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Emily Farrimond and Bella Mackenzie, from the ESG and Sustainability team at Baringa, discuss the findings of their research report, 'How can Guernsey support a just transition towards net zero?', produced in collaboration with Guernsey Finance. Emily and Bella will discuss both the global implications and local applications of those considerations reported therein.
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.
Rosie 0:05
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'll be speaking to and learning from some of the leading global figures in the field. My name is Rosie Allsopp and Communications Director at We Are Guernsey, the promotional agency for Guernsey's finance industry and today I'm delighted to be speaking with Emily Farrimond whose partner and ESG and sustainability lead at Baringa and Bella Mackenzie, who is a Manager within the ESG and Sustainability team at Baringa. And today we'll be focusing on how Guernsey can support a just transition towards net zero. So again, we've recently been working with Emily, Bella and the Baringa team to research and report on the ways in which the financial services industry in Guernsey can support a just transition and also what's needed on the global stage to move towards a more sustainable future. And in today's edition, we'll be discussing the concept of adjust transition and actions that the finance industry can take now to affect change. Welcome to you both.
Emily 1:26
Thanks, Rosie. We're delighted to be here. And thanks for inviting us.
Rosie 1:29
Oh, it's my pleasure. So why don't we kick off with introducing you to our listeners? Can you tell us a little bit about yourself and your background? And your careers to date? And then maybe also a little bit about Moringa and possibly its status as a B Corp. Emily, would you like to start?
Emily 1:49
I would love to. So hi, everyone, and thanks for listening to us. So I'm Emily Farrimond, I am the lead ESG, and Sustainability in financial services across banking, insurance, wealth and asset management and private equity. And it's fair to say I'm totally obsessed and obsessive about sustainability and always have been. For me, I decided to pivot my career in from financial services consulting about six years ago when I enrolled to complete a master's in sustainability at Cambridge Institute for Sustainability leadership. And at that time, I guess I thought at some point, sustainability and climate change would become an important topic for FI's. I hadn't expected that that occurred much more quickly than I'd anticipated. But I'm delighted to have the role than I do. For some I appreciate it might feel like a slightly counterintuitive role fit and sustainability. But for me, I genuinely believe that we can drive the most sustainable change through the appropriate allocation of capital.
Rosie 2:54
Thanks, Emily and Bella?
Bella 2:55
Yep, so I'm Bella Mackenzie, I sit within our ESG and sustainability team in financial services at Baringa. I also became obsessed with climate change a number of years ago, really when I was at university and I watched Leonardo DiCaprio's film 'The Eleventh Hour', I immediately went and switched my diet and instead of joining a load of societies and switch from driving my banged up old Peugeot to cycling everywhere, and, and all of that stuff. Sustainability has always been super important to me, both personally and professionally. But it's really when I found my feet at Baringa, that I found my vocation in a career in sustainability at Baringa. I really do agree with Emily around the role of finance, I feel passionately that where we are now, I'd say it's about the 11th 12th Or maybe the 13th. Now, given the challenges that we have around the slow pace of change around policy decisions, it's really finance and private companies that hold the key to accelerating adjust transition at the pace that we need to. And that's why kind of, you know, supporting threads and financial services around their sustainability goals. And working within a company like Baringa was so important to us and who we are as a B Corp. That's why sort of, you know, I'm delighted to have found the career where I have that's lovely.
Rosie 4:19
I can feel the enthusiasm. So you mentioned B Corp. Emily, can you talk a little bit around that and what that means?
Emily 4:31
Yeah, it means a lot to us, actually at Baringa and it's been an interesting journey. So I think we have historically won a lot of awards around our people proposition and a great place to work that that's been the case, kind of the entirety that the entire time Baringa has been a business and we've been part of those awards and leading on those for quite a long time. I think it's fair to say we're truly Purpose led organisation, were absolutely delighted to receive B Corp status. I can't pretend it was an easy, straightforward or quick process. But neither should it be frankly, I think the status really demonstrates we're aligned to the highest possible environmental and social standards when it comes to managing our own business. And we're delighted to be the first large management consultancy to achieve this.
