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Bradley Davidson, ESG Lead at RBS International, discusses some of the key takeaways from Guernsey’s Sustainable Finance Week, where RBS International kindly sponsored the day on Carbon Markets, Pricing, and Offsets. Bradley also outlines how alternative investment funds can accelerate the transition to net zero, the role of science-based targets, and the growing demand for voluntary carbon offsets.
Welcome to the Sustainable Finance Guernsey podcast page.
Guernsey Finance is a joint government and industry initiative tasked with promoting and connecting Guernsey as a leading international finance centre.
Named as one of the Green Finance Guide's top 10 must-listen sustainable finance podcasts, our broadcasts feature news, insights and discussion about green and sustainable finance, and the contribution which Guernsey, as a global leader in green finance, is making in this space.
brandon 0:04
Hello and welcome to the latest Guernsey Green Finance Podcast rated one of the top 10 most useful sustainable finance podcasts by Green Finance Guide. Guernsey is one of the jurisdictions leading the way in green and sustainable finance. And as part of this podcast series we will be speaking to and learning from some of the leading global figures in the field. My name is Brandon Ashplant, I'm a Senior Strategy and Technical Executive at We Are Guernsey, the promotional agency for Guernsey's financial services industry. I'm delighted to be speaking to Bradley Davidson ESG lead at RBS International today as well as topic trends in sustainable finance. We will also be discussing some of the key takeaways from guernseys sustainable finance week where RBSI kindly sponsored the day on carbon markets, pricing and offsets. So without further ado, welcome Bradley.
Bradley 0:56
Great to be here. Thank you for having me.
brandon 0:58
So firstly, just to introduce yourselves to our listeners. Can you tell us a bit about yourself and your background and your work at RBS International?
Bradley 1:07
Yes, of course. So I head up the ESG team at RBS International. The team was created just under two years ago and underpins our purpose led strategy. As part of NatWest group, we have made a number of commitments, particularly across climate, such as having the climate impact of our financial activity by 2030, and reducing our direct and operational carbon footprint by 50%. By 2025. As a financial institution, we recognise that our actions matter, we must continue to deploy capital responsibly and finance the transition to net zero. My team's role is broadly split into two categories, transforming the way in which we do business, and supporting our customers to mitigate risks and seize opportunities presented by ESG. We're striving for a fully integrated approach to ESG challenging the decisions that we make against our purpose. So no two days are the same in this role. It's definitely not easy at times. But it's a great privilege to lead the team and have the backing of our leaders and our board. And in terms of my background, which is probably less interesting, but happy to go into it. I had a pretty unconventional path into finance. So I studied architecture at University, where I began to explore sustainable building materials looking towards nature, to inspire our built environment and mechanisms. I worked in practice before ultimately deciding to explore my passion and finance. And I began my career with obvious international on their graduate scheme, which at the time was a corporate and markets graduate scheme. This may seem a bit of a strange leap, I appreciate that. But I've always been interested in how external forces, whether that be our environment, or economics, influence behavior and impact lives, banks have their with individuals, whether they're purchasing that dream home, or they're starting their first business, and we can definitely be a force for good. And that's what our team are all about.
brandon 3:06
Well, thanks for the intro. We were very much delighted to host you and some of your colleagues at our Sustainable Finance Week back in in September, as I've mentioned in my intro, and we really, we really hope you enjoyed the visit to the island. What were some of the highlights, or learnings for you from from attending Sustainable Finance Week?
Bradley 3:26
Yeah, so it was absolutely a pleasure. And, you know, I thought the event itself was, you know, run incredibly well, which is no surprise now in the team that are running yet. But it's always a pleasure to attend those events and support where we can. For me if I think back on guarantee sustainable finance week, the key message for me is the power of collaboration. So with attendees, bringing diverse thinking to the table, and working to find those practical solutions to the climate crisis, the challenges we face, are present on a global scale. But we mustn't forget the power of local communities and the important role they will play in the transition to net zero. environmental and social factors are inextricably linked. So whilst the event focused on those three key issues, biodiversity, energy transition and carbon markets, I was encouraged to hear the conversation incorporating the impact, both inaction and action will have on individuals, communities and wider society. I think for me, the the content is, you know, there and available for people to hear. And so actually taking a look at how we're approaching these challenges is where I'm always looking. We need to make sure the conversations we're having a nuanced and that we're not, you know, focusing on one issue without looking at the wider picture, particularly if we want to support a just transition which we are fully behind as a bank. Looking at those social factors and understanding what the potential implications could be if we target intervention too narrowly. So yeah, I think collaboration, it may seem like a strange one to take away from the events as the key message, but But it definitely hit home that we were having the right types of conversation, which I think is important.
