build their skills in green finance.

We also support the UK Government’s diplomatic and trade efforts through education, knowledge sharing and advisory work.  In the past year, more than 20 diplomatic engagements have taken place with delegations from across the globe, including Brazil, China, India, Japan and Mexico.

In October 2019, we co-hosted the first public sector green finance conference in partnership with the University of Oxford Smith School of Enterprise and the Environment, and continue to support the international capacity building, technical assistance and diplomatic outreach of our founding funders, Her Majesty’s Government and the City of London Corporation.

In this important year for UK climate action we are actively supporting the Government’s efforts in the run up to COP26. As part of our ongoing dialogue, we have established, in partnership with the City of London Corporation, the ‘Finance Friends of COP’ roundtable series to facilitate collaboration and knowledge-sharing among the banking and institutional investor community, the UK Government, the UN high-level champions and the COP Unit.

Also in collaboration with the City of London Corporation, and supported by the World Economic Forum, the ‘Green Horizon Summit’ will take place at Mansion House as a virtual event in November, to showcase progress from across financial services and maintain a high-ambition agenda leading into the climate change conference in Glasgow.

As we continue to look to the year ahead, we will build on the momentum of our first year by expanding our efforts to connect green finance to the real economy.

The CEEB will extend its focus across the built environment, applying its rigorous methodology to the challenges of low-carbon heating. It will also explore financing the retrofitting of commercial buildings, developing the mechanisms to finance zero-carbon new buildings and exporting the model to international markets.

With the support of a grant from the Quadrature Climate Foundation, we will also turn our attention to the financing needs of transport, a sector which is key to the transition as well as the green recovery. Road transport is one of the largest contributors to UK greenhouse gas emissions, with cars alone contributing 55 percent of domestic transport emissions in 2018.

In addition, we will be exploring certain financing challenges that lie within shipping, working with experts to unlock the finance needed to support the decarbonisation commitments made by the industry.

We will focus on biodiversity loss. The UK is developing a series of potentially transformative funding mechanisms to deliver its 25-year Environment Plan, each of which has the potential to create new investment opportunities and markets for nature and nature-based solutions. At the Green Finance Institute, we will play our role in collectively shaping the approach to deploy both public and private capital at the scale and pace required to meet the Plan’s goals.

Finally, we will continue to support the greening of the domestic and international financial system through close collaboration and dialogue with financial regulators and policymakers, calling for the issuance of a sovereign green bond and advocating for a national net-zero carbon development bank to catalyse the investment towards defined sector-specific, real-economy outcomes. We are also nurturing international partnerships to establish green finance investment vehicles and initiatives to further the agenda globally.

As COVID-19 continues to demonstrate, international co-ordination is critical if we hope to reduce the risk and impact of future shocks.

This wasn’t the year any of us was expecting, nor can we predict what the years ahead will bring. What we can do, however, is strengthen our commitment to a more resilient future by ensuring we ‘build back better’.

It is clearer than ever that all of us have a part to play, as individuals, as organisations, and as a financial sector. And while it may be some time before we can convene again in person, we warmly thank you all for your enthusiastic encouragement and participation, not least our principal supporters across Her Majesty’s Government and the City of London Corporation.

The Green Finance Institute is committed to playing its part and will continue to work collaboratively with you all to stimulate innovation in financial markets and ensure global capital is channelled to meet our collective challenges.

Sincerely,

Sir Roger Gifford
Chair
Green Finance Institute

Dr Rhian-Mari Thomas OBE
Chief Executive
Green Finance Institute

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