Rosie 5:23
Congratulations. So net zero is a concept that most people will be aware of. But maybe you could explain Emily, what a just transition entails and the importance of it in a global sense, as well as what it means for Guernsey?
Emily 5:42
Yeah, thank you for this great question, right? Just transition, essentially, if you look at how it's defined, is around greening the economy in a way that's fair and inclusive, or as inclusive as it can be to everyone concerned. And that's about creating decent work and opportunities, and leaving no one behind. So what does that mean? Really, it means I think the way we've talked about it in Baringa, is we talk about a little bit permission to transition. So we can't get to net zero, without collaboration and innovation, and bringing everyone on the journey with it. So we need to do that from emerging markets, through to disadvantaged social groups, supporting brown sectors in becoming green brings to life a little, I think people don't realise, and I think, you know, some of the interesting conversations with NGOs can be, oh, hang on, we just need to stop funding all this type of activity. And we, you know, we need to just use renewable energy. And that's absolutely correct. However, for many countries in the world, from the US to India, we have entire towns are totally dependent upon the jobs provided from a coal mine or an oil refinery. We can't just close those facilities and make those people unemployed. We need to find other meaningful work for them to do to enable them to support their families, and contribute to their local communities. I think you know, transitioning away from carbon intensive activities presents all the social and political tensions associated with moving from one economic model to another. But on the flip side, there are huge opportunities available to create decent sustainable work opportunities through developing certain types of infrastructure and rescaling people. There's a lot of noise about job losses, particularly negativity around jobs in the fossil fuel sector and you know, 2.7 million jobs, where are they going to go? I think we also need to look at the opportunity. So the World Economic Forum estimates that 10.3 million net new jobs are needed globally by 2030 and clean energy. I think really to wrap that up that just transition and it's just about how do we get from where we are today, to where we want to be without the disadvantage in the minimum amount of people, but also driving through on that net zero pathway?
Rosie 8:04
I think that's so right. And that's such a compelling statistic as well. That is the opportunity that the just transition presents to us. So Emily, you've worked with some of the world's largest banks and investment companies, how important do you believe the financial services industries are to achieving that just transition?
Emily 8:26
I think they're absolutely critical, frankly. And if we look at climate change, and the climate agenda and where we were, probably when I started having these conversations, you know, a number of years ago, we've started to see some stuff, systemic changing climate driven simply because the spin some regulation is in place that have meant FI's have needed to consider climate and some of the decisions that they make and how climate change will impact their balance sheet. So I think we need to just extend that even further, they can play an even more important role around it just transition, ensuring that lending and lending investment decisions that they make considered not only environmental impact but also social impact. I think without them playing this role, we are likely to create a pathway to net zero, which you will have heard of termed as disorderly. So that's where we get there. Okay. But we create a lot of social and economic challenges along the way. And that's not going to be optimal for anyone.
Rosie 9:28
Absolutely. So at COP26 in November last year, GFANZ mobilized the range of financial services firms to join the Race to Zero in what's been described as a watershed moment. Emily, can you explain the significance of this to the just transition? And maybe tell me a little bit about what you thought of the outcomes of COP26 as well?
