Festive Fireside | Wrapping Up 2022 & Unwrapping 2023

Our final event of 2022 saw us wrap up the year just gone and look ahead of 2023 with Amanda Young of abrdn, Thom Kenrick of NatWest Group, Dr Sarah Ivory of the University of Edinburgh, David Pitt-Watson of Cambridge Judge Business School and GEFI's own Graham Burnside.

The discussion opened by considering the impact of energy crisis on the continued adoption of renewable technologies, and the role that the newfound important of energy independence will play in future energy policy.

As the sector has matured, there are growing concerns about whether ESG departments are overstretched. As most of the panellists emphasised, experienced sustainable finance professionals are in high demand within their organisations, which can lead to burnout: Amanda Young suggested a need to "Make Sustainable InvestingFun Again".

With all this, there is a risk of watering down boundaries, a risk highlighted by the number of funds around the world downgraded in response to more stringent regulations, though interestingly not to any great extent in Scotland's fund management community.

Some on the panel argued that there is a need to ensure the E, S and G are considered together, possibly by emphasising the actual problems that finance seeks to solve, rather than the broad categories into which those problems fall. For example, rather than using environment, specify climate change, or biodiversity.

Finally, the panel suggested their 1 thing to focus on for the coming year:
Amanda Young: Make Sustainable Investing Fun Again
Thom Kenrick:
steer the economy through the cost of living crisis
Dr Sarah Ivory:
focus on professional skills in finance
David Pitt-Watson:
every company must consider how they contribute to climate change in generating profit


Wrapping up 2022 and unwrapping 2023 | Ethical Finance Round Table

Our final event of 2022 will be our traditional year-end Ethical Finance Round Table. This returns as an in-person event on Tuesday, 13 December at 10:30-12:00pm at RBS Accelerator, 36 Saint Andrew Square, Edinburgh.

Our speakers will reflect on 2022 and look ahead to 2023. They will dissect the impact Ukraine, COP27 and the cost of living crisis have had on finance, before turning their thoughts to the coming year, including COP28 in Dubai, with time for networking after the formal proceedings.

The speakers will be:

  • David Pitt-Watson, Visiting Fellow, Cambridge Judge Business School
  • Amanda Young, Chief Sustainability Officer, abrdn
  • Thom Kenrick, Head of Social Strategy and Impact, NatWest Group
  • Dr Sarah Ivory, Senior Lecturer in Climate Change and Business Strategy, University of Edinburgh Business

Click here to sign up now.


The Data Dichotomy: Courage or Caution | Ethical Finance Round Table

Our next Ethical Finance Round Table event, entitled The Data Dichotomy: Courage or Caution, will take place on Tuesday 14 June 2022. It will explore developments in ESG data provision, its limitations and how asset managers are using data to inform long term investment decisions.

Our speakers will respond to some of the toughest questions facing the industry:

  • Is "we need better data" becoming an excuse for inaction from the industry?
  • Are ESG ratings fundamentally compromised by being at least partly based on subjective data?
  • How does the backwards-looking nature of data square with the long-term, forwards-looking view that responsible asset owners should take?
  • As disclosures become more widespread and data improves, is there pressure to avoid sectors or regions with poorer disclosures, even if they might deliver genuine impact?

Confirmed speakers are:

  • Graham Burnside, Co-Founder and Senior Advisor, GEFI (moderator)
  • Dr Richard Mattison, President of S&P Global Sustainable1 and CEO of S&P Global Trucost.
  • Hetal Patel, Head of Climate Investment Risk, Phoenix Group
  • Kate McGrath, ESG Analyst – Fixed Income, abrdn

Sign up now at https://us02web.zoom.us/webinar/register/1716527070480/WN_i9UjoXj0QZm6xbEczOhEKw.


Diversity and Inclusion | Ethical Finance Round Table | Summary

Finance experts shared academic research, personal perspectives and technical expertise on the integration of diversity and inclusion concerns into finance. They emphasised the need for a process that goes beyond mere representation toward a deeper appreciation and integration of diverse voices. Watch now.

