Source: Politico.com (April 3, 2020) – What is sustainable finance? It’s where the money is, or was.
Before the coronavirus crisis hit, there was a fast-building global wave of money flowing toward financing a more sustainable future: from green buildings to renewable energy, from more efficient factories to 479 green bonds in 2019 alone.
Yet for all that momentum, the status quo of most banks is still brown. They’ve invested more than $1 trillion in fossil fuels since the 2016 Paris Climate Agreement and Zach Sautner from Frankfurt School of Finance and Management told POLITICO the pandemic will “unfortunately take (away) pressure from banks to shift away from brown lending.”
Sustainability pressure on financial firms may shift rather than disappear. They’re now expected to prove sustainability, not merely claim it, and to support a wider range of stakeholders. As state support to firms increases and more financiers seek a piece of the action, so will activist pressure to meet public goals: from keeping struggling families in their homes to achieving carbon emission reductions.
While on the one hand Sautner says pressure to deliver short-term economic relief means “policymakers will find it much harder to impose regulation to fight climate change,” we may also see “increasing shareholder revolts” if green investing stalls, predicts Global Energy Monitor’s Greig Aitken.
As firms feel the short-term pressure, their medium- and long-term challenges and opportunities remain static.
The challenge: If you’re a large firm that can’t survive the pandemic, how can you survive climate change? S&P Global’s Jennifer Laidlaw labels the current oil price crash and pandemic as “conditions that almost mirror a climate stress test.” The pandemic is nothing if not a resilience test, argues Gordon Power, chief executive and chief investment officer of Earth Capital.
As for the opportunities: European banks and regulators are the world leaders in green investments. The question is now whether more nimble challengers can use this downturn to retool and knock them off.
Over the next three months, this column will examine the collision of the economy and the environment. In particular, we’ll look at the financial services that incorporate environmental, social and governance (ESG) criteria, and test how much they’re really contributing to the United Nations Sustainable Development Goals (SDGs). We’ll also help guide you through the acronym soup.
BY THE NUMBERS
$1.6–$3.8 trillion: The annual global bill for keeping warming to 1.5 degrees celsius or under, according to the U.N.’s Intergovernmental Panel on Climate Change.
$5.1 trillion: Estimated cost of fiscal stimulus committed across the G20 and EU in March to coronavirus economic stimulus programs.
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