Emily 9:53
Thank you, Rosie. Great, great question. And yeah, I'm delighted to give you my point of view on that. So I think the the race and net zero is really designed by Mark Carney and a number of others to push leading firms to increase their ambition around the pace at which they're driving towards achieving net zero. And that means they're focused on a number of critical topics. So phasing out coal financing, and addressing some of the implications of The IA's Net Zero analysis, the energy system, but also how that transition is going to impact other sectors. And that's particularly important to hear around driving the removal of some fossil fuel subsidies, but also supporting a just transition aligned to those those examples I was talking about earlier. They announced a new net zero, aligned financing and developing countries in emerging markets and also really committing to best efforts around eliminating agricultural deforestation impacts in companies investment portfolios and financing activity by 2025. And a lot of that is actually quite aligned to some of the commitments then we saw in COP26, which I have to be honest, I feel a little bit mixed about in terms of what we hoped to achieve going into COP26. And where we actually landed, it feels like we've kept the goal somewhat alive around keeping global warming below 1.5 degrees. However, as you'll know, we don't yet have the commitment, the policies or the action in place to actually make that happen. Currently, the NDC, so the Nationally Defined Contributions add up to 2.4 degrees. And that equally assumes that everyone's on track and meeting their commitments. And I guess, that's against the backdrop of knowing that we are currently at 1.5 degrees of global warming. Guess the things they've decided or committed to do is they've agreed to look again, ready for COP26. So each country's going to come back hopefully with a more robust, more resilient, more aggressive plan. Albeit, that's going to be a bit of a challenge. And I suspect we might see some people walk back on their commitment. So the Ukraine, for example, actually means that the situation in the short term could look a little bit worse. We did however, see, and again, this is reversed a little bit, we saw a nail in the coffin for coal. But with the challenges around Ukraine, we've seen some countries such as Germany, reverse some of those commitments. So 20 governments commit to end fossil fuel funding for new projects overseas, and also 100 countries commit to cut meat then, we also saw a framework created around carbon offsetting which we could have another podcast to discuss how carbon offsetting is. And I suggest we don't get into it now. But the one thing I will say on carbon offsetting is if we can create a carbon market that works, then we can start to incentivize positive climate behaviors such as, you know, allowing and enabling farmers to plant more trees and hedgerows. We also saw over 100 countries promised to end deforestation and protecting the indigenous, sorry, people's rights. And there was a large piece around climate justice. So as you know, we in the developing countries have been merrily gobbling up utilizing fossil fuels for a long time. We're now saying to some of the developing countries, but we don't want you to do that. But actually, we need to support them in doing that. And we've made some commitments, but I don't think we are currently supporting them in the developed economies in the way we committed to do so. I guess to wrap that up, it feels like there's still a lot to do we look forward with hope that there's a greater level of ambition in COP27.
Rosie 13:56
Absolutely. That's a brilliant assessment. Thank you for setting the scene on the global need to transition to a sustainable economy. And now, let's talk about the research report, which I would just like to say is an absolutely brilliant read and sort of such a comprehensive piece of work and I can't wait until we can release it for everybody else to see as well. So the report specifically addresses the question, how can Guernsey support a just transition to net zero? Bella, I'd like to ask you what do you see as being the key differential between a net zero strategy and a just transition strategy?
Bella 14:40
Thank you Rosie, and thank you for that lovely feedback. I really enjoyed reading. So essentially, I mean, a net zero strategy is predominantly focused on emissions reductions and the actions that firms can take to reduce what we call their their portfolio mean shins are their financed emissions facilitated through their lending, investing or underwriting activities. So it's shifting the balance of that activity on their portfolios from, if you like browner assets or activities towards the greener, focusing primarily on that one sort of metric, if you like, of the emissions, the carbon emissions, by comparison at just transition strategy is one that really understands all of those points Emily made earlier around the criticality of the social dimension towards actually achieving a successful transition to net zero with limited, you know, negative impact on local social societies and economies, and places that really at the core of its strategy, as opposed to as an afterthought. And I guess what that means, what that really means is firstly, kind of integrating both of those those wider social economic objectives into your strategy alongside the emissions reductions objective right from the offset, so that as you sort of work your way through all the really crunchy difficult decisions that will be required, as part of this whole net zero transition challenge that we face, you're essentially balancing the negative impacts of moving away from facilitating browner activities, with creating positive social and economic opportunities at the same time, and that can mean for example, using your influence if there's a finance provider, engaging in incentivizing companies to invest in both the changes that are required to reduce their carbon emissions, that base, as well as the skills transfer programs that are required to reskill their workforce, and really measuring their progress against both of these factors when you're evaluating the performance of a company as part of your sort of portfolio allocation decisions. So that you're really sort of balancing those, what we call the ESG, environmental, social and governance factors, right the way through. Secondly, and also really importantly, it also means recognizing, again, link to a lot of the things that Emily was saying earlier that there are different pathways to net zero for different sectors and regions, based on their local infrastructure and capacity to transition. So as we know, developed markets, I think that really has been guzzling away, you know, fossil fuels for a lot longer. And as a result, we're a lot more advanced economically, and therefore have a lot more capacity to act quickly and to decarbonize quickly. So our targets, and the targets that we place on companies that we invest in, in developed markets have got to be a lot tougher and tighter around emissions reduction, than they will be in emerging markets where they have still got to have the opportunity to develop and build their local economic economy infrastructure and build more access to power for lots of local communities that still don't actually have that access yet. And that means in the short term that they will still need to use fossil fuels in order to do so just by nature of the fact of the the local infrastructure. So really, what it means is, you know, just transition is taking the time to do the detailed work to understand those different pathways, and established differentiated strategies based on those differing social and economic conditions. That's what it is in a nutshell.
