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On the final day of COP26 and as we wait to hear the outcomes of the agreements from leaders of the summit, we talk to Ingrid Holmes, Executive Director from the Green Finance Institute about her take-aways from the event.
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.
Steff 0:03
Hello and welcome to the latest Guernsey Green Finance podcast created one of the top 10 most useful sustainable finance podcasts by the green finance guide. Guernsey is one of the jurisdictions leading the way in green and sustainable finance. And as part of this podcast series will be speaking to and learning from some of the leading global figures in the field. My name is Stephanie Glover and I'm responsible for all things green and sustainable finance related at We Are Guernsey promotional agency for Guernsey's finance industry. I am delighted to be speaking to Ingrid Holmes, Executive Director of the Green Finance Institute, Ingrid I just had the absolute pleasure of attending COP26 in Glasgow, representing Guernsey and its financial services industry. And I was really pleased to attend one of the Green Finance Institute sessions where I got to meet several of your colleagues and talk about the exciting program events that GFI was putting on. But before we get into the detail of COP Ingrid, first introduce you to our listeners, how did you end up working in this area of green finance? Can you tell us a little of your personal backstory?
Ingrid 1:03
Sure. And thanks, Stephanie for inviting me to join this podcast. It's my pleasure to be here. Well, I've worked across public and private and third sector during my second career, which is in green finance. By first being in science, publishing and writing, it's always been really important to me that I use my skills and experience in a way that does no harm and tries to create a better world and climate change really is the biggest threat humanity and the species we share this planet with face. I'm basically a policy wonk at heart, but I realized I wasn't going to be able to fully contribute to addressing the climate challenge unless I understood how business works and money moves. So what started as a job in government, and then in Parliament, naturally changed to financial focus, I work for climate change capital, which was a climate focused asset manager, but then moved into an NGO, E3G to lobby for more sustainable financial markets because the opportunities just weren't big enough to meet the scale of our climate challenge and then finally, back into asset management. And most lately, to the Green Finance Institute. What really prompted my latest moves to the GFI was fear if I'm honest, fair, that emissions are still going up, time is running out. And we're just not doing enough in the sector. And I really wanted to be at the front line working with primary capital deployers, to scale the investment needed to deliver our climate and nature solutions before time runs out.
Steff 2:40
Thanks for that great introduction. I can definitely sympathise with the fear, and hopefully also a little bit of optimism in there as well. I think it's definitely common theme of our guests that that joint thinking of science and finance, I think it's really important. So we are recording this podcast on the final day of COP. And we're still waiting to hear the conclusions and agreements from the both leaders of the COP Summit. However, several key announcements have already been made. So Ingrid, which of these agreements or commitments do you think is going to be transformational for the finance sector? And is there anything we need to watch out for?
Ingrid 3:14
So I mean, again, as you say, Stephanie, the final text hasn't been agreed. But we have heard news this morning of a bit of a breakthrough on bringing forward the ratchet mechanism to next year. And that's going to be really, really important. So as we know, the pledges made by countries don't yet yet adopt the Paris Agreement goal of 1.5 degrees stretch or even two degrees. They're currently around 2.4. I think for me, the Indian announcement was a major diplomatic breakthrough. The near term goals that they put on the table of having emissions from energy in 2030 are far more important, actually, then the 27 net zero date, which came in for some criticism.
But it's why there have been these calls for annual updates of commitments, as well as a proposal not to come back in 2025, but actually earlier, which is what's needed to keep 1.5 degrees alive. And some of the sticking points, of course, have remained around finalization of the rules for carbon markets. So this all important Article Six, and we can talk about carbon pricing later and you know, real disappointment, I think the failure of developed nations to meet the the 100 billion per year climate finance pledge to assist with the all important adaptation to the climate change that's happening where now as well as the transition, but I think on the positive side trying to keep things positive, because there is a lot to try to look forward to. There have been many sectoral announcements. So we call these the coalition's of the willing on stopping deforestation and methane reductions from existing oil and gas that will be really important. And, of course, efforts to phase out coal. But for me, the big one was the 130 trillion committed under GFANs to net zero in 2050.
