Banking | Finance

Current crisis will accelerate shift in sustainable finance: Lord Mayor of the City of London

Lord Mayor of the City of London, the Right Honourable William Russell joined CEDA for a livestream to discuss how companies are moving to capitalise on the opportunities that green finance and climate change present, as well as discussing evolving investor expectations.

Dating back to 1189, the role of the Lord Mayor is a spokesperson for the financial and professional services that have a historical home within the city of London.

“I firmly believe that this current crisis is only serving to accelerate the biggest shift in financial services that we have seen for quite some time, which is of course the rise of sustainable finance,” he said.

“Many of those to whom I speak point to the green recovery as an urgent priority. They are actively looking for new investments aligned with the transition to the low carbon future.

“They are waiting for companies and governments to signal their intent and back intent with a clear plan.

“At present I would not count Australia among the leaders in this race. Investors representing almost AU $7 trillion have committed to net zero portfolios by 2050, with many more actively looking at how they will align their portfolios with the Paris Agreement.

“Australian superfunds are in the mix too. Hesta has set an ambitious net zero target and I expect others to follow.

“Investors are systematically looking for the markets and the sectors that will move first on the transition.

“They understand that the low-carbon transition is the commercial opportunity of a generation – one that will unlock investment and drive jobs growth.

“Many countries have already acted by legislating for net zero. Others have still announced transition-aligned recovery packages. It is these markets that are best placed to tap the growing pools of sustainable capital on the road to recovery.

“For all these investors the challenge of how they will transition their portfolios to meet these targets remains.”

The Lord Mayor said there are three related hurdles to overcome: data, clear plans and policy certainty.

“Better data and a clear picture of risk across the investment portfolio is the first step and this has become an urgent priority,” he said.

“Already banks, insurers, pension funds and investors with balance sheets of AU $95 trillion are demanding TCFD climate disclosure from companies.

“We need more data and more research on scientifically feasible transition pathways by sector and potentially by geography too.

“With a strong university system and the CSIRO, Australia should be punching above its weight here.

“The absence of a clear long-term transition plan remains the second hurdle for investors. Transition planning is gaining popularity in London. We’re seeing big announcements from unlikely places, even BP and Shell have announced net zero targets with detailed transition plans expected later this year.

“Increasingly I would expect these plans to have interim milestones and to link renumeration with implementation. Scrutiny of transition plans will help expose those that will seize the opportunities in the transition to the net zero world, and those that will cease to exist.

“Governments have a critical role in providing policy certainty and clarity to investors. Governments need to set clear long-term targets for the transition. Net zero is the most popular of these.

“Australia has taken some steps in this direction with all the states and territories having set net zero targets. But the sector level detail remains absent for energy, for agriculture, for transport, for industry and for countless other sectors that require a transition pathway.

“Governments should be thinking about aligning sector level regulation, with a low carbon transition.

“I would strongly encourage you to include investors in these discussions.”

The Lord Mayor said in the UK the government helped with making it attractive for companies to invest in renewable energy.

“The government has driven that over a number of years to the point where we’re down to one coal fired power station in the UK,” he said.

“It’s something that we’ve taken very seriously.

But that’s happening as the costs are coming down. The returns are attractive…with very low interest rates. A lot of the wealth funds around the world want to invest in these wind farms and renewable energy projects.

“The government has committed to having electric cars only by 2035 and we need the charging infrastructure.

“So the government are putting $150 million into a particular fund and they want private alongside it.

“The projects are putting government alongside the private finance sector, so it has to be both.

“You need the political will but that will be driven by the electorate and the electorate will understand this is the next biggest event in our lifetime.

“If you don’t change as a company and don’t start moving towards the demands the asset managers and shareholders are asking for, then you won’t have any shareholders and your share price will go down significantly and that is what is forcing the hand of many companies.”