Rosie 18:30
That's a really great way of framing it. Thank you for for that explanation. But can you also touch on the achievements to date of Guernsey and the progress that's been made around sustainable finance?
Bella 18:46
Yeah, sure. So I'd say that the two key areas where Guernsey is really demonstrating its leadership around sustainable finance around firstly, innovation and secondly, collaboration and engagement, both of which are super critical to net zero. So good examples of innovation around the Guernsey Green Fund regime, which is the world's first regulated Green Fund, Green Fund label, which currently is applied to around a total of, I think 13 funds that have that label now that are channeling investment into sustainable projects, focusing on a range of activities from solar and wind power to forestry and sustainable food production, agriculture, lots of great initiatives that currently have that Guernsey Green Fund label. That's also alongside that you've got the Guernsey Sustainable Stock Exchange, which is aligned to the UN Sustainable Stock Exchange initiative. And again, it just provides a place for global investors to go to look for listings that are past a certain sustainability criteria. Building on that there's also been consultations around the potential development of a natural capital fund regime which again, despite provide yet another example of product innovation to support green or sort of sustainable finance objective. Then I guess in terms of collaboration and engagement, there's, you know, Guernsey has got really strong network of like local industry associations, you've got the Guernsey Green Finance initiative, Guernsey's really, you know, leverage these assets, if you like as to take a lead in developing industry first frameworks and guidance. You know, examples of that are sort of the years ESG framework for insurers, the green private equity principles, there's an absolute raft of wonderful literature that the Guernsey has published that really helps advise and guide both the local industry and the wider international finance industry around some of these new concepts around green and sustainable finance. And that's really just through through the strong networking collaboration that is that has happened across the industry. And those things are going to be super important, as we look forward to finding the new solutions to the new challenges posed by the just transition.
Rosie 21:14
Thank you. It's always nice to hear it from people who aren't in Guernsey to sort of have it reflected back. I mean, obviously, we you know, we're very proud of what we do. But that's that's a lovely assessment. So thank you for that. And looking forward in the report, you've outlined many areas of opportunity for Guernsey, but if you had to pick one or two, what would you see as some of the areas of the greatest opportunity for Guernsey to build on this momentum and catalyze action towards the just transition?
Bella 21:47
Yeah. So I think, you know, we talk a lot about risk around the transition to transition presents a really, really big opportunity as well. We talk about that a lot in in the report, the transition, you know, it presents a really big opportunity to create new financial structures and products, as well as the sort of new analytical tools and services and enablers that will be required to support and enable those products. So kind of building on those two points I just mentioned around like the Guernsey strong track record for innovation and strong tradition for collaboration engagement. Guernsey is really well placed to bring stakeholders together and develop these new solutions really quickly. And one specific area of opportunity that will focus on quite a lot in the report could be for Guernsey to develop, for example at the just transition fund label to facilitate the flow of investment into companies that have both environmental and social objectives at their core. And that passed really strong tests and have really strong evidence in meeting the required criteria across that holistic set of environmental, social and governance themes. Guernsey is already showing that it's got a really strong supportive regulator that's very much engaged with the green agenda or with the green agenda. So you've got a good ground groundwork there to be responsive to ESG trends, and to build a reputation as a strong stable jurisdiction to act as if you like, as the good governor to help facilitate a trust, adjust and orderly transition via this activity to create the conditions the enabling conditions within the finance sector.