Steff 5:17
Yeah, I keep finding myself quoting Mark Carney. And I've been posing him, I think about four or five times this week on that 130 trillion. So that's really great news.
Ingrid 5:25
It is I think, while the 130 trillion has come in for some criticism for being nothing but hot out, I can tell you from having worked inside private sector businesses, that she those all important pledges are a really key catalyst for action within those businesses. So I can advise, I think we can see a lot more to come from the financial services side.
Steff 5:49
I definitely agree. And almost those businesses that aren't set up to defend, hopefully, there'll be hit within the supply chain of those that are so I think that 130 trillion, if anything might be conservative.
Ingrid 6:00
Yeah and don't don't estimate underestimate the importance of peer pressure. You know, people always look around at what their peers are doing and want to be within the peloton, not outside it. So I think we can expect more to come
Steff 6:13
Yeah, I definitely agree. So there was another exciting announcement on the finance specific day, around the IFRS, creating a new international sustainability standards board. Can you explain for our listeners, what this means in practice, and how the finance industry can implement this change?
Ingrid 6:28
Yeah, so this is where it all starts to get deeply policy wonkish all the stuff I love. So if we go back to basic-
Steff 6:36
I'm glad someone does, I think that's-
Ingrid 6:39
it's a much needed role. And not everybody can do it. And so one of the challenges we often hear cited around getting to net zero. Net Zero is the plethora of ESG, or environmental, social and governance data out there. They're all underpinned by different methodologies and metrics that investors and lenders have to wade through. So there's there are, I think, at least five, sort of voluntary standard setters GRI SASB, CDP, CDSP, and the Integrated Reporting Council all providing different frameworks to try to promote sustainability related disclosures in the market. And of course, that just meant any investor or or bank trying to use this information was trying to compare apples with pears and it's one of the drivers of claims of greenwashing in the market. Because the lack of comparability also makes it really difficult to get a helicopter view across what companies are doing whether, you know, one is ahead of the other, and actually, whether they're having a positive impact or not. So this is where the ISSP has stepped in. So they're, they're housed under the same organization that sets the accounting rules. And they're basically said, let's come together and set one comparable global standard on sustainability against which all companies, including financial institutions can be expected to report I think there was some concern in the market and among experts, last year, when this initiative was announced that it would just be another framework or six added to the five. So actually, this consolidation that we're now seeing, among those existing sustainability standard setters, the acronyms I, I cited earlier, and the fact that they're now consolidating under this new is SB is really key, I think, to the success of the initiative. And the other thing, too, that I think is worth noting is the UK with its new sustainability related disclosure regimes, has said publicly, they're going to hook on to this ISSP initiative. So that's going to be an important first market to help build global consensus around this new framework. It's really good news.
Steff 8:59
I'm really pleased you think this is a consolidation? I admit I was nervous when I first saw the news that Oh, no, there's another standard. It's the year that the six standard coming out, but the consolidation is definitely great news.
Ingrid 9:10
Yeah, absolutely. It's definitely progress.
Steff 9:13
So I don't know if you had a similar experience. But while I was up in Glasgow, I was speaking to people all across the Finance, Financial Sector, and for almost all of them, and for me included, it was the first time they attended a COP event. It really felt like this COP was the finance COP, where industry was really engaged in creating real momentum for sustainable investing. Do you agree? Do you think this COP has galvanized the finance industry? And what do you expect in terms of tangible action plans from the finance community?
