“There is no time to lose: sustainable finance is the answer.” Such a ringing endorsement for our sector is always welcome – all the more so when it appears in The Financial Times.
For one thing, it shows how far the subject has come. A decade ago, sustainable finance was a niche pursuit, relegated to the back pages of the business press, if it was reported at all. Now, it is increasingly front and centre.
Make no mistake: this new-found prominence is well deserved: the sustainable finance market is estimated to be worth more than $380 billion a year. This is the same capital influx that made renewables the fastest growing segment of the energy market last year.
Let’s not get ahead of ourselves though. If we’re serious about ushering in a low-carbon economy by 2050 (as the Paris Agreement requires), then it’s going to cost. Shifting the energy sector alone onto a sustainable footing comes with an annual price tag of $3.5 trillion. By that reckoning, we’re not even close.
I firmly believe that sustainable finance is indeed the answer to decarbonizing the economy. But for that to happen, our sector requires a radically different kind of leadership – one that is bolder, more transparent and more outward-looking than the present.
Money, as everyone knows, makes the world go round. Today, the world is spinning in a perilous direction, as the recent IPCC report makes only too clear. It is logical, therefore, to ask serious questions of today’s moneymen (and women).
First and foremost, how did we get to this point? And, just as importantly, how are we going to get out of it? What strategies do they have for employing the capital under their control, for instance? What importance are they attributing to climate concerns?
Our skewed economy speaks for them. Today, renewable fuels still only comprise 15% of the global energy mix. In transport, only 1% of US car sales are electric. For construction, the carbon footprint of buildings is stuck at a stubborn 39% of total greenhouse gas emissions.
It is impossible for the energy-intensive sectors of yesteryear to maintain their dominance without financing, that much is certain. So who is providing access to that financing? Enter sustainable finance’s dirty little secret: it’s us. Not “us” directly, perhaps, but the financial sector as a whole – a whole to which we inextricably belong.
As sustainable financiers, we need to be bolder in addressing the blatant contradictions within our own industry. For too long, the financial sector has been giving to the climate with one hand while taking (vast amounts more) with the other. This counter-productive use of capital won’t stop until we, the insiders, speak up.
To do so will incur a backlash, no doubt. Speaking truth to power is never easy. Yet if not us, then who? We talk their language, we understand their world, many of us even share the same offices.
Secondly, we need to become more transparent. Sustainable finance might be a small slice of the overall finance market, but its trailblazing ways are a beacon for everyone else. As HSBC’s Zoë Knight argued in the above-mentioned Financial Times article, governments, businesses and mainstream investors look at the flow of low-carbon capital and “make decisions accordingly”.
If only this was the case. In reality, the investment trajectories of the sustainable finance market are more of a dark hole than a bright beacon. For all but the most earnest analysts, spotting trends or identifying meaningful patterns is nigh-on impossible.
Opacity is hardwired into the culture of professional investors. Yet normalizing bad practice does not excuse it. If we are to genuinely act as a signpost for others, then we need to break ranks and demonstrate far greater levels of individual and collective transparency.
As an absolute minimum, we must agree on a common system for disclosing climate finance flows and – as importantly – for the action financed by these flows. The recommendations of the Task Force on Climate-related Financial Disclosures cover much of the groundwork here. All that’s left is to implement them.
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Finally, the sustainable finance sector is crying out for a more outward-looking model of leadership. Kickstarting and consolidating the sector has required huge internal focus and cooperation. Now, with the sector reaching maturity, we need to take those same attributes and direct them beyond our own inner circle.
Engaging the non-sustainable elements of our industry, as advocated above, is just the start. We also have to be out there engaging those that frame and fuel our modern economy – so policymakers, legislators and company leaders alike. And not just in sub-committees with a sustainable finance label, but at the top tables of public debate.
The future of finance has to be sustainable. If not, it will have no future. So let’s step up and make that point loud and clear. If sustainable finance really is to be the answer to decarbonizing our economy, then the hour has come for us to adopt a new form of leadership.
On that score, there really is no time to lose.