Rosie 23:36
I think, well, hopefully, it's the guys and girls at the gfsc are listening to this. And I'm feeling very proud of your kind words. Thank you for that. Emily, on the flip side of that, how can Kenzi continue to mitigate the risks that are posed by the climate crisis? For example, you know, some of the dangers of greenwashing that we should continue to look out for,
Emily 24:01
you know, the topic greenwashing comes up again, and again, I think we've seen a lot in the media recently, specifically on it. We felt that there's a lot of inconsistency and lack of transparency around the word sustainability ESG branded financial products, and I think that raises concerns of practices open to abuse. So we've seen a massive growth in the market. That's amazing. And it is starting to direct capital flows, as we talked about earlier. But a general lack of understanding I think, and some of the detail around some of the frameworks as to how you assess and measure some of these products means that we're seeing actually increased focus from the regulators globally. But actually, I think that's great. In terms of then how are you going to mitigate the risk? I think the key thing is around credibility and transparency and that is absolutely critical when addressing the risks presented. And around greenwashing in particular. So that sounds really simple, right. But essentially, if you're saying it's green on transition finance, make sure you can evidence that you've assessed it. You've looked at the credibility of any net zero strategy, the targets, the journeys, as well as understanding the social impacts of that net zero strategy. I think this is important, because we've really started to see increasing levels of litigation across the globe. I won't name names of the people who've fallen foul of this, but the global big guns practically, I was seeing the NGOs as well as small family offices, challenging firms on the green status and the robustness of the claims that they're making on products. I also think it's really positive that we are seeing the regulator's starting to step in set standards around greenwashing. And we have things like the EU taxonomy, which is really supportive, we'll see the green taxonomy, FSDR. However, I really think there's more for the regulator to do to support and giving greater guidance, and making that clear around really how assets are being classified and how you're able to demonstrate that you aren't driving greenwashing in the market.
Rosie 26:10
That's really important. So we've spoken more generally on the Guernsey finance industry, but specific industries are likely to have their own impact and outlooks on this issue. I'd like to ask you how specific industries are facing the issue of just transition, but maybe you could touch on the key challenges and opportunities associated with the just transition and and the funds industry?
Bella 26:42
Yeah, sure. And I know we'd like to say, though, there's also a lot of commonality in the challenges and opportunities across a lot of sector seats, you might sort of hit some common themes here. The challenges for the jump funders industry are, you know, around the typical things we hear a lot about is sort of either, you know, we don't have customer demand, and we have to be client lead and there's a mismatch between demand from customers and the availability of products. On the other end of things. Challenges are the data inconsistency with the data, some of the points that Emily was talking about there around lack of common definitions around some of these products, all of those things. And I think, yeah, they're very real challenges. And, you know, some of the things that Emily talked about with the regulation will start to unlock some of those challenges, particularly their sustainability, disclosure, regulation will start to improve the data will start to improve understanding and and, you know, starts to create a virtuous cycle of, you know, create having a positive impact on customer demand, once there's a better availability of information, all those things. So I think the challenges will work themselves out the opportunities is the thing that we need to be really focusing on. As the, you know, the funds industry has got such a crucial role to play in enabling just transition, given its role and influence on behalf of global investors across you know, all of asset allocation decisions, aggregating and publishing fun data, shareholder action and voting, using their voting rights, engaging and influencing across the whole value chain of customers and clients through to portfolio companies through to data riders, and so on. So they've got such an important role to play in the funds industry. And as we covered already, you know, huge opportunities reign around the investment opportunity around transition finance, I mean that the estimates were like vary wildly from anything from $125 trillion to $350 trillion, required to get to net zero, depending on which source of methodology you use, and those estimates typically around getting to net zero not getting to net zero in a just and sustainable way. So by that definition, the sums will be even greater. What no one debates though, is that there's a massive scale of financing needed and the majority of this will will have to come from private capital. And actually much of this will come will be associated with the kinds of asset classes that are