Green finance: how can we transition towards a decarbonised future?

November 1, 2021 Written by Kate Roche

Tags: sustainnovation

On 27^th October, Stand hosted the second in our latest series of live events, which bring together leading experts to discuss issues of pressing importance in all our lives. Ahead of COP26, the topic at hand was green finance: what risks and opportunities face the sector as we make the transition towards a decarbonised future?

Lucy Chapple, Stand’s Head of Sustainnovation, chaired the event and was joined by Alison Collins, Head of ESG at Pollen Street Capital, Nicholas Beatty, Founder and Director of Zenobē, and Chris Richold, Managing Director of Asset Finance at Shawbrook Bank. Here we’ve gathered a distillation of some of the key take-aways from the lively and wide-ranging discussion.

The question of scale

The financial system is undergoing a period of phenomenal change to meet the net zero challenge, and meeting the challenges ahead will require a coordinated effort that combines the robustness of a public sector framework, with the heft of the private sector.

Whilst global governments will have a central role in providing the certainty needed to bring about long-term structural investment, where private capital becomes indispensable is in its ability to facilitate scale. This will be of critical importance because, to successfully overhaul our energy system, we’ll need to invest trillions rather than billions.

In the UK, we’ve seen this cooperative approach play out to great success in recent years: when the wind and solar markets were initiated, the government gave generous support to get them on their feet through long-term financial mechanisms. Thanks to the public sector taking on the risk in this way, corporate investment poured in. When the markets matured, the government was able to take the stabilisers off and leave the burgeoning industries to sustain themselves. Perhaps there is scope for this approach to be replicated to mobilise capital investment in decarbonisation once again.

Popping the green bubble

You could be forgiven for thinking that terms like ‘ESG’, ‘net zero transition’, and ‘carbon offsetting’ are tripping off everyone’s lips, such is the fervour with which they are discussed in certain corners of society. In the wider world, however, are people aware of the issues, and if so, do they care?

With the cost of household energy bills increasing, and access to technologies such as electric vehicles prohibitively expensive to most people, it’s important that the sector remains outward-looking and that we push towards a tipping point where green choices make financial sense for consumers, even if they don’t take an ethical stance. By prioritising accessibility, affordability, and education around the benefits the energy transition will bring through jobs, improved health, and more, the sector can demonstrate itself to be integral to society rather than an expensive, optional bolt-on that’s vulnerable to being used as a political football.

Reporting is necessary but not sufficient

Two years ago, if asked to report on environmental, social, and governance (ESG) data, executives at many companies would look back with blank faces. Today, methodologies for measuring these metrics have a long way to go but are undoubtedly moving in the right direction. This is all well and good, but the UK has fallen behind other nations and must now move quickly to define its ESG taxonomy, creating standardised assessment criteria that can be used in harmony with legislation that already exists elsewhere in the world.

That said, when it comes to reporting, the focus needs to be on real impact, not vanity metrics; a one-size-fits-all approach won’t suffice when dealing with organisations and sectors so radically different from one another. With a degree of proportionality based on the sector an organisation operates within, the UK can move towards providing transparency and accountability that will drive real progress.

The future’s bright

Though the path ahead is sure to be challenging, a phrase that surfaced throughout the evening was ‘Cautiously optimistic’. As priorities shift, levers of change are pulled, and the move towards low and no carbon accelerates, it will become impossible for organisations, industries, or even nations to sit this movement out.

In the immediate term, a significant priority is managing transition risk as business models evolve, ensuring the financial system remains stable and robust through this period of upheaval. As institutions continue to innovate, they will be thinking ahead to what clients will need in the future, as this will be different to what they’ve needed in the past and even what they need today.

Thanks to everyone for joining us for another fascinating discussion; we hope to see you all again at our next live event.