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At a recent event hosted by RBS International, delegates discussed the changing role finance has to play along the road to net zero.
The UN’s 26th Climate Change Conference is a perfect opportunity for world leaders and financial institutions to teach each other how sustainable investment can help meet net zero goals. To that end, delegates gathered to hear a range of views held during a panel discussion organised by RBS International in St Helier, Jersey, and hosted by local Head of Institutional Banking Séan O’Callaghan.
“We can’t tackle climate change individually,” said RBS International ESG Lead Bradley Davidson. “We recognise collaboration and partnership needs to underpin everything we’re doing, so the key thing is to be there and listen. We’re looking to policymakers to outline specific areas where private investment can fill a gap that public investment can’t. And it’s an opportunity for us to make policymakers understand where we should efficiently direct capital.
Davidson added that while net zero targets were vital, it was now necessary to map out how they would be reached. “I am hoping from COP26 that we get greater commitment from public policy and asset managers detailing those interim steps.”
Davidson was joined on the panel by David Postlethwaite, Sustainable Finance Lead for Jersey Finance, who said effective mobilisation of environmental, social and governance (ESG) finance to support climate change goals required global like-for-like reporting standards. “From an investment perspective, we need to compare apples with apples,” he said. “We would expect the IFRS to set up a sustainable finance reporting board. A convergence of global reporting standards would turbo-charge mobilisation of capital, and, if that happens, that’s where Jersey comes in… Jersey’s a really important cog in the global financial system, in driving and connecting capital and investment. It really plays to our strengths.”
And he added sustainable finance was key to that progression: “It became clear around 18 months ago that sustainable finance was no longer a discreet topic. It is transversal and will affect all our sectors in different ways with different challenges – so it is something that requires a holistic view.”
“We can’t tackle climate change individually. We’re looking to policymakers to outline specific areas where private investment can fill a gap that public investment can’t. And it’s an opportunity for us to make policymakers understand where we should efficiently direct capital”
Bradley Davidson, ESG Lead, RBS International
The landscape of change
Davidson described how RBS International has broadened its ESG commitment, for its own purpose as well as supporting the green economy.
“In 2019 NatWest Group launched our Purpose-led strategy based on the three pillars of climate, learning and enterprise. For climate, we’re committed to halving the financed emissions of our lending book by 2030, acknowledging that our lending participation choices have an impact on the planet. We’ve achieved climate-neutral status for our own operations, working towards climate-positive by 2025, and recently committed to £100bn of new climate and sustainable funding and financing by the end of 2025.
“Climate is also a new risk, alongside tradition types such as credit and reputational risks, to ensure each decision we make reflects the impact on the planet. And we’re working with customers to work out how we can fill all the data gaps.”
Postlethwaite also spoke about the progress of the island and Jersey Finance since the launch of ‘Jersey for Good’, a strategy to develop the Crown dependency as a global centre of sustainable finance. “Our 2030 vision is very ambitious – that Jersey will be recognised by clients and stakeholders and partners as the leading international finance centre for sustainability in the markets that it serves.” He said the island was on the pathway to Financial Centres for Sustainability (FC4S) membership and that Jersey Finance had supported Jersey Financial Services Commission (JFSC) through a consultation process of its sustainable codes of practice, putting framework around sustainable investments.
Davidson underlined the support NatWest Group, as a Jersey headquartered bank, was giving the island to put sustainability at the forefront. “We’ve always been engaged with Jersey, both institutional and retail,” he said. “We’re looking to provide valuable insights to customers on these islands and we’re learning and sharing those steps with our customers.” RBS International, he said, was supporting the dependency’s FC4S application, engaging with customers to increase sustainable finance volumes and was working to support all islanders.
“Sustainable finance is not the only thing we do to support our customers; it’s just part of the journey,” he added. “We know our customers well so we are all in a good position to have open discussions about ESG.
“I’m hoping we will see greater emphasis on financing instruments at COP26.” But he added it was important to review traditional lending time frames to match them with longer-term sustainable projects. “We need to acknowledge the time horizon disparity between the lifecycle of alternative funds, particularly when we’re looking at one- to three-year lending facilities, and the long-term impacts of climate change. We need to explore new ways to offer patient capital that incentivises the industry to tackle large-scale infrastructure projects.”
But Davidson added ESG finance opportunities were going in only one direction. “We’ll continue to see growth: we’ve already doubled volumes in sustainability linked loans from last year and the year before, and we hope and expect loans to further help companies on their ESG journey.
“But we need to look forward. We’re rightly focusing on climate and the environment, but we also need to look across the whole of ESG; you can’t look in isolation. There’s inherently an impact from the E on society; there is a social impact. The future we see is that we want to promote sustainability in its truest, most complete sense.”