really common within the Guernsey Funds industry. So, you know, private equity, and venture capital, for example, really big within Guernsey have a really critical role to play in this decade. Specifically to support those investments into the new and emerging frontier technologies that are currently only at their earliest stages of development that will be absolutely critical when we get to the point of 2050. You know, the things that we will need and 2040s and 2050s are either in their absolute infancy today or probably haven't even been thought of yet. So those types of investments are really be critical, as well as infrastructure and property funds and other asset classes. It's really common in Guernsey fund industry, you know, very critical buildings represent around 20% of our emissions in the UK, around 15% of our co2 emissions globally. And so there's a huge amount of investment that will be needed to both retrofit our enormous landscape of existing properties and buildings, as well as funnel into massive, you know, property development opportunities around the sort of cutting edge of of net zero property design. So there's absolutely loads of investment opportunities there for the guaranty funds industry to pursue.
Rosie 30:40
So with massive generational wealth transfer expected, along with increasing interest from younger generations for sustainable investments better, how important is current demand? And what can be done to increase viability of investment in the just transition?
Bella 30:57
Yes, so there's a big roll, there's a there's a hot topic at the moment, rounds of generational wealth transfer as as listening to another podcast about this very topic this morning, actually, the, you know, the baby boomer generation holds wealth estimated to be somewhere in the regions of 30 to $42 trillion, much of which is set to transfer to their younger offspring, and the sort of millennial and Gen Z, Gen X, Gen Z, etc, generations over the coming decades. And those are the younger generations, are they the ones that really have, you know, sustainability at the core of their objectives, they're sort of choosing by number of different indices and research studies, to use their kind of power, you know, voting with their wallets, and so on, and also increasingly in their investment decisions to to put sort of sustainability factors front and center of their decision making processes. So you know, green and sustainable investments, investing is becoming more and more important to these younger generations, hence, developing solutions to suit their needs will become increasingly important and presents a really big opportunity for a just transition that includes both sustainably sustainably branded products that we've been talking about today. But it also really reportedly means actually just mainstreaming of sustainability into the way we manage investments across that the whole of the the rest of our investments, so non, not sustainably branded products, but just everything else as well. So ESG, or RII, which we call, which we mean, responsible investment integration is a really hot topic in the investment industry at large today, because that demand is growing, and is set to grow exponentially going forwards. Unfortunately, at the moment, there is a little bit of a mismatch, I was alluding to this earlier between the sort of increasing level of demand in the market for sustainable products or sustainable integration, and then the availability of products and opportunities to match that demand. And the ability of investment advisors and trustees to both understand that ESG factors and the data and how you measure it and value it and so on, and then communicate and match that with the demand the new and growing demands of their investors. And this is really actually particularly challenging in the more sort of private segments within the market where the data is less publicly available, it was because they're not subject to so much to such strong disclosure requirements. So I guess, you know, within Guernsey there's an opportunity here for trustees and advisors to recognise and take realise on these movements is broader sort of macro movement, and use that as an opportunity to upskill themselves to be able to cater to those new demands of their client base and to sort of improve that matching between client demands and product sets and investment opportunities in the in the market, as well as using their role and influence to engage with these investor groups with anything from the younger generations to high net worth clients and beneficiaries. And help them to understand the longer term risks and impacts associated weather investments, integrate these into their investment objectives. And then use that to then go up go forth and proactively engage with asset managers to help to really understand how they deliver on these objectives and, and also to encourage them to do more where required. So you know, client demand. Going back to your question, like the client demand is important. It presents an important it's present very real opportunity to see this upgrade growing client demand, more can be done to match that demand with availability of products. And there's a big opportunity there for the sort of specialist advisors within Guernsey to lean into that and provide that sort of matching service around, you know, sustainability advice to these to these investor groups.
