Ethical Finance Round Table | Festive Fireside on Reasons to be Cheerful in 2021

After a year that will live long in the memory for all the wrong reasons, the final Ethical Finance Round  Table of the year discussed reasons to be optimistic about what the future holds, in an event focused on Scotland. The session looked at the newly formed Scottish National Investment Bank and how it aims to tackle inequality, drive innovation and be at the center of Scotland’s transition to NetZero. It also discussed how we have a unique opportunity to determine the future and reignite a fair economy for Scotland. Dame Susan Rice, Chair of the Scottish Fiscal Commission was joined by Willie Watt, Chair of the newly-formed Scottish National Investment Bank (SNIB), and Andrew Wilson of Charlotte Street Partners and the Sustainable Growth Commission.

But, Och! I backward cast my e'e.
On prospects drear!
An' forward, tho' I canna see,
I guess an' fear!

To a Mouse, on Turning Her Up in Her Nest With the Plough, November, 1785 - Robert Burns

After our very own Graham Burnside welcomed attendees in typically Scottish fashion, quoting Burns, moderator Dame Susan Rice explained that she was looking forward to hearing about the ‘what’ and ‘how’ from the speakers. How can a mission led financial institution support business and celebrate outcomes that are both fair and inclusive? What are the opportunities that can reignite the Scottish economy, such as COP26 and the COVID rebuild?

Willie Watt introduced us to SNIB, which opened for business less than four weeks ago. Funded by the Scottish government with £2bn over the next ten years, the bank has three missions:

1) Address inequality in Scotland

2) Invest in innovation

3) Assist in Scotland’s transition to NetZero

The Bank will look for both financial and impact returns from its investments and hopes to be fully self-sustaining in five years. Willie Watt stressed that maximising profit and purpose is no longer an either or – good governance and sustainable business are the path to profit and purpose. While accepting that the Sustainable Development Goals are a good guide to business and asset owners, Willie felt they are too complex to create a successful investment strategy and so the three missions will instead be the focus.

Andrew Wilson, Founding Partner of Charlotte Street Partners and Chair of Scotland’s Sustainable Growth Commission, stated that there has never been a better time to take risks and make big policy changes. While the most powerful force has traditionally been what we did yesterday, the COVID crisis has left us with no choice but to enter an era of reform, accelerating many of the challenges we face, including inequality and deglobalisation.

Andrew argued that we can no longer afford to look to the future with fear. We must instead determine what the future will be with the opportunity afforded to us. One risk is that lending stops at haste post COVID and we do not support the emergence on the other side. While debt is at record levels, the cost of servicing that debt has fallen by half and is historically cheap. The tyranny of short-termism is one of our greatest risks and we must be more honest with society - stop “promising jam tomorrow”, promise hard work for a generation to get this country and others to a point of civilisation that they deserve.

For Andrew, while deglobalisation is a growing – and worrisome – trend, it offers an opportunity to smaller countries to collaborate. For example, Scotland, New Zealand, and Iceland are tied by their pursuit of a wellbeing economy. Another opportunity Scotland has in abundance lies in its natural economy. If the right collaboration took place, Scotland’s natural economy would be within the top three globally.

Andrew also spoke about the need for proper engagement with the developing world. It is not only right but also in the interest of developed counties to help out developing countries. The problems they face will not stay in the developing world. The second big risk Andrew identified was populism, which is driving deglobalisation and selling a myth of the past as an easy solution to the future. He was clear that this is not the solution, the solution is thinking long term and investing.

Dame Susan finished the session, explaining that history shows us that after a major crisis, there will be a shift in values and in how we live. We can use this moment to lead change and that is a reason for hope and festive cheer. Opportunity always exists and we must allow ourselves to test and experiment as we go forward. When she looks at Scotland, Dame Susan feels enormous pride of the efforts made to date. The Scottish Parliament voted unanimously for the world’s most aggressive Net Zero timeline. There is something special about Scotland that makes people come together and make things happen.


The Path To COP26 - One Year To Go: event summary

Speakers at the ‘One Year To Go’ event for GEFI’s Path to COP26 campaign discussed how the finance sector can practically support action on climate change ahead of the COP26 summit next year in Glasgow. The session offered perspectives from banking, asset management and COP insiders, with Gail Hurley of GEFI joined by Cambridge University Visiting Fellow David Pitt Watson, Ingrid Homes of Federated Hermes, Isabel Fernandez of ING, and discussion moderator Hamish Patrick of Shepherd + Wedderburn. Click on the links to watch videos from the event, including all the presentations, the Q&A, and individual presentations from David, Isabel and Ingrid.

