Comment: The Paradox of Green Finance

Published on 1 Jul 2019

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Tim Nixon, Chief Communications Officer, Global Head of Partnerships and Policy, Constellation Research.

There are two seemingly impossible things happening at the same time.

One, on a steady upward curve, investors are flocking to options to incorporate “sustainability” into their portfolios.  The latest statistics from PRI have us approaching nearly one-third of all investable dollars using some kind of a sustainability lens, with climate impact a high priority.

Two, on a similar steady upward curve, concentrations of greenhouse gases in the atmosphere have reached levels never before seen in human history.   We have reached such heights in the collection of greenhouse gases in our atmosphere in such a short time, that we are now eclipsing levels which 800,000 years ago coincided with sea-levels 20+ meters higher.  The ice simply has not had time to melt yet, but it is.

What is going on here?  How can we be chasing what appears to be a rather obvious illusion of progress on the most important single issue in human history?

Dr Rhian Mari-Thomas OBE, CEO of the City of London Green Finance Initiative clarifies that “what is actually happening is that we lack the ability to measure exposure to climate risk.  Therefore, we are simply not managing it.  Specifically, many of the largest emitters of the world are not only failing to share their past record of performance, nearly 80% of the largest sources of GHG are not telling us when and how they plan to decarbonize going forward.  For now, these are investments in hope.”

And so without knowledge of who has emitted what, and who will emit what, we are left guessing.  And the guessing occurs in the context of enormous incentives to keep us guessing. It is, as Mark Carney identified, truly a tragedy of the horizon.

Given this predicament, what is left to do in time to matter?  Where and how should we measure and manage first?

Thomas observes, “Fortunately for the planet and us, the industrial players who are responsible for the bulk of the problem and solution have grown enormous, and consequently few in number.  They are big and powerful, but we can see them clearly, and the CEOs of around 300 of these super-emitters, accounting for roughly one-third of annual human sourced emissions, could easily fit in the Guildhall where we are meeting for the third annual Green Finance Summit to address how the financial services sector can support those at the forefront of this challenge.”

Unfortunately, very few if any of those leaders will be in that hall on July 2nd, but that does not mean they couldn’t be at some point.

So how to get them there?  Focus.

Focus on the few leaders who can make change in a timeframe which can still matter, to wit, these CEO’s of super-emitters, as well as the emerging business case for change in each of the most carbon intensive sectors.

Thomas points to several factors which are all part of the solution.  “First, clarify who these leaders are, and where their businesses are on their journeys towards alignment with the below 2° objective of the Paris Accord.  This must be done urgently and simply to break through the white noise.

“Second, we must convince decision-makers of the granular business case for change, which is increasingly compelling in all sectors. We need to be in a position where those in business and finance are able to translate the macro trends into actionable commercial strategies. We need to help them get to their desks tomorrow and do something different to what they did today. “

“Third, we must equip investors, regulators and the general public with consistent and clear indicators to engage with each of these firms, many which are household names, to hold them to account on their journeys forwards.  Ultimately through transparency and disclosure, such as the TCFD, there needs to be greater differentiation, including in cost of funding for those firms that are failing to respond to the climate crisis and those who should be rewarded for blazing the trail towards decarbonization and resilience.”

Implicit in what Dr Thomas is saying is that wherever these CEOs are taking their businesses, we are all going.  The questions of what data they are providing about themselves, how to use that data to understand performance, and most critically how to engage from an informed stakeholder perspective are the questions of the day, week, year and century.  Time to focus where and on whom it matters while we still have that time.