Rosie 35:24
Absolutely. So, let's move on to the insurance industry. With recent publications and announcements from the London market, we're now starting to see some real momentum building around sustainable insurance.Bella can you talk a little bit around the risks and the opportunities associated with insurance in Guernsey and how it can manage these in lines with the goals of a just transition?
Bella 35:50
Sure, yeah, absolutely. So insurances is absolutely critical in a in an increasingly as we know, sort of high risk world that we that we live within so you know, in its core role insurance provide resilience, you know, supporting businesses, communities, individuals to to build back and recover from loss events. A really great example of Guernsey's leading role in sustainable insurance solutions, which does just that is the the Danish Red Cross catastrophe bond, which is the world's first catastrophe bond to cover up your volcanic eruption risk, which was brought to market using one of Guernsey's innovative incorporated cell structures, and also listed on TISE, the Guernsey Sustainable Stock Exchange that I talked about earlier, that's a really great example of an insurance solution that provides kind of loss mitigation for very, very severe potential humanitarian risks associated with these volcanoes and the amount of economic and social and financial destruction that is a result of volcanic eruptions. And I think, you know, building on from that the the opportunities, the industry going forward, are, are huge, you know, momentum. Certainly building in the insurance industry specifically, we've seen a number of recent publications last year in this year that are providing additional sort of advice and guidance to the insurance industry to help sort of catalyze this movement towards sustainable assurance, which is just sort of getting getting going if you like, it's a little bit further behind than some of the other areas like investment and asset management that started a few years ago, but that momentum is really starting to build in the insurance sector. And unit principles for sustainable insurance is a really good example of an industry initiative led by the UN but partner with the the industry sector, at the insurance sector at large, where they've collaborated to publish a guide around sustainable insurance. There's also a lot of materials coming from the London market from Lloyds has published a guide around integrating ESG into underwriting processes. So there's opportunities there to to sort of take that guidance and then apply that locally to to the sectors in Guernsey you know, what these guides tell us is, in essence that some of the key actions for insurers to support a just transition into sort of mitigate the risks around transition are really not too dissimilar from to the other sectors that we've talked about. It's around, you know, that what we've covered a few times around assessing all of those environmental, social and governance factors across underwriting portfolios, and really integrating that into sort of risk analytics and pricing models and so on. This is the one where we often get the most pushback from insurers, because essentially, you know, it's what insurers have always done, you know, actuaries, their role is risk analytics. And that's absolutely true. And they have some of the best risk analytic tools available in you know, across the industry. That I guess it's around taking that that amazing capers net already have, and then expanding that, to use it on a more strategic basis to perform that, that kind of advanced risk analytics, but across a more strategic on a more strategic footing across an entire business model and product line, rather than just on individual policies, and expanding that on a 20 or 30 time year horizon rather than perhaps an annual or, a couple of yearly cycle as per the lifetime of the policy. So it's, you know, taking that groundwork, expanding it to include all of the ESG factors and looking out across a longer time horizon and then continuing to to use that analysis to enhance risk and pricing models with those wider factors integrated, thereby helping them to insurers to start to identify ways to help bridge the A protection gap. So the lawyer suggested that just a 1% increase in insurance coverage could reduce the global cost of climate related disasters to taxpayers and governments by as much as 22%.
