Aligning the finance industry with the Greta good
With COP26 underway, the Heart of the Matter series is changing tack for a while.
I recently wrote an article for Sibos on the impact of climate change on the finance industry. I started by researching the topic and discovered a lot was going on.
But like pulling a piece of string, the more I looked, the more I found. But it is in pockets all over the place, and there does not seem to be a single source of truth. Overall, what I found falls into the following rough buckets:
- Analysis of the potential for financial instability caused by nature in climate change
- Analysis of the potential for financial instability caused by rapid decarbonisation
- Standardisation of measurement and reporting
- The use of policy, products and services to effect change in the industry
- Changing consumer expectations, understanding and behaviours
As it happens, these buckets form a handy framework for understanding the problem. Over the next few weeks, we will peer into these buckets and understand what is going on. The key questions I aim to answer are: how can the finance sector help effect positive change? And what the hell does it all mean to the person on the street?
The good news is that the finance sector is already active and helping, with some emerging champions.
A good example is Clive Emery from Invesco Perpetual. Clive is a fund manager and has pioneered Invesco’s Responsible Asset Allocation as part of the company’s multi-asset investing products, and has also launched the Summit Responsible Range in the UK – five risk-targeted responsible multi-asset funds.
I recently spoke with Clive about Invesco’s ESG strategy, and more broadly, how the wider investor community is starting to make an impact. When asked about how the industry can help, Clive gave a couple of examples:
“When looking at investment today, most people think about risk and return. Climate change is highlighting another ‘r’, which is responsibility.
“Investors in funds need to be able to target nonfinancial objectives and judge the outcomes in the same ways they manage their financial objectives. Reporting risk and return are regulated and standardised, but reporting on responsibility is not, leaving it open to over-promising and under-delivering.”
Finding standard ways of measuring and reporting responsibility is critical and will ensure trust in the system. Not only will it flush out the greenwashers, but it will also provide a platform for education and help the wider industry and the end customers understand what is going on.
Clive went on to talk about how the investor community is already playing a significant role in making change happen. For example, Invesco is a member of Climate Action 100+, an investor-led initiative ensuring that the world’s largest corporate greenhouse gas emitters take necessary action on climate change.
This coalition of investors is holding companies to account and “encouraging” positive behaviour. Climate Action 100+ has 545 investor signatories responsible for over $52 trillion in assets under management and is engaging with 167 companies through the initiative. So, it has big teeth, and things are happening, which is reassuring to hear.
The other piece of good news is that finance, with all its myriad platforms and channels, is well placed to help bring meaning to consumers. Someone asked me recently, “What does a tonne of carbon look like? I cannot see it or touch it. Comprehending carbon is very difficult.”
It is a good question and goes to the heart of the matter on why climate change is such a complex problem for most to grasp fully. It is abstract and, for the many not impacted yet by severe weather, intangible.
I did some research and found that one tonne of carbon is the equivalent of six trees. The research took me through several off-setting sites, which included tools to calculate my carbon footprint. One statistic of particular note was a carbon calculation for a return flight from LHR to New York for an individual in economy – 1.64 tonnes. Taken in the context of my calculated total carbon footprint for 2019 of 7.2 tonnes, that’s a lot. Measured in trees, it is 9.84.
I have a household of seven, so a family trip to NY looks like a small woodland. And the whole plane? Gulp! But this voyage of discovery then took me on into a small and niche section of the fintech community. Companies such as Ecolitiq, CoGo, Duconomy and Meniga use transactional data as the basis for carbon calculations for end customers.
There will be much more on them in a subsequent article, but they represent a new frontier in banking that does precisely what is needed; present carbon usage to an individual based on spending in an understandable and actionable format. Each of these companies has recognised that banking data and digital banking platforms can be co-opted to help. My prediction is that this will go from niche to mainstream exceptionally quickly, as banks recognise that net-zero is about the organisation and also its customers.
So, here’s a small challenge for you. Would you mind reading the articles that will be in abundance around COP26? And when you read about the dire situation we are in, think about the industry we work in and what we have available to help make a positive impact.
John Kerry talks about the need to innovate out of this crisis, and he is right. The finance sector is constantly innovating around problems, and what more fantastic opportunity for it to innovate than to help save the planet?
And finally, the last word is from Mark Carney: “The world of finance will be judged on the $100 trillion climate challenge; look at what your bank, insurer and fund manager do — not what they say.”
About the author
He is a passionate customer advocate and champion and a successful entrepreneur.