07 Oct 2022
Guernsey Sustainable Finance Week: a round-up of the discussions
We summarise the key conversations from Guernsey Sustainable Finance Week around biodiversity, the energy transition and carbon markets and pricing.
Late September saw Guernsey hold its third annual Sustainable Finance Week. Unlike the previous two summits, this year’s event was held in person on the island and there was no shortage of interesting discussion, with a focus on three main themes: biodiversity, the energy transition and carbon markets and pricing. Here we summarise the week’s conversations.
Day one: biodiversity
Day one of the event explored the theme of biodiversity, its relationship to climate change and the emergence of business models focusing on this theme.
While climate change is seen as the most pressing environmental challenge facing the world, it’s clear that the ongoing loss of biodiversity is also a huge problem. In fact, the pair could arguably be seen as twin crises facing the world and the global economy.
During the discussions, it was noted that collaboration between environmental groups, the third sector, the government, the private sector and regulators is vital if we are to slow down biodiversity loss, as are financing partnerships to unlock private capital. Several speakers referred to the need to put nature first, with the environment and nature at the heart of investment decisions and how we manage businesses.
Bradley Davidson, ESG Lead at RBS International, explains that: “Biodiversity can feel abstract but we rely on the benefits of the natural world every day, from the food we eat to the medicines we depend on. Loss of biodiversity represents a material risk to businesses and financial institutions but, as with the transition to net zero, it’s also leading to a wide range of opportunities.
“Businesses need to protect and enhance the ecosystems surrounding us to safeguard their future. The challenge is complex, requiring innovative approaches. But industry initiatives like the Taskforce on Nature-related Finance Disclosures are providing the frameworks that we need to help translate discussion into action.”
According to Simon Chandler, Relationship Director at RBS International, “Environment regulators and financial regulators are yet to join up on the subject and it’s clear that beyond education, regulation is required to drive behaviours and guide decisions to help promote a nature-positive economy. Just like with climate change, it’s something we all have to play our part in, both at the individual and corporate levels.”
As part of the day’s events, the Guernsey Financial Services Commission announced the launch of the world’s first natural capital fund regime, which will help channel investment into biodiversity and natural capital projects.
Day two: the energy transition
On day two the focus moved to the energy transition, what it means for financial market participants and the role of the private sector in the move away from brown industries.
During the day it was noted that the headwinds created by geopolitical uncertainty have shown how quickly the tone of the conversation can change from the commitments made at COP26. While the increase in fossil fuel prices has increased interest in renewables, recent events have made the landscape even more challenging to navigate.
Renewables are already viable but there needs to be a seismic shift in activity levels for them to achieve real impact: it’s been estimated that renewable energy supply needs to be doubled 27 times in the 28 years before 2050. However, it’s encouraging that green hydrogen is now rolling out at a colossal scale, and while some technologies are uneconomic at present their affordability will improve over time, although there needs to be government support to help promote them.
There was also considerable focus on the need for a just transition. While most capital flows into western companies, emerging markets need capital quickly and we will all pay the price if they don’t receive it. There were discussions about how those who are most impacted by the energy transition are often those who can least afford it; for example, the wealthiest consume the greatest proportion of energy but spend the lowest proportion of their income on it. Nevertheless, the consequences for those on low incomes cannot be ignored, particularly as energy is also directly correlated with economic growth.
In the opinion of Peter Fernandez, Relationship Director at RBS International, “Changes to the way we produce energy are just part of the solution – we need to identify how we change consumption not just as households, but also in the production of goods and food while preserving biodiversity. The scale of investment required between now and 2050 is breathtaking”.
Day three: carbon markets
RBS International was sponsor of the event’s final day, which focused on carbon markets and pricing, the role of the investment industry and how to build a net-zero investment portfolio.
James Close, Head of Climate Change at NatWest, began by setting out in his keynote speech that there is a place for offsets to support industries through the transition. As he explained, "There will be residual emissions which we cannot get rid of through any means other than buying carbon credits or offsets”.
There was a clear focus on integrity throughout the day, with several speakers hammering home the message that while they have a role to play, carbon offsets do not make the need to cut direct emissions less pressing. It was noted that volatility in the price of carbon makes capital expenditure decisions more difficult and planning a net zero pathway more challenging. There was also widespread agreement that cutting carbon emissions could not be done on a piecemeal basis – everyone needs to work together.
According to Bradley Davidson, “the world is still seeking the true cost of carbon, but the energy crisis has accelerated thinking as society reflects on its dependency on fossil fuels. The energy trilemma – the need to strike a balance between security, affordability and sustainability – is not a new consideration, but has gained prominence amid the transition to net zero. As with any major issue facing society, engaging with multiple stakeholders will be vital to identify the best solution”.
Earlier in the day, Bradley Davidson, James Close and Susan Fouqier, Head of Institutional Banking at RBS International, had taken part in a panel discussion exploring the obstacles and opportunities faced by alternative investment funds looking to set science-based targets (SBTs). Much of the discussion focused on the key themes highlighted in a recent report published by RBS International on SBT adoption. It also identified the benefits that carbon offset projects can have for social development and biodiversity enhancement beyond carbon sequestration.
The need to act now
Throughout the summit there was a focus on how it’s imperative that the world acts now. As Angus Rather, Relationship Director at RBS International, stated: “The range of speakers made it clear what we can do to reduce our impact on the planet. The key message that came across was that we all need to act now to at least have a chance of building a green and sustainable future.”
Filipe Cardoso-Smale, Relationship Director at RBS International, highlighted the role of the finance industry in securing a better future: “It was clear from the discussions that the finance industry has a vital role to play as it’s estimated that 80% of the funding needed for the transition to a sustainable world will need to come from the private sector. We have a long way to go, but together we are acting on the pledges that have been made and can create a world where generations to come are able to thrive”.
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