Gail Hurley introduced the Path to COP26 campaign, which seeks to ensure that the finance sector plays a leading role in the most important COP since Paris. Over 40 organisations have joined the campaign, representing £2.7 trillion of assets; click here to find out how to get involved

Gail highlighted a recent UN publication, which gave a damning report on the financial sector’s efforts so far to get funding to where it is needed. It has come up short in dealing with both climate change and development in the world’s poorest countries, despite positive signs across the sector.

David Pitt-Watson, investor, Cambridge Judge Business School Visiting Fellow and former UNEP FI chair during COP21 shared his practical experience of COP, and stressed that climate matters for finance. Finance needs to move money from where it is, to where it needs to be, but at present there is not enough green finance and far too much brown finance is still taking place.

COP is important because finance cannot solve the issue of climate alone, but needs support from policymakers, and it is important that discussions for ambitious climate agreements take place before the conference itself. The finance sector will likely be looked at with some cynicism and suspicion, in part because£100 billion was promised to the developing world as part of the Copenhagen Accord agreed at COP19, but evidence of its influence is hard to find.

David stressed that there is genuine progress in the finance sector, particularly on reporting, but more needs to be done. One area he felt that we can improve at COP is stewardship. Divestment diminishes the power we hold by maintaining equity;by using the votes equity holders have to appoint Directors, we can vote for those that align their organisations with the Paris Agreement. The onus is on the finance industry to demonstrate that we are doing the right thing: delegates will not be interested in virtue signalling.

Isabel Fernandez , Member of the Management Board and Global Head of Wholesale Banking at ING spoke about how the banks sees the pandemic as a chance to ‘hit the reset button’ and on issues including biodiversity loss, climate change and inequality.

While there are many commitments out there, it is action that counts and Isabel argued that ING have taken the lead when it comes to aligning lending portfolios with Paris.  They have done this by creating an approach called Terra, which uses scenario analysis to determine the impact of different sectors on the climate. Assessing the gap between the technology required to meet the Paris Agreement targets and those used currently by clients, Terra shows how far each sector is along the path towards Paris. This allows ING to finance the technology and innovation clients need to move their business closer to achieving the goals set,steering key sectors towards a low carbon future.

The second progress report on Terra has been released, showing that across the nine sectors which are contributing the highest emissions, most are on track to align with Paris. They have found that many clients are actively looking to develop sustainably so have bought in readily to this approach and the advice which ING have given. Terra is all open source to increase its reach and open collaboration across the banking sector. Isabel explained that ING believe that it is not where clients are today, but where they are heading which is most important.

Ingrid Holmes, Director – Policy at Federated Hermes opened by sharing some of the issues that they are dealing with. For instance, what needs to be done to commit to net zero, when they should be trying to achieve that goal, and also when they should be committing to becoming a Paris aligned firm.

There are six key things Federated Hermes expect every company to be thinking about:

  • Disclose in line with the TCFD
  • Sufficient governance and capacity to move forward with climate management
  • Embrace the complexity of the issues
  • Look beyond operations and strategy into supply chains
  • Use public policy influence positively to engage with government with new market rules
  • Commitment to science-based targets, with interim targets also established

Federated Hermes feel some activities are unjustifiable, such as thermal coal, and will be withdrawing capital from them. Controversial investments, such as those burning fossil fuels but in the process of transition, will require a business case to ensure the transition comes to pass or divestment will occur.

The session closed with a Q&A moderated by Hamish Patrick of Shepherd + Wedderburn, who asked the speakers how the trends and push towards climate finance that we are seeing is helping the developing world. David answered that this is a very difficult position where, with justification, the global south is looking at the north to fix the problem they have profited from. Promises of funding have not materialised and we need to get funds flowing to global south sustainable development projects. Isabel spoke about some of the feedback she has had from the global south, that the developed world has had 50 years of pollution to get to its present state, but nonetheless she has seen their determination and enthusiasm to develop sustainably. It then becomes ING’s role to help wherever they can.

Regarding the products needed for a transition, Ingrid spoke about the desire to see more thematic products with an explicit Paris alignment to them, adding that while there are an increasing number of products out there, we need to stop greenwashing. David argued that we do not need more complex products: the finance sector’s job is to manage the money of the millions of people who have invested money, often through their pensions, and to move it to where it needs to be. We have a set of financial institutions that are ‘Institutionally fossilist’ – institutions that have grown to up to be able to finance the old economy. Now we need to get the new systems that will finance the new economy.