brandon 5:12
I think I'm right in saying that you hold a certificate with the CFA in ESG investing. Is that right?
Bradley 5:18
Yep. That's great.
brandon 5:20
Yeah, so I mean, of course, education and upscaling in ESG and sustainable finance was, of course, one of the topics of discussions that both guernseys sustainable finance week, but actually also at the more recent United Nations financial centres for sustainability AGM which was, was attended by Guernsey and we were very pleased to be a part of that. What do you think are some of the challenges and upskilling finance professionals in sustainability? And how is RBSI looking to upskill? Its own staff?
Bradley 5:48
Yeah, so it's a great question. And one of the challenges we face is the pace of change across both industry and climate science itself. Leading Across sustainability or ESG. Requires agile learning. You know, as we learn more about the implications of climate change and the impact on our economy, content needs to be updated regularly and businesses must foster a culture of continuous learning. I always say to my team, don't trust anyone that says they know everything about ESG. We don't make that promise. And the science is moving too quickly. Businesses have to follow the science if we're going to deliver the right impact. And so actually, when we're thinking about how organizations communities can learn, it is more about that culture than it is necessarily the content itself. That being said, earlier this year, as part of NatWest group, we announced a partnership with Edinburgh University to develop the training tools and content needed support to support education and awareness across the bank. So over 120 leaders across RBSI are taking part in formal climate training. And all colleagues took part in a climate change awareness module earlier this year to make sure we're trying to baseline that knowledge across the organisation. And I think when you're looking at your strategy, understand that ESG and climate and you know, the other factors within that umbrella will have different meanings to different parts of your business. It's not a kind of one size fits all. And so for us, baselining and then developing roles specific training, and building out a modular approach has been really effective. But fundamentally, everyone across the bank within RBSI understands that they have a responsibility to support our ESG ambitions. And ultimately, it's my job and my team's job to give them the tools to do so.
brandon 7:43
One of the key themes that we have been looking at and Guernsey is the role of private finance in managing adjust transition to net zero. RBSI has recently published similar reports on alternative investment funds, accelerating their transition to net zero. Can you talk through some of the challenges and opportunities that that are outlined in the report?
Bradley 8:05
Yeah, of course. So I'll just kind of echo your initial point. And I think if I reflect back on COP26 of which NatWest group and RBSI is a partner group was a sponsor. The event really highlighted the significant role that financial institutions will need to play in order to deliver decarbonisation at scale. We all have a responsibility to direct capital towards new climate solutions, whilst also enabling and incentivizing the transition of existing entities and assets. So that more kind of transition finance peace, there is a cost to the transition. And as financial institutions, we have to be able to provide financing and funding where we can. And if we look back over the last decade, there has been a shift from public capital to private capital. And that's only emphasize the role that funds will need to play in terms of decarbonisation. So earlier this year, we released a report that surveyed over 125 alternative investment funds to understand the kind of barriers the opportunities to adopting science based targets. We're a firm believer in science based targets, we've been working with the science based targets initiative across networks group to set our own ambitions, and we want to help our customers to do the same. So we've taken this time to invest in understanding where the challenges sit, and where there's benefits are, and I'll just pull out a few. But I'm sure we can send a link to that report in the show notes, or where we're sharing this podcast in the future so that everyone can read the full report in terms of benefits. If we look at our survey, 76% of respondents highlighted investor benefits, so creating clear kind of strong commitments to their investors in regards to decarbonisation. I think if we look back, you know, five or 10 years ago, ESG policies were a qualitative statement, potentially two sides of A4 and now actually investors have matured and they want to see specific targets, they want to see timelines, how is it that you're going to be able to deliver decarbonisation, but also continue to deliver strong returns. And so going through the process of setting those targets, and you know, allows for that communication to come through and to evidence, the work. I also think that the other benefit is really, as you're going through that process, you start to understand the risks and opportunities presented to your fund. No matter what asset class you're in, there will be risks and opportunities through the transition. And