Ructions are reshaping cities across the Commonwealth, not least of all here in London. Whether we are addressing refugee crises and Brexit or utilising big data, local and municipal authorities are operating in the vanguard of twenty-first century policy reform. Amid the turbulence, however, there is another sector in which cities worldwide have taken the lead and which offers a clear long-term benefit – the harnessing of green finance.
The moniker may sound faddish, but green finance is here to stay and is inherently simple. It can fund any means of reducing emissions or raising resource efficiency, and adherents range from world-renowned corporates like Unilever to the World Bank, the City of Johannesburg and Swindon Borough Council.
The most popular of these products is the green bond, total issuance of which exceeds USD 100 billion worldwide. Indeed, the sector has form as well as promise: last quarter, green bond sales hit a record high, including a landmark USD 1.5 billion sale by Apple. Retail investors, too, have participated heavily – despite proceeds being allocated to a mundane-sounding water treatment project, students and pensioners clamoured to purchase the City of Gothenburg’s inaugural green bond in 2014. In the UK, meanwhile, green crowdfunding platforms have raised more than GBP 2 billion for investment in renewable and energy efficiency schemes across the country.
Being rooted in rising investor demand for high-quality, low-carbon assets rather than political pressure or public subsidy is one of the sector’s greatest strengths. There is no such thing as green regulation; instead, issuers and investors worldwide are committing to best practices that incorporate product accreditation, transparency and regular reporting. Voluntary ‘green principles’, if you like, that ensure investor confidence in the environmental credentials of their holdings. The projects that can be labelled green will and do differ from country-to-country – renewable power for some, nuclear energy and even clean coal for others – but as long as these financial principles are embedded, investors can choose for themselves the assets that best suit their green mandate and the market will price instruments accordingly.
And these instruments benefit not just the environment but issuers too, typically broadening their investor base, maximising order books and tightening prices. Such was the demand for TfL’s inaugural green bond, for example, that the agency secured its second-lowest cost of debt capital yet and tapped an entirely new cash pool – fully 69% of the bond’s investors were green-only funds, many of them first-time investors not just in TfL but in sterling markets entirely.
Just imagine this offer being replicated by government agencies and local authorities across the Commonwealth, connecting a need for cash with a ready investor base. From community-level energy schemes to multi-lateral infrastructure initiatives – all could be part or wholly funded by investors with green mandates. Indeed, as nations are charged with implementing the ambitions set out at COP21 most if not all infrastructure projects will require environmental concessions. Pipelines will thus continue to widen, and financiers will stop pointing out projects that could have be funded by green finance and start asking why outlying ones weren’t.
Building such scale will, of course, take time, and some may reject the science of climate change outright. To such individuals, however, I would emphasise that you put the science to one side – civic health concerns are often at the top of domestic agendas, from flood prevention measures to mitigating toxic air pollution. Such projects make fantastic candidates for green funding, and as issuers – like TfL – are exposed to the opportunity to broaden their investor base and maximise their order books, the pool of non-green assets could dwindle rapidly.
Green products are also amongst the financial industry’s fastest growing asset classes. Both India and China are already well advanced in their adoption of them, having developed domestic green bond standards and listed renminbi- and rupee-denominated products here in London. Institutional investors, too, are being driven to build environmentally-aligned portfolios by a combination of asset owner and shareholder agitation, the search for yield and a desire to hedge against carbon-related risks. And the Commonwealth, as many of you will know, is strongly committed to further developing deep and liquid green capital markets, announcing a landmark USD 1 billion Green Finance Facility last year; a development we in London were delighted to support as we seek to internationalise access to green capital.
Indeed that is why, in January this year, the City of London Corporation – the body responsible for running the Square Mile – launched our Green Finance Initiative, which I am delighted to chair, and designated 2016 the ‘year of green finance’. We regard the sector’s further development as prudent, profitable – and one of the best tools available to policymakers in the race to cut carbon. Beginning with green bonds the sector now encompasses green loans, equities, insurance and indices; it is driven by the work of pioneering organisations from the G20 to UNEP and the UK’s Green Investment Bank; and, by adhering to certain principles, green finance has come to represent more than just a label.
As a former Lord Mayor and banker I believe financiers can solve societal challenges rather than simply be part of the problem. And, coming from a Scandinavian bank as I do, I believe in ‘good’ banking, and empowering communities to address immediate threats to their environs. Green finance can do precisely that, and can facilitate the ambition of today’s conference that we “make cities fit for the future” in the UK, the Commonwealth and beyond.
The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.