Ingrid 9:41
Yeah, I mean, I think I I definitely agree with that. And when we used to talk about finance, in the context of cops always meant climate finance. So more than sort of public funding transfers between developed and developing nations, but I think definitely this year we've seen as shift now to include the private sector, as well. And I think you know, going back to GFAN or favorite acronym on this, this podcast today, the the GFAN pledges are really helped shift the dial there. And so I think what does this mean on a practical level for firms? Coming from more of an asset management background myself, I think I'd expect to see two things. One is a stronger focus on engagement by asset managers with investi companies, but also actually with governments on creating the low carbon policy frameworks we now need to see and also actually on exclusions, so we've heard a lot in the sort of divestment bait debate about the need to step away from polluting companies. I think that sort of underestimates the complexity of the challenge, except in some cases where there is a clear case now we're a moral case where we need to step away from financing really damaging activities. And I'm thinking here about the need to retire coal plants from the energy system as soon as possible. And to be honest, I don't really see a viable transition pathway for things like tar sands operations, or even oil and gas unless it's something to something quite transformative, like providing carbon capture and storage services. But I think asset managers really need to look at that, that that set of issues really quite hard. I think within banking and insurance, we do need to see now much more of a focus on engaging their clients on the process of transitioning away from climate damaging activities in a pivot to green. And this is where I think there's just massive opportunity linked KPIs is a really good model for this, as well as clear red lines on activities that will no longer be funded. Just to give you an example of a conversation I had with a pure play company in this space. It I won't name it, but it's a large insulation manufacturer. And they said they're now getting banks really competing to lend money to their revolving credit facilities almost at no cost, because they're so keen to have green activities on the balance sheet. But I think just to wrap up, my comments is going to it's going to take real moral courage from some of our financial service leaders to walk away from short term value in the interests of securing our collective future on this planet, which is, of course, what COP26 is all about. But I think that finally, in private markets, we're going to see a key role for them in scaling up new technologies and business models. So again, more opportunity there. And we do need to get better at ensuring capital flows to the emerging markets that are suffering most from from climate impacts. Now, finally, I think we mustn't forget nature in all of this nature was quite high on the agenda at COP this year, is key both for mitigation and adaptation. I think there's a lot of work to be done in a meaningful way on the public private collaboration front there. If we were to figure out how to fund that remediation of damage to our our natural biodiversity.
Steff 13:25
So much to digest that that was a really great answer. Spend your point on nature? I definitely think I agree. I attended several talks about the role of nature, and how we can't separate climate and nature, we need to build these two solutions in together. I also realize your idea of moral courage, I might take that phrase, I really enjoyed that.
Ingrid 13:44
It's a tough one, but it but it's what's it's what's needed now for sure.
Steff 13:48
Definitely, in those kinds of industries that are harder than others to decarbonize. And the finance industry really needs to be aware of those when they think about their bottom lines.
Ingrid 13:57
Yeah and we're seeing quite a hot market for hiring in the sustainability space, which I think is really positive here. Just looking at it at a sector by sector basis. The the issue is sort of understanding within your ag teams or heavy industry teams, what is the transition pathway for these clients? And how can we help them so it's back to, you know, transition finance stainability, Link loans, whatever you want to call them? They're going to be key. And actually, the announcements also, which came out of the government, the UK Government on the need for companies to publish Transition Plans, that's going to be an important part of the the disclosure architecture around this as well.
Steff 14:42
That's great, I think we kind of hinted earlier that I wanted to talk a little bit around carbon pricing. So maybe to start and to take us right back to basics. What is a carbon price and explain what this is for our listeners who might not be aware of the term? Yeah, sure.
Ingrid 14:56
So it said it's a price on the pollution The damage caused by carbon in our, in our on our planet. And there are two ways of thinking about it. One is simply applying a tax, which will put a price on that pollution but won't necessarily cap the volumes produced. Or you can think about a trading scheme where you cap volume and then allow the demand and supply curve to set the price. What we've seen with carbon pricing to date is, you know, market structures have not delivered the kind of pricing levels that we really need to see, to deliver the technology deployment and and transformational shifts we need from our most polluting sectors. So while there's been, you know, a lot of interest that hasn't hasn't delivered currently on that Tech Tech deployment piece, which is why we've always had to see other measures in place like regulation, and things like feeding terrorists to support the investment needed.