so actually, when you're looking at investments, I just see a part of your kind of fiduciary duty to understand where those challenges might come. And ultimately, you've got this clear view of what you need to do to protect value, but also to generate further value for your investors in the future. In terms of challenges, and there are a number of them, it won't be a surprise to many listeners that measurement and data. key challenges when we're talking about decarbonisation, and setting targets, both upstream and downstream counterparts, you'll need that information in terms of their emissions doesn't always exist yet. And so we are, you know, looking at using assumptions, there is some nervousness across the finance community about using assumptions to set targets. But ultimately, if you are transparent with those assumptions, you continue to update them, then that worry shouldn't necessarily be there. And lack of in house expertise was an interesting finding from our report. So 58% of respondents let us know that they would seek external help to develop their science based targets, whether that's a kind of bank that's existing partners, or they're going to specialist consultancy firms. We know that consultants have ramped up employment to build out these teams, you can think of the big four, and you can see the investment that they're making to support. But to your earlier question about education, I think if you are going to go external to set your targets, you need to make sure you're using that process to engage internally as well. Because whilst you might rely on a consultant, in the short term, it is going to be up to you to deliver in the long term. And so making sure that Reliance isn't too strong, I think is important. But as I said, I you know, I know you've got limited time here, and I won't go on too long about the report itself. But I would really encourage listeners to go and find that. And if they do have any questions, please do reach out. Collaboration is key here. And so we're more than happy to have those conversations, whether you're a customer or a pet. So yeah, I'll stop that. Otherwise, I'll ramble on.
brandon 12:49
No, but I think I think one of the crucial points you made there was that the need to ensure that credible science based targets are made, especially in the in the alternative funds space. How prepared Do you think fund managers are to implement the changes needed to meet these these science based targets?
Bradley 13:08
Yeah, so it's, really interesting one, so 80% of survey respondents let us know that setting science based targets were important to that fund today. That figure only increases when we started to ask whether there be important in three years. So they're very much on the mind of fund managers at the moment, yet the vast majority remain in that planning stage of setting their targets. And we've discussed some of the challenges, I do think they are acting as barriers to increase pace of change across the community. But one of the unique challenges to alternative funds, you know, measurement and data isn't isn't unique to this space. And that is ubiquitous across the market, unfortunately. But the unique factor is that many respondents told us the science based target guidance was focused on corporates more than it was on alternative investment funds. Now, that that seems somewhat natural, the science based targets initiative has actually ramped up their support for this space. They released private equity guidance earlier this year. And so I'm hoping that we're starting to get momentum, and many have set targets already, particularly in private equity. But overall, I think we're probably behind where we need to be. Now that isn't to point the finger. I think we're all learning as we're trying to develop solutions at pace. And that's not to point the finger. We're all trying to learn as we're delivering solutions at scale and at pace. But we look at the time to implement the science based targets and it is a it is a long process. You commit to the science based targets initiative. If that's your framework of choice, you then have a set period of time to be able to commit to those targets, submit them for validation, and we really need to get to the point Now while we're looking at implementation and driving impact, if we look at the Paris Agreement, many point towards 2030 has been that turning point, United Nations Sustainable Development Goals are leading up to 2030. And so there's a lot of work to be done. I think whilst they may not feel prepared, my advice is always start now, you do not have to make the work you are doing currently, you know, public until you are ready, but make sure you're setting yourselves up entirely to deliver those of you that don't have ScienceBase targets, in my view, will be seen as lag guards, you know, banks such as ourselves and setting our own targets, we need our customers to come with us on this journey. There may be potential implications in terms of cost of capital. So there's not only a kind of planetary and society needs to take action now. But there will also be financial implications. So yeah, there are challenges. I think fund managers know their businesses, well, we just need to kind of ramp up pace, which isn't an unusual message, as we talk about climate change, unfortunately.
