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Sir. Roger Gifford speech – Working with other European countries to further Green Finance

Speech by Sir Roger Gifford, Chair of GFI, given in Frankfurt, April 2016 on the importance of working with other European countries to further green finance –

As a banker I believe financiers can solve societal challenges as well as sometimes being part of the problem.

And, coming from SEB as I do, I believe in ‘good’ banking and I sincerely hope that the development of green finance will help to remind society what the positive role of banking can be – namely, to promote good business and specifically, business which will look after the natural interests of the next generation as well as our own.

What are we talking about?  Well, for instance, we are talking about Germany’s remarkable energiewende which has led the world in developing renewable energy capacity.

However, despite its success it has not yet been exported.   In order to do that, a wider transition must take place, not just from carbon-intensive to carbon-neutral economies but within the financial sector itself – a finanzenwende if you will, which mobilises global capital markets in support of climate friendly development.

Green Finance

The concept is simple as you know – green finance funds any means of reducing carbon emissions or raising resource efficiency, and its adherents range from triple-AAA rated corporates like Apple and Unilever to Deutsche Bank, Allianz and North Rhine-Westphalia via the City of Gothenburg and the EBRD

Indeed, the sector’s development is already well underway, beginning in 2007 when the first green bonds were issued by the EIB and the World Bank – the second structured and underwritten by Christopher here and his team – in response to rising demand for high-quality, low-carbon assets.

The products themselves are no different to any other bond; their proceeds must simply invest in eligible projects to be considered ‘green’ and their environmental impact be assessed and approved on an ongoing basis by a credible, accountable third party – that’s it.

And the reason we focus on green bonds is that they make an excellent, working and tried-out model for green financing.

The market is now worth in excess of USD 100 billion and much of it is based in Europe, from the 100 green bonds listed in Luxembourg to the consistent, record-breaking issuances of the EIB and KfW.

Post C-O-P 21 there is an extraordinary opportunity to scale the sector much, much further, which is why the signing of today’s strategic alliance between GIZ and SEB is so important. Indeed, the timing for doing so could not be better.

London 2016 – Green Finance Initiative

C-O-P 21 also provided part of the momentum behind the creation of the City of London Green Finance Initiative, which I am delighted to chair and which is dedicated to further promoting and developing the sector.

As you may be aware, the City of London – the body that runs the Square Mile – has built a reputation in recent years for promoting and developing emerging sectors, from renminbi trading to Islamic finance. It is concerned with the interests of the whole European finance industry, whether it is based in London or not.

Specifically, access to a USD 10 trillion investor community based in London – for whom green products are slowly but surely becoming business-as-usual propositions – afford us a global presence, and provide our many European partners with a hub for collaboration, from Dublin to Stockholm via Paris, Luxembourg and of course Frankfurt.

Indeed, the City’s 2016 Green Finance Initiative is international in its make-up, and has the explicit support of the Bank of England, HM Treasury, the UN Environment Programme, the London Stock Exchange and the Department of Energy and Climate Change too.

In short, we believe the financial sector can drive the transition toward a low-carbon economy, and accelerate its momentum through innovation and education – precisely the goals of today’s alliance, and of the City’s initiative.

So what are we doing in London?

We are currently convening major industry fora with both domestic and international stakeholders; we are commissioning a survey of FTSE 100 constituents and major financial institutions to gauge progress; we are instigating a green finance dispute resolution service; and we are developing a number of thought-pieces and workshops with mainstream investors, issuers and accreditors in order to better quantify the market’s challenges and opportunities.

These lead up to Climate Week London at the end of June and later in the year, a major conference for issuers focusing on infrastructure finance.

Thereafter we aim to help affect Government policy in infrastructure finance, including in the areas of tax and regulation; we will support and promote common global standards of what is green and how green finance should be carried out; we will promote investor strategies; and overall we aim to make as much green noise as we can!

Our members have already heard from the UN, the People’s Bank of China and the G20 on this subject, and indeed we hope to hear more from Germany in advance of its own G20 presidency next year – a perfect vehicle for taking steps to incentivise and channel funding toward low-carbon technologies and infrastructure, and to build upon the work of the G-I-Z.

Piece-by-piece we hope to improve corporate and investor’s access to green finance, and to support national and European authorities in their efforts to reduce emissions.

The deal flow this might generate is enormous – from UK housebuilding to the recently announced German National Infrastructure Plan – and is clearly complementary to the European Commission’s focus on growth, prosperity and long-term investment.

A carbon-conscious Capital Markets Union or private financing for what is effectively the world’s most ambitious energy efficiency scheme – the Energy Union – could also be achieved. To paraphrase Chancellor Merkel, the continent accounts for 7% of the world’s population, 25% of global GDP – and 64% of responsible investment assets, the vast majority of them green-focused. The demand for green products is proven, we simply need to improve the pipeline, on both sides.

Challenges

Of course, there are many challenges to meet in this process, the question ‘What is green?’ foremost amongst them. It is a question that has different answers in different countries, reflecting the fact that each nation’s journey toward carbon-neutrality is bespoke.

China and India, for example, are operating on a longer time-frame than Europe, and even neighbours will disagree about, say, the role of nuclear energy or the acceptability of clean coal. But as long as the financial products that facilitate this transition are transparent and fully accredited, investors can choose for themselves the assets that suit their ethical parameters and the market will price instruments accordingly.

That, I believe, is how we can best “green” – make greener –  financial decision making and scale up the sector.

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Here in Frankfurt, my message is – please come and join the discussion.  This is not a competition between financial centres – think Music not Sport!

In fact, firms like Allianz and Deutsche Bank are already closely involved – and the London Stock Exchange, soon to become a much more German company, which I am of course delighted about, is very active in promoting this area, with its own green finance agenda.

In recent months, you have heard some rumours about the commitment of the United Kingdom to European Harmony.  I can assure you that the City has never had any such doubts. Let me make clear my and the City’s sincere belief that the free movement of capital and services reflected in cross-border cooperation offers the best means of building the green finance sector and the broader transition toward low-carbon economies.

Thank you, and I look forward to your questions.

Appendix

Authorities worldwide have realised that global capital markets represent a key tool in the race to tackle climate change; that public finances cannot meet the scale of the challenge alone. Instead, financial institutions will undertake the heavy lifting by raising capital for green projects, investing savings in low-carbon infrastructure and facilitating implementation of the climate action plans agreed in Paris.

Even before last December’s C-O-P, environmental concerns had been rising to the top of political, regulatory and industry agendas worldwide, from the G20’s Green Finance Study Group to the Financial Stability Board’s carbon disclosure task force.

Paris, however, produced an historic consensus around a two-degree ceiling to global warming – an agreement which has spurred market activity already, being cited as a key motivation behind Apple’s landmark USD 1.5 billion green bond issuance in February, one of the largest so far.

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