Yeah, I think I think when anyone looks to kind of offset or float you might have recently taken it's astounding how cheap the carbon offsets are at the moment, it really shows that the real carbon price isn't being brought in there.
Yeah, I mean, some of the academic research on there says we need carbon prices up at the level of something like $100 -$200 per tonne. But you're right, you could buy a tree based carbon offset for probably less than $10. And even actually, if you're going to the most probably robust global carbon market, the EU ETFS, I think carbon prices are only up at 60 pounds. So it tells you there's a lot more sorry, six euros, there's a lot more that needs to be done there.
Steff 16:48
So we don't have a lot of time left at COP, do you think it's likely that we'll see the agreement be made around carbon pricing and carbon markets? Or will this have to be driven by industry at a later date,
Ingrid 16:57
I think it's difficult to see a resolution coming through there. So this is the all important article six framework, which is is needed to to underpin a global carbon market. There are a number of really difficult issues on the table. They include things like how to trade credits from the previous scheme under the previous climate agreement, the Kyoto Protocol, but I think also a lot of issues around how we ensure integrity of supply. So we've heard lots of stories, actually, this year from forests use for offsetting carbon emissions burning down and forest fires in California. So that that integrity issues absolutely key but also how credits are used. I think there are legitimate but perhaps overstated concerns that, you know, offsets will be used as a substitute for actual material mitigation and an excuse to continue with business as usual. My sense is we need to be developing these markets alongside continued efforts to mitigate because we just know, there'll be sectors like agriculture, some manufacturing that will it will be really difficult to abate without without these offsets. But I'm not sure that the the carbon markets are the actually the only answer here, I've sort of come round to the idea that there are real there are real, strong use cases for for a global carbon price. If you look at multilateral development bank's that are more on the progressive side, like the European Investment Bank. They've been using a shadow carbon price for over a decade in their economic and financial assessments of projects. So trying to price in climate damage from any support for fossil based energy in particular. But we're also now starting to see them used in financial stress tests. So the Prudential Regulation Authority, which is the supervisory arm of the Bank of England, has applied carbon prices in the scenarios they used to underpin a supervision on climate risk in the biennial exploratory scenario. And you could imagine a situation in the not too distant future, when financial regulators actually asked financial institutions to apply carbon prices to underpin their risk assessments, which in turn then could become company policy as part of a climate change, Integrated Risk management approach. And that can be a real game changer, because the fact that you'd start to see a carbon price applied to reflect that carbon risk and opportunity to financial institutions.
Steff 19:48
I think that is a really innovative idea. And I always love tying things into existing risk management processes. It makes it so much easier for businesses to put in place I think,
Ingrid 19:56
yeah, it I mean, for me, it's all about how do we work this into the system as it stands, I don't I'm not convinced that climate should necessarily be treated as a completely separate risk. So yeah, agree with you Stephanie, the more we can build this into existing systems, the better.
Steff 20:14
So the Green Fund is Institute, you also hosted your own fantastic calendar of events as part of the green horizons Summit. I personally really enjoyed reading your email summaries, and I watched the wake up Ticket program a lot. Were there any particular highlights for you that came out of your court program events?
Ingrid 20:30
Well, thanks, Stephanie. That's, that's really lovely to hear. And I know that the team put a huge amount of work into playing that program together with our partners, the City of London, and of course, Rianne, Mary did an absolutely fantastic job opening and closing the sessions, as well as speaking on a wide range of topics from carbon markets and nature we've been discussing here to transport in cities. I think for me, there were probably two standout elements to the program. One was a founder discussions on nature really compelling. My my first degree was in sociology. So these, these are subjects very close to my heart. And I was really pleased to hear the key role that indigenous communities are playing in protecting our richest and most vulnerable habitats that's really being brought to the fore and their role in protecting this diverse biodiversity and restoring natural habitats going forward. But it also does raise issues around what even if we do get this 100 billion a year of climate finance, starting to flow between North and South? How do we make sure that that money flows down to the people who can actually make a difference on the ground, because they're not necessarily connected to those traditional governance and monetary frameworks. And I think the other sort of surprise, hit for me with the NatWest chair, Howard Davis. So back to my sort of policy, wonkery, I think he did an absolutely brilliant job on the role of regulation and standards, including the issb in helping green financial markets. So that was, that was a great one to watch. If you get a chance to look at it again.
