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Notes on Climate Change and the role of finance

By Rupert Pleasant, CEO of Guernsey Finance

The investment industry has a critical part to play in the global fight against climate change and other environmental threats we all face.

This was the view taken by senior industry figures the annual Guernsey Funds Forum at the end of 2021 in London. All the speakers at the event were unified in their belief that ESG investing will have as important a part to play as governments and regulators when it comes to preserving the environment for future generations.

ESG is more than a tick box affair 

In a panel chaired by NBC’s Daisy McAndrew, Guy Semmens of Gyrus Capital said the onus is now on fund managers to focus on the actual impact their green investments are having on the world.

Rather than simply investing in order to tick ESG boxes – a process known as “greenwashing”– the managing partner said these individuals must use their financial resources specifically to drive meaningful change. 

“Politicians and regulators are likely to be the answer when it comes to addressing business practices that are having a negative impact on the environment, but finance will contribute too,” he said. “If money flows into these areas through investment, then it can really address and solve these issues and have a real impact and drive.”

To demonstrate, he used the example of Total Group, an oil and gas company with whom a consultancy business for his Geneva-based investment fund currently works.

Given the amount Total alone contributes to global emissions – a percentage which remains subject to considerable debate – Semmens said the firm would, perhaps not surprisingly, immediately be excluded from the radar of many investors. However, unless fund managers are willing to inject capital into companies like this that will enable them to accelerate efforts to address these sorts of issues, he said they are less likely to go away on their own.

Don’t wait for intervention

Echoing Semmens, Marc Cohen, a partner at early-stage tech investor 1818 Venture Capital, said it will be impossible for large investors to avoid their environmental responsibilities moving forward.

Far from merely being a charitable notion on the fund manager’s part, Cohen said his experience has shown that an ESG mindset is now a major requirement not just for his own clients and employees, but also the companies into which he injects capital and even their customers.

All of these parties need to know that we care about ESG and that things are being done properly,” he said. “So, if you want to hire, sell, and invest, you need to have a progressive, responsible approach. This is going to be more and more important, irrespective of regulation and government intervention.” 

However, Cohen added that investing to sustain the environment must work both ways. Asked about BlackRock CEO Larry Fink’s recent claim that the next thousand global unicorns will be climate tech companies, he said that all start-ups hoping to court a $1 billion-plus valuation must have an eye on sustainability.

“There’s no doubt that there will be a lot of unicorn businesses in the climate technology sector, but there will also be a lot of these sorts of businesses in other sectors. To get the kind of support from investors and the market needed to court these valuations, they will all need to be very aware of their impact on the environment,” he said. 

The road is long 

But while speakers all agreed that asset management would be critical to the global fight for sustainable moving forward, they also all agreed that there remains a long way to go.

For example, Robert McAdie, chief cross asset strategist at BNP Paribas, said we are seeing an “evolution” in the investment industry’s efforts to drive positive environmental change.

In particular, he highlighted the fact that we are now seeing record flows into global sustainable mutual funds. Indeed, the amount invested in global sustainable mutual fund assets hit a record $3.9 trillion in the three months to the end of September 2021 according to data firm Morningstar, which it put down to a jump in the number of funds available.

However, while regulatory efforts such as the Sustainable Finance Disclosure Regulation have widened the sustainable investment net, McAdie said greenwashing and questions around the “net zero” credentials of many investments and funds could continue to hold the space back.

Likewise, speaking in another panel discussion, Miles Celic, chief executive of TheCityUk, said the absence of a single set of unified sustainability standards presents a potential hurdle to huge demand in the UK.

“There is a huge opportunity here. However, I remain slightly concerned about fragmentation in the area of green and sustainable finance,” he said. “Even if you look at things as basic as taxonomies, what you’re seeing is a multiplicity of different standards emerging whereas, in our view there needs to be a single, predominantly global standard for consistency in the space.”

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