The second day of WE ARE GUERNSEY’s Sustainable Finance Week explored the theme of the energy transition, what it means for financial market participants and the role of the private sector in the move away from brown industries.
If you missed the sessions, here are eight key takeaways from the event for you to consider: Impact of global events
Adam Matthews, Chief Responsible Investment Officer of the Church of England Pensions Board, made it clear that current global events have increased the interest in renewables but have made the landscape even more complex to navigate. Ross Keeling of HSBC agreed: “It’s not going to be a linear transition, we’re going to have a lot of challenges along the way, and some of these will throw us off course.”
Adam also noted that access to the minerals needed for green energy technologies posed challenges. He called it an “Achilles heel”, explaining that supply chain uncertainties were adding to the complexity of rapidly scaling up production. Reporting complexities
The myriad of frameworks, mandatory and voluntary standards, and the need to standardise data add to the challenges. However, throughout the afternoon, the panellists made it clear that frameworks continue to have a role to play in driving change. Frameworks help consumers and investors understand what companies are doing to support the transition, provide a level of comparability, drive conversations and provide constructive challenge. Increased scrutiny
Companies need to get on board as regulations change: “In a new world, you will see routine legal action against you. You need to be absolutely conscious of that when making these decisions because they will come under that level of scrutiny,” said Adam Matthews.
Later, the panel discussed how companies without a climate strategy will not be bankable, and a genuine ESG focus was likened to “a social license to operate.” Speakers agreed that social purpose and a commitment to ESG principles are critical to attracting and retaining talent. The spotlight is shining bright on those who are not making climate-conscious investment and business decisions or are greenwashing their eco credentials. Investor influence
Peter Bachman of Gresham House stated: “demand is coming from the capital”. There is a growing pool of investors who care, and outsized returns are accessible for early investors. Several speakers agreed that conscious investors driving change and leading companies through transition is more effective than disinvestment.
This point was illustrated by Adam Matthews who shared how a collaboration of investors with over USD $20 trillion in assets under management, including the Church of England Pension Board, committed to driving forward the Mining and Tailings Safety Initiative following the Brumadinho tailings dam disaster. The group is now working towards a 2030 Investor Agenda for a reformed mining sector. The need for a just transition
Ross Keeling said: “Capital finds it easier to find a home in western companies; however, emerging markets need capital and quickly; we will all pay the price if we don’t find that capital.”
The panellists noted that we must look beyond the immediate impacts of the transition. It is not simply about the workers and industries directly involved in the energy transition. Whilst that cannot be ignored, a broader societal view is required.
Discussions continued on how those who are most impacted 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 low-income people cannot be ignored, particularly as energy is also directly correlated to GDP.
The concept of a just transition was a strong theme throughout the afternoon and is considered in more detail in WE ARE GUERNSEY’S latest report – Private Finance and its Role in Support the Transition to Net Zero, produced in conjunction with Baringa Partners. Demand will change supply
Climate transition is an energy transition – over 70% of greenhouse gas emissions are from fossil fuels. So, it makes sense to focus on sectors with a real consumer need. Harry Manisty of Octopus Renewables estimated that energy renewable supply needs to be doubled 27 times in the 28 years before 2050. Green hydrogen is now rolling out at a colossal scale. Mind the gap
Adele Gale of Robus Group explained that a lack of insurance coverage around specific technologies poses an issue for risk managers. She said: “They can’t support the transition if they can’t cover the risk. Insurance needs to gain confidence in future-forward models.”
The speakers agreed that Guernsey is well placed to assist through its captive industry, which has a unique role in covering protection gaps and warehousing risks until other solutions catch up.
There is also a funding gap and the need to unlock vast capital. Panellists suggested that start-ups must demonstrate a track record and show that initiatives work to bring more mature pools of capital. Importance of the finance industry
Rupert Pleasant closed the session by saying: “The more we cover the topic of sustainability, the more we discover just how relevant the finance industry is in fighting climate change.” From private wealth impact investing and venture capitalists seed funding game-changing farming initiatives to using insurance captives to warehouse risks until other solutions catch up, the finance industry is at the forefront of a new climate frontier.
Sustainable Finance Week continues; the focus for Thursday’s sessions is carbon markets and pricing.