Steff 22:16
You know, there's definitely a lot on my hit list of things to watch on demand. So I'm gonna have a busy week, I think. So I really liked your point there on nature. And I think during COVID, you know, I think Guernsey, we really appreciated our local nature and our beaches and our environment here. How do we balance protecting our nature at home versus protecting nature of indigenous communities?
Ingrid 22:34
Well, I think we need both, but we probably tackle them in different ways. So UK out to indigenous communities, it's going to be about trying to practical things like trying to buy sustainably sourced products. But it's also going to be back to the 100 billion question. And making sure the governance around that supports those local communities close to forest to do what's right, in terms of the restoration progress. I suspect things like big data are going to come come in very handy here in terms of surveillance of what's actually happening in those forest areas to and at home. I mean, I guess it's one of the downsides of increased urbanization, isn't it that we live in our cities, and we get more and more disconnected from nature? And you're right, Stephanie, that that COVID In the lockdown as perhaps brought more of an understanding of the benefits of of having a thriving natural ecosystem around you. I mean, I think it's fundamentally about thinking differently about green spaces. What are the opportunities that they can bring in terms of actively promoting biodiversity I do hope that with the environment bill that's just been agreed and new funding available for landowners to start thinking about this natural restoration. We'll start see a bit of a turnaround on that. We're also trying to do some very practical stuff at the GFI on this issue, actually, one of the innovative financial instruments we're trying to develop we're an active talks with a very large international investment bank and a Development Finance Corporation is to start to use nature based data to underpin sustainable imports, which is going to be really important for things like forestry, commodities, and so on going forward. So there are some really interesting, I think, green finance opportunities here as well. Obviously underpinned by the right data.
Steff 24:48
Yeah, I'm really glad you brought that back to your work with GFI. That's really interesting. So as a final question, as we move past cop 26 What are the main aims or ambitions of the GFI in supporting firms? and to achieve all of these fantastic commitments they've made over the last two weeks.
Ingrid 25:04
So, going back to the GFAN, you know, this is just a massive opportunity. We've got the net zero commitments on the table, we've got a supply of capital wanting to move. The question is how we heard a lot of talk during Glasgow on the need for radical public private collaboration. And that's where we need to move next, we need to focus on implementation. So what do we do at GFI? Well, we're here to work with those financial market participants to in the first instance, turn the UK government's fantastic netzero strategy into an investment plan, and actually will work with any other governments that wants to do that, for that matter. And so this is going to open up new opportunities in nature we've talked about, but also electric vehicles, green infrastructure, but we do need to do that detailed work to understand well, what does private capital need? Where can it taste, take risk? Where do we need to have some public funding in there, guarantees, equity, whatever it is, to get those first projects off the ground. And one of the policy levers is the other piece, and we want to make those conversations happen. Identifying Barriers, but really, really importantly, developing solutions as well.
Steff 26:21
Great. So it sounds like you've got a very busy year ahead of you.
Ingrid 26:24
We do but we're we're really looking forward to it.
Steff 26:27
Brilliant. So thank you again, Ingrid for your time and insights today. I particularly enjoyed listening to how important it is to include Transition Plans as part of disclosures, and I'll definitely be keeping watch for carbon markets and carbon pricing. Thank you all. Thank you for listening. We have a quite a back catalogue 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 comment. It's always great to get feedback from you. You can also find us at guernseygreenfinance.org And weareguernsey.com and please interact with us on Twitter at @gsygreenfinance and at @weareguernsey we also have links to Ingrid's and the Green Finance Institute social media on our show notes, so please check those out to hear more from them. We'll be back soon with another edition of the Guernsey Green Finance podcast.
Transcribed by https://otter.ai