The Green Finance Institute has been launched in London with a key role in enabling investors and businesses to collaborate and discuss green projects with greater clarity .
The GFS is being funded by The City of London Corporation, alongside the UK Government.
“What is quite profound about the way the GFS is positioned is that it looks at ‘greening finance’ and ‘financing green’ as two separate challenges,” explained chief executive Dr Rhian-Mari Thomas.
“Creating the conditions, incentives and possibly even penalties for the finance markets to pivot towards green business will be extremely important…We need investment pipelines, and if banks are to pivot their models, we need to have profitable, robust business cases they can get behind. That’s why the TCFD is so important, it can help elevate the dialogue for disclosure.”
Thomas noted that investors would traditional baulk at capital-intensive large infrastructure projects and early-stage technology investments, the latter of which is more commonly associated with corporate-led venture capitals. With investors keen to understand the entire value chain of funding opportunities, having corporates at the table to share insight is extremely important, Thomas noted.
Thomas highlighted the growth in green mortgage and lending opportunities as a model that the GFS could replicate to other sectors. An energy efficient housing stock is a key pillar of the UK Government’s Clean Growth strategy, and banks such as Barclays and HSBC – this week – have spurred progress in this area.
Thomas added that the ability of investors and corporates to align products and services with clear policy signals would unlock more opportunities to finance the low-carbon transition.
“There’s a real signal there [for energy efficient homes] for so many businesses across construction, so we need to marry up macro-policy trends to see what the requirements and skills are on the ground and from businesses,” Thomas said. “It can create the whole business case for banks to innovate into.”
Research suggests that there is sufficient finance circulating in the global economy to drive the low-carbon transition. The Intergovernmental Panel on Climate Change (IPCC’s) Dr Lee, for example, has claimed that studies had proved that there wasn’t a lack of finance or financial instruments to facilitate that transition, but rather a “lack of political will”.
In the UK, research that built the case for the Government to enshrine a net-zero goal into law found that a net-zero target could be achieved at the same cost that is currently put against achieving the current Climate Change Act, which is between 1-2% of GDP in 2050.
But in order to better align this money, Thomas noted that businesses needed to get better at providing relevant data to investors.
More than 500 companies have expressed support for the Task Force on Climate-related Financial Disclosures’ recommendations.
The TCFD’s 2018 Status Report, provides an overview of the disclosure practices of nearly 1,800 companies. The Status Report found that the majority of companies are already disclosing certain climate-related information in a way that is aligned with the TCFD recommendations.
However, the report claims that companies have the ability to adopt more of the TCFD’s recommendations. Notably, very few companies were found to disclose the financial impacts that climate change has on a business, while disclosure is still most prevalent in traditional CSR reports, rather than integrated into financial filings.
“I think the TCFD, and reporting in line with it, is a fantastic initial framework for corporates to think about their governance and to pull together different groups of people across the organisation,” Thomas said. “It gets different people around the table to map out a future scenario.
“It’s a great tool for elevating the dialogue and uncovering knowledge gaps and to meet investor satisfaction. TCFD isn’t business as usual, it’s business unusual and it will require people and businesses to build new expertise.”
Interestingly, the Green Finance Strategy includes expectations for publicly listed companies and asset owners to disclose climate risk and impact data by 2022 and to work with regulators as to whether this becomes a mandatory requirement.
Thomas claimed that making this requirement mandatory through legislation would “create a signal that [disclosure] is imperative”. However, she claimed that making it mandatory too soon would carry its own risks and businesses should learn through practice.