brandon 16:06
Yeah, the level of offsetting permitted within the science based targets. And the focus on reductions versus offset was a really interesting discussion that sustainable finance, we go thoughts, which you sort of had with your colleague, James Close discussing the role and need for voluntary carbon markets and credit systems. Can you just talk me through some of the developments you're seeing in the marketplace for carbon offsets, and, of course, voluntary carbon markets?
Bradley 16:33
Yeah. So I think one of the points that we always make, and I know that James makes this point as well, is looking at the reputation of voluntary carbon offsets. So there for the kind of last five years has been this view that is potentially a lazy way out, right, you can achieve carbon neutrality simply by offsetting and not reducing your own emissions through your own operations. Now, I think we have to remember that they are voluntary. In my view, as long as an entity is taking action to address the way that they do business and look to reduce over time, then I think it's great if you're willing to voluntarily offset your emissions whilst you're on that journey. And we also have to recognise that there will be residual amounts of carbon that we are not able to innovate away, there will be an inherent use of carbon across our economy, even if we get to that net zero states we want to be. And so there has been a change in kind of, I guess, integrity, the carbon credits face and kind of scrutiny alongside that. And so there has been that shift in the way that they are viewed. Now, I mentioned integrity there, because actually, what we're finding is that the carbon offset market in particularly in the voluntary space isn't a joined up marketplace, and it's not particularly efficient, no carbon credits are created equally. And so we need to develop platforms that allow for that kind of scrutiny to come through, you need to understand exactly what activity has led to a carbon credit being created. Is it is it aligned with your purpose as an organisation, is it avoidance, which some view is potentially being phased out versus kind of capture and storage of carbon, which seems in my view, to be a better long term solution. And so actually, we need to increase the efficiency of that marketplace. Now, this group is part of a collective of banks developing carbon place, which aims to do that it aims to facilitate the sale and purchase of carbon credits with full transparency about exactly what those projects are. And I think that will be the theme running through will be actually can we look at those carbon credits and say, they aren't equal, let's not treat them as equal. Let's make sure we're splitting you know, our funds across carbon credit projects that we want to support long term. And I think those that are kind of nature based where we start to tackle things like biodiversity through these projects will become increasingly popular. And just on the kind of final point, I think a lot of this comes down to Financials right, we are we are still trying to reach that true cost of carbon, the Stern Review in 2006 put a figure there, we're not at that figure in voluntary carbon plays. So actually, as more and more corporates and financial institutions set netzero targets and begin to offset, it will be an interesting dynamic to look at whether or not you could be, quote unquote, lazy and completely offset without reducing your own emissions, because that's going to be incredibly cost costly. And quite soon, if you look at latest Bloomberg data, so today, average voluntary carbon offset is around two $6 per tonne, they're predicting that by 2030, that will be $215 per tonne. And so actually, if you're not addressing your own carbon, and you're committed to maintaining that offset, that's going to be a pretty large financial implication for your business going forward. So not only is it the right thing to do to get your own house in order, so, so good for business. And we're increasingly finding that those two things are aligned things can be good for the planet and good for business. So yeah, I think that the two key themes, there's nothing particularly new there. Again, we just need to develop at pace and, and make sure that we've got sufficient regulation to ensure credibility.
brandon 20:41
I think it's also fair to say that we've seen sort of a rise in the prominence of discussions surrounding sort of natural capital and biodiversity finance, as of late, and we here in Guernsey very proud that our regulator has recently launched a new Kitemark for biodiversity focused funds, it's called the natural capital fund regime, which we hope will provide investors confidence when investing in biodiversity funds. Can you explain a little bit about what you're seeing in terms of biodiversity finance?