And, you know, taking that forward, then it's really important from a just transition transition perspective. One of the key risks for the insurance sector is that you hear about you know, discussed at length, not only insurance, but particularly in insurance is the stranded asset risk. And by stranded asset risk, we essentially mean the risk that in the pursuit of net zero around assets, which might be for example, a coal fired power station will become essentially a stranded asset that is uninsurable and investable, thereby opening up a whole load of unprotected risks around that asset and then the local workforce or economy dependent on it. What ensuring adjust transition means is that these types of brown assets will still need insurance to provide loss mitigation and risk transfer while the asset is transitioning, for example, being repurposed to to a new business model, a low carbon energy source or maybe just being decommissioned. You notice here is on insurance to understand that required timeline for transitioning these assets, and adapting their policies and pricing accordingly, but was also doing that using their role and influence to it and gauge with the insured with the owners of that asset, their policyholders their clients, to understand that timeline, and actually providing proactive support to that and transitioning a lot along it. So what I mean, to summarise, I mean, it is not about a blunt timeline, or a timeline used as a blunt instrument for exiting certain contracts, but rather using that timeline as an engagement tool to help educate and inform clients and enable them to develop their own transition plans. Finally, I think the other thing that's really big an opportunity and really crucial for the sector is around engagement. And you know, Guernsey's industry associations and networks are another key sort of opportunity for the insurance sector to help collaborate and you know, to work with the wider industry to improve that practical advice and guidance around some of these complex challenges around integrating ESG. And just transition into underwriting processes is one of the areas where there's been the least work done to date, and where there's the most opportunity to make a lot of progress.
Rosie 42:49
Plenty to build on then. Now, finally, we're very proud of our work so far with going to green finance, that's going to finish tip for greening the financial system. And September marks our third Sustainable Finance Week, and we will be delighted that you'll be attending as a panelist. Now, there's not an awful lot of time between now and then. But Emily, what do you think Guernsey could do next in the run up to Sustainable Finance Week?
Emily 43:17
So firstly, you know, congratulations on the work that you've done so far. And I think it's absolutely right and appropriately that you're really proud of that. So thank you. And I think that the first point is obviously read the report.
Rosie 43:33
Everyone should read the report.
Emily 43:36
everyone read the report, and I just really engage with the topic. It's a fast moving topics sustainability has, I think he's definitely maturing. And people's views on what's green versus Brown has been subject to change recently, particularly in the context of the challenges we see in the Ukraine. I think we need to all be quite thoughtful about that and make sure that you've assessed and understood both the risks and opportunities associated with sustainability and sustainable finance. Think it's also quite important to think through the sustainable change that you want to drive and try to be quite focused, I'd suggest so we can't all solve all problems. And we're best place probably to solve some of them, hopefully, the bigger ones. So Bella talked about the challenges we've got around housing, around fossil fuel around agriculture to name a few. So be thoughtful about, you know, how can we start to drive change specifically in their sectors. But I think it's just really been important to create and further develop the frameworks and the products that are in place that are going to drive greater flows of capital into projects that support us in ensuring a greener and more equitable planet.
Rosie 44:52
I think that's absolutely right. Now, unfortunately, that's all we've got time for. Emily, Bella, thank you so much for joining me on the podcast today. Thank you so much for your time and your insights. It's been wonderful to hear from you and I look forward to hearing more from Emily in September. Thanks also to you for listening to today's edition. Now we've got 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. And if you enjoyed today's episode, please leave us a review or a comment we'd love to receive your feedback. To learn more about the just transition and about Guernsey's sustainable finance offerings you can now register to come to Guernsey for our Sustainable Finance Week that's been held in Guernsey between the 19th and 23rd of September, we'll be hosting market leading keynote speakers, informative panel sessions and there'll be an opportunity to network with global and Guernsey leading sustainable finance practitioners. You can also find us at guernseygreenfinance.org and weareguernsey.com and you can interact with us on Twitter at @gsygreenfinance and @weareguernsey to here more relating to news and developments coming out of Guernsey's finance industry. Check out the We Are Guernsey podcast on your preferred platform. We'll also have links to Emily,Bella and Baringa's social media in our show notes as well as the new research report so check them out to him or and we'll be back soon with another edition of the Guernsey green finance podcast.
Transcribed by https://otter.ai