UK embassy in Green Finance conference
The British Ambassador to Portugal, Chris Sainty and former Portuguese minister of the Economy, Manuel Caldeira Cabral rounded off the II Sustainable Finance Forum – Preserving Ecosystems for Future Generations on Thursday which was attended by 30 academic and business experts from Portugal and overseas.
Among the ideas debated at the event which took place at Fintech House in Lisbon and closed at the British Ambassador’s residence, were: how to develop expertise in sustainable finance and investment, setting up local think-tanks and business units in sustainable finance in Portugal and elsewhere, supporting the development of sustainable finance products and services, the regulatory framework and data treatment, disclosure and transparency in sustainable finance, avoiding lip-service greenwashing by companies and strengthening the integration of ESG (Environmental and Social Governance) factors into operations, internal processes and practises.
Ambassador Sainty said the topic of sustainable or green finance could “hardly be more urgent or important for us in the UK given that we are just 30 days away from hosting the COP 26 climate change conference in Glasgow”.
The ambassador noted that there have been plenty of British voices taking part in the Lisbon discussion (e.g., Finastra, Pioneer Point Partners, Grosvenor – House of Investments, the Cambridge Institute for Sustainable Leadership).
“I think in the UK we can be proud of the international leadership that the UK has shown over a long period in relation to environmental protection and the green transition and that was a major reason why we decided to step up to the plate in the United Nations climate change negotiations and the climate change conference in a few weeks time”, said the ambassador.
UK – a massive commitment
The UK was the first country in the world to set long-term, legally binding emissions reduction targets with the Climate Change Act in 2008, with a commitment made in 2020 to slash emissions by at least 68% by 2030 which at the time was the greatest pledge in terms of reductions made by any advanced economy in the world.
In April 2021 the UK government went further in accelerating the commitment in law what are the worlds’s most ambitious climate change targets with a 78% reduction in carbon emissions by 2035 by comparison with 1990 levels.
The UK’s climate law will. For the first time, will extend to international aviation and shipping.
The UK has also led the G20 in decarbonising its economy through its 25-year environment plan with a commitment to leave the environment in a better state than it found it.
“Our prime minister’s 10-point plan for a Green Industrial Revolution is another important statement in our commitment to protect the environment, boost green jobs and to accelerate our path to net zero by 2050”, said the ambassador adding that there was no room for complacency
At the UN Boris Johnson told the General Assembly that the world was reaching a “crunch point” where all these commitments need to be turned into urgent action.
Meeting these commitments required unprecedented levels of investment with green and low-carbon technology, green services and infrastructure. “We all know that green finance is essential to providing the flow of capital that we need.
Leading the world
“We are leading the world in the design and delivery of financial services that are more innovative and more efficient”, said Chris Sainty.
The UK is home to several financial institutions that are helping to finance the green transition, the British Business Bank, The Green Finance Institute and the new National Infrastructure Bank all support British companies to green their operations.
The UK has also launched its first Sovereign Green Bond which should encourage other countries to do the same although the issuance of green bonds passed the US$1Tn mark in 2020.
“The rapid growth of green bonds is encouraging more private companies and private sector to take a hard look at their core activities in order to access this capital,” added the ambassador.
Chris Sainty explained that by co-hosting COP26 and presiding over G7 this year, the UK was in a unique position to lead and set an example to the rest of the world through innovative, green, international financial products, regulatory coherence and through the development of taxonomies on climate and sustainability, guiding investment towards sustainable assets and mobilising climate finance in emerging markets.
Low yields and mitigating risks
Professor and economist Manuel Caldeira Cabral (pictured on the left with Ambassador Sainty) who was a former Portuguese minister of the Economy (2015-2018) who heads the Strategic Council for Startup Portugal, outlined the challenges for the financial sector (banking and insurance companies) and said that the challenges for sustainable finance were many.
Focusing on risks, both for the portfolios of pension funds and also banks and investors, he said there are risks inherent in both climate change and the transition to a green economy which would mean that regulations would inevitably change.
Some investments that were expected to last for 30-40 years will now have a lifespan that is much shorter and all of this affects the portfolios of small investors.
There are technology risk too. When talking about green investments in technology for energy and mobility, it means change and innovation and this always carries risks of “not investing in the right innovation”.
“These risks have to be studied, factored into the process and mitigated and as supervisors we have to be able to analyse portfolios and examine the risk of these portfolios within a more uncertain environment of rapid technological change and an overhauled regulatory framework and the change of the economy from this green transition,” said the current director of the Authority for the Supervision of Insurance and Pension funds.
Then there is the question of yields. These new investments and the idea of having more green investments and sustainable finance can lead to a lot of demand for sustainable investments but which have a limit.
“According to the law of demand these yields are going to be lower which is the idea because we want to have sustainable investments with better financing conditions for them to do well and advance faster,” said the economist.
“But low yields for pension funds is something we already have enough of with holding bonds for public debt and this is an issue that we must be aware of,” warned Caldeira Cabral.
One of the biggest challenges, he said, was to look at the investments that are economically, environmentally and socially sustainable and bring more of these investments to the market.
Then there was the challenge of how to certify these investments so that they are genuinely green and sustainable and not just ‘green washing’ or token publicity stunts.
The EU is working hard on how to classify each investment, but in a second phase banks and insurance companies as well as independent consultancies will have to play their part and build capacity of there will be “many people wanting to invest huge amounts but very few available investment projects”.
If there are these challenges, then there are also big opportunities for Portugal which is competitive in solar energy because of the good weather conditions.
“If we don’t do our homework of preparing certification in a way that is clear and accepted by the International markets, then we are not going to benefit from the high amounts that are there for this sustainable financial investment and we will miss the boat”, said the former minister of the Economy.
Paulo Soares de Oliveira, Managing Director of consultancy PSO Global – Knowledge and Communication which mentored the 2nd Sustainable Finance Forum, whose expert speakers across five panels discussed regulation, the impact of business on bio-diversity, data and the elements and criteria to define regulation in the future, the creation and definition of value in sustainable projects and finance as well as the future leaders in this area of sustainable finance, said: “The question is what will be discussed next year at the 3rd Sustainable Finance Forum, climate change stress tests and at what point is ESG (Environmental and Social Governance).
There’s a lot of new regulation coming out of the EU this year, with the potential to dramatically change the landscape of sustainable investing in Europe.
The EU’s sustainable finance action plan in 2018 put the bloc at the forefront of creating global sustainability policies. A cornerstone of that strategy was to make environmental, social and governance investing more transparent and improve disclosure. That led to the Sustainable Finance Disclosure Regulation, or SFDR.
Fund managers will now have to disclose environmental, social and governance risks in their portfolios, marking the first step in a vast EU plan to drive capital to meet sustainable goals. How can they do so, mitigate risk from green transformation investments and keep a viable business model in terms of profits — that is the key question that is still, in many ways — unclear.