Bradley 21:12
Yeah, so I think we're probably where carbon was two, three years ago. Carbon is an easy metric. It is uniform, everyone understands what a tonne of carbon is, it is the same for a business that is engaging in, you know, industrial activity, and it's the same for a real estate fund. It is, you know, we have one metric we can rely on. The challenge of biodiversity is that to truly get it right projects need to be doing assessments and surveys of the particular area, that they're looking to reduce loss and then kind of enhance biodiversity within. And they are they are not one of the same. This kind of idea of nuance that is required is challenging when you're trying to scale up. It's something that we internally talk about quite a lot. When we're talking about our own interventions. How do you scale up with Nuance? How do you ensure the right conversations are happening, the right assessments are happening, and ultimately, you're focusing on impact. Biodiversity isn't necessarily where we need it to be yet, from a financial perspective. I do think, you know, schemes like the Natural Capital Fund regime are brilliant. That's what we need more of going forwards. The taskforce on nature related financial disclosures, the kind of sister to the tcfd, that many listeners will be familiar with, again, begins to create that common language so that actually financial institutions can understand where are those opportunities, where can I drive investment. But there is a nervousness, again, with biodiversity. We support many of our customers with sustainability loans, so integrating, you know, bespoke ESG metrics into their facilities and rewarding them when they hit those material and ambitious targets. And we have been speaking to a lot of customers about biodiversity targets. We're just not there the intention is, is you know, raring to go. But the measurement isn't there yet. And with the increased risk of greenwashing, there's a nervousness to say, yes, we'll hit those targets. Yes, this is exactly what we can do, when actually the data and measurement is still in its early days. So I think we need to create that common language in terms of reporting and how it particularly relates to Financials. But as I say, I think we'll be where carbon is now. And in three years time, or at least we shouldn't be. That hopefully needs to be the aim. Biodiversity is complex, but it's incredibly important. So yeah, I think it's not a clean answer that one, I think the right noises are coming out of industry, but it kind of remains noises rather than action, unfortunately.
brandon 23:59
And just to finish up then, so sort of looking to the future now, of course, COP27 is just around the corner, due to be held in Egypt. What do you think would be a good outcome in your mind on the back of this this next COP?
Bradley 24:13
Yeah, this is really interesting one, I had the pleasure of attending COP26 last year as part of the NatWest group delegation, and for me content six was all about reconfirming. Our unified goals so the Paris agreement has been in place for a number of years. But it was about coming together and really recommitting to what we need to do is its industry is countries is the globe. And particularly when we started to look at kind of private markets content six was the largest turnout from private markets to any conference within the climate change. Kind of series and that was brilliant. We now need action we have known for a long time what we need to do. We have now already confirmed that and we've increased our ambition in places, we now need to see those tangible transition plans. So how is it you're going to go from where you are today, to your commitments that you've made as a country this applies to private markets to and corporations? What did those steps look like? How are we going to measure progress along the way? And actually, if you are off kilter from where you need to be that you've got that kind of regular reporting in place to say, to identify that at the time it's happening, and kind of recourse to where you need to be. It is a boring answer, I admit when it comes to COP27. But unfortunately, it is simple. We need to demonstrate that we're taking the right action. We know what we have to do, it's time to do it.
brandon 25:48
Well, thank you very much for your time today.
Bradley 25:51
Thank you very much. It was my pleasure.
brandon 25:53
It was really interesting to hear your thoughts and we look forward to seeing more from RBSI at COP 27. Thanks also to you for listening. We have quite a backlog of interviews and panel discussions on the Guernsey Green Finance podcast channel. You can check them out by searching for Guernsey Green Finance wherever you get your podcasts. If you enjoyed today's episode, please leave a review or a comment. It's always great to get feedback from you. You can also find us at guernseygreenfinance.org and weareguernsey.com and interact with us on Twitter @Guernseygreenfinance and @weareguernsey to hear more relating to news and developments coming out of Guernsey's finance industry. Check out the We Are Guernsey podcast on your preferred podcast platform. We also have links to Bradley and RBSI's social media in our show notes as well as the new research reports from them. So check them out to hear more from them. And we'll be back soon with another edition of the Guernsey Green Finance podcast. For now. It's goodbye from Guernsey.
Transcribed by https://otter.ai