The closing day of Sustainable Finance Week focused on carbon markets and pricing, the role of the investment industry and building a net-zero investment portfolio. As the afternoon got underway, the message was clear – the transition to net zero will impact every organisation, regardless of size, sector or industry.
Here are seven themes which emerged from the afternoon: The case for carbon credits
James Close, Head of Climate Change, NatWest, set the scene for the afternoon’s discussions by stating that there is a place for offsets, supporting industries through the transition. “There will be residual emissions which we cannot get rid of through any other means than buying carbon credits or offsets,” he said.
Later, Grant Cameron of Ninety One Guernsey reminded the audience that it is crucial we don’t starve brown assets of capital but instead manage these into a position of being ‘green’; carbon credits have a fundamental role to play. Integrity must underpin the market
James made it clear that the carbon market needs to recover from early stumbling blocks and a past lack of rigorous standards. Still, that is now changing, with transparency and accountability starting to underpin the market.
The theme of integrity continued throughout the panels, with speakers returning to the theme, emphasising that carbon offsets should not be used as a ‘quick fix’ and do not replace the work of reducing direct emissions.
Verification and a clear chain of custody are essential to build trust and ensure genuine impact, especially when there is little or no direct visibility of the original source of the carbon credit.
Carbon offset projects need to build credibility and consumer confidence. The threat of greenwashing is real. But, as Marija Rompani of John Lewis explained, the consumer is powerful, asking if we needed to look at some form of carbon impact labelling for consumer goods. Short-term versus long term
We must see through the short-term carbon pricing volatility and understand the long-term benefits, which may include enabling projects to get off the ground that would not do so without the economic benefits of carbon credits.
The long-term nature of sequestration projects was discussed. ‘It takes 35 years to create forestation projects and for the carbon credits to convert from pending to verified credits for offsetting,” explained Richard Kelly, the Co-Founder and Co-Lead Fund Manager of Foresight Sustainable Forestry Company Plc.
Richard continued by explaining that there could be a shortage of carbon credits in the near future, with the number of net-zero pledges rising 17-fold over the last three years. In addition, the current energy crisis could worsen this, and educating the markets about the possible shortage and hedging strategies is critical.
The carbon price volatility creates risk in the voluntary market due to the difficulties in planning the differential between the cost of transition and offsetting and how that factors into capital expenditure discussions, making planning a net zero pathway more challenging. Local versus global
Discussions returned to the tenet that climate change is a global issue. For example, we are one world, and large-scale reforestation projects will contribute to our collective ambitions to reduce emissions. These projects are often based many miles away from the funding source, but we must carefully consider the local social impact of carbon offset projects.
Equally relevant is the choice to support local initiatives and community projects that are visible to your workforce and make the impact more tangible. The wider lens
Kate Elliot of Rathbone Greenbank Investments explained that three main frameworks cover 85% of carbon credit projects, and only one looks at the project’s social impact. She reminded the audience that “these are real-world physical projects, often with a large footprint, so we must assess their overall sustainability. We need to be cognisant of human and land rights, local cultures, etc.
There is much potential for carbon markets to bring capital into emerging markets; conversely, there is potential to end up with a situation where we’re asking people who were not the primary source of the problem to be the primary source of the solution. Collective effort
Marija Rompani of John Lewis said: “we must have optimism, but the change is only possible if we put our shoulders to the wheel.” James Close agreed that the carbon reduction challenge was too great to “tackle on a piecemeal basis; we must do it together.”
Harnessing collective consumer power was raised again in the context of carbon taxes, which can drive behaviour change and raise revenues to direct into a just transition.
7. A race against time
The core schedule of Sustainable Finance Week was brought to a close with a presentation by arctic photographer Martin Hartley. He spoke powerfully about the melting sea ice in the Arctic Ocean. “People need to understand what’s going on at the top of the world; this ice cools the planet, it is predicted to disappear in the next 10 years, and without it, live on Earth will be very different.”
“90 per cent of the human population live in the Northern Hemisphere, and the Arctic Ocean gives that hemisphere its weather, we are all connected to it, every single day of our lives.”
With those words echoing in attendees’ minds, WE ARE GUERNSEY closed out the third successful edition of Sustainable Finance Week.
