Some elements of being an ethical consumer are far easier than others. Consumers can easily select between more environmentally-friendly British strawberries and those grown out of season in an energy intensive greenhouse, for example.
They are far less likely to hunch over their keyboards to trawl through a spreadsheet listing their bank’s investments. So what’s in place to ensure they know what their money is funding?
The green finance movement kicked off in 2008 with the World Bank’s first sustainable loan, which then became the blueprint for how sustainable loans and bonds work in today’s market.
Effectively, a sustainable loan or bond is money that is set aside exclusively for financing green projects, or which is contingent on green targets.
Yet banks are still heavily investing in fossil fuels, including those that have signed pledges not to. Consequently, there have been calls to make green bonds more stringent; the Social Markets Foundation recently urged Rishi Sunak to attach clauses which would mean bigger returns for investors if the government fails to meet its climate targets.
There is no widespread environmental labelling or criteria for the finance sector, and it takes a lot more to adjust to the inner workings of a new online banking app or credit system than it does to adapt to a new punnet of strawberries.
At the recent Blue Earth summit panel, a range of experts from traditional banks and beyond, sought to set the record straight.
What do we mean by green finance?
“When I first started working here I got asked this question a lot. So I came up with my own definition which was: green finance is the application of climate science to financial decision making,” says Green Finance Institute chief executive Rhian Mari Thomas.
Her organisation was set up in 2019 to identify and act on ways to transition to a green finance economy. However, for Mari Thomas there is still not enough regulation to provide accuracy on the concept: “Currently there is not a standard definition. And it is leading to a lot of greenwashing and fear of regulation.”
If harsher regulation does not come into play, it is increasingly likely that consumer pressure will play a part in pushing for the regulation. From the LGBT Awards dropping fossil fuel sponsorship deals, to Christian Aid cutting its ties with Barclays it is plain to see that the pressure is piling on.
Celebrities such as Four Weddings and a Funerals writer Richard Curtis and Stephen Fry have even featured in the tabloid press calling for people to switch up their pensions.
Piling on the pressure, ramping up the regulation
Recent controversies have made businesses more wary of taking a wrong footing – from accusations of greenwashing to investigations showing that carbon offsets are not all they are made out to be.
“All of the main financial institutions have signed up to targets by 2050. And some are going to have to transition and start pivoting their business,” says Mari Thomas.
“So I’m starting to have conversations with mainstream finance organisations who are saying they’re willing to shift their appetite a little bit”.
Subscribe to Sustainability Beat for free
Sign up here to get the latest sustainability news sent straight to your inbox every day
Has consumer power helped to spearhead green finance?
When it comes to executing the work, for the executive developer of challenger green bank Triodos, Bevis Watts, his work “is partly about financing change, and partly about changing finance”.
Triodos was founded in 1980 as an ‘ethical bank’ in the Netherlands before spreading further afield to Belgium, Germany, Spain and the UK, prioritising environmentally-friendly initiatives. Despite the fact that Triodos launched the first ‘green fund’ back in 1980, for Watts the movement has just begun.
“I think we’re in a really nascent phase. There’s lots of good people who work in banking.”
“There’s also lots of great initiatives and we shouldn’t dismiss that, but there’s also the bad, there is the greenwashing and people presenting things as gamechanging but delivering things that frankly aren’t that useful,” he adds.
Watts is adamant that policy and regulation is the key to securing a financial sector that functions in a way that is kinder to the environment. He wants the focus to shift from businesses avoiding operational risks to reducing wider environmental harm.
“I would say for green finance to take over, and for the flows of capital to shift, we’d have to put the red lines on that banking regulation, in a much greater way than simply that risk management approach.”
Mari Thomas agrees: “This conversation 15 years ago would be Bevis talking about the work he’s doing at Triodos and now we have a whole list of other asset managements and mainstream banks that would be able to talk very articulately about their sustainability plans on this stage”.
But she’s also adamant that regulation needs to be done in a “stronger way” than it currently is.
How to green the high street
With Triodos’ offering not at the same level as mainstream banks – when questioned by an audience member Watts confesses they are still widening their business offering – it is crucial that more conventional high street players also adapt.
James Close, Natwest’s head of climate economic and data, explains that the high street bank discounts access to data that can help investors put their money into more climate-friendly endeavours.
“We think that’s going to make you a more resilient business, it’s going to give you a longer growth potential,” he says.
“It’s good for our customers, it’s also good for us, because then we have less risk on our balance sheet as well.”
The question of whether big banks like Natwest will explicitly divest from fossil fuel industries remains open, but is unlikely to happen any time soon.
“The oil and gas transition is very complex,” Close begins.
“We have a very small book with those customers that we work with who are committed to going on incredible challenges with net zero, they deserve our support and the capital we can provide to help them with swiftness to change fossil fuels to renewables.”
But can we really monitor which organisations are being transparent?
Asked whether we should wait for regulation to work towards net zero, it was clear that the audience of business leaders and sustainability professionals wasn’t prepared to delay taking action.
Of the audience members, 70% said policy changes didn’t impact their commitment to net zero at all – but of course, those answering were already motivated enough to be in the audience at a climate conference.
Until wider policy change, it is down to individual businesses to check the links between their finances and fossil fuels (and indeed for the fossil fuel sector to be more transparent about its activities).
Otherwise, we’ll continue to be in a position in which, as chief executive officer of Make My Money Matter Tony Burdon said, also speaking at Blue Earth: “You can be a vegetarian, and you’ll definitely be invested in Big Pharma. Care about the environment and you’ll definitely be invested in Shell and BP.”