For our first Ethical Finance Roundtable of 2022, chaired by Amy Clarke, Chief Impact Officer at Tribe Impact Capital, we were delighted to welcome Prof. Alex Edmans, Professor of Finance at London Business School, Gavin Lewis, Managing Director, UK LGPS at BlackRock & equality campaigner and Lynne Highway, Director of Colleague and HR Experience at NatWest Group to discuss Diversity and Inclusion in the finance sector and beyond. Whilst the discussion showed that the sector must strive to improve, there is a clear appetite for progress on diversity and inclusion from across the financial sector and beyond.

Opening the event, Prof. Alex Edmans explored the business case for diversity, showing that many claims are based on flimsy evidence that is accepted uncritically and emphasising the need to be aware of our confirmation biases when making the case for diversity. Ultimately, while the evidence doesn’t support a business case for boosting superficial diversity metrics, it does support a business case for diversity and inclusion – as Professor Edmans highlighted “it involves far more than putting a few token minorities on the board to tick a box. It is much harder to create a culture where everybody feels psychologically safe at work”. As he powerfully stated, after sharing some of his personal experiences with racism and age discrimination in the workplace, “maybe making more money is not the real reason to do this. Maybe we just agree it’s the right thing to do”.

The question about the moral case for action on diversity and inclusion carried over into a fascinating intervention from Gavin Lewis. Lewis, who co-founded the #TalkAboutBlack’ movement to break the taboo surrounding conversations about race, noted that whilst progress has been made to foster inclusivity, finance had not gone far enough. For example, while hiring practices have improved markedly, retention still lags behind for myriad social, cultural, and economic reasons.

One fundamental problem, he argued, lay with the tacit expectation that firms would do the right thing, and that there was a straightforward business case for doing so. If there was, he said, it would have been done by now, and as he aptly commented, “The right thing didn’t happen when George Floyd was murdered. The right thing has been here all along and it hasn’t worked”.

Lynne Highway shared some of the work that NatWest have done to foster an inclusive culture within their ‘organisational DNA’ in order to not just meet, but exceed, statutory requirements on diversity. She said that NatWest is proud to be nurturing a fair and inclusive bank where they champion potential, helping people, families, and businesses to thrive.

Having a diverse, equitable and inclusive workplace is essential to achieving our purpose, as it enables the Bank to work together to achieve great things with our colleagues, communities, and customers. Improving representation, Lynne argued, requires creating an inclusive environment where colleagues feel able to bring their whole self to work. One way that NatWest have done this is via reciprocal mentoring, to allow for an open dialogue between colleagues from different backgrounds, and at different levels of an organisation.

The roundtable then moved on to a lively audience Q&A which included discussion on:

  • Whether we might see a TSFD (Taskforce on Social-Related financial disclosures)
  • The need to be aware of – and compensate – the emotional labour that might be expected of colleagues from underrepresented groups in the process of improving workspaces
  • Whether it is more important to focus within (on the internal operations) or outside (on investee companies or clients)
  • How the sector can learn from the relatively successful process of integrating climate-related concerns

Click here to sign up to our next event, the launch of the Scottish Taskforce for Green and Sustainable Financial Services, on Monday 28th February.


EVENT ANNOUNCEMENT | Ethical Finance Round Table: Inclusion and Diversity

Our next Ethical Finance Round Table, taking place on the 22nd February from 14:00-15:30 GMT, will focus on the issue of inclusion and diversity; sign up now. While climate has broken past being a "niche" issue in finance, social issues are frequently neglected in the industry. We will ask whether the finance sector has done enough on inclusion, when it comes to race and ethnicity, as well other social issues including gender and sexuality.

8years on from the beginnings of the Black Lives Matter (BLM) protests, we still seem no closer as a society to resolving the tensions which brought them about. While these issues pervade society as a whole, the finance sector is a part of society, and this event aims to ask the tough questions of those in finance.

Is the sector doing enough, and what is its role?

Should it focus internally (on its own operations) or externally (on the assets it holds or manages on behalf of clients)?

We will be joined by moderator Amy Clarke (Tribe Impact Capital & GEFI Global Steering Group), Gavin Lewis (BlackRock), Lynne Highway (NatWest Group) and Prof. Alex Edmans (London Business School).


The Path from COP26: Implementing the Glasgow Climate Pact | Ethical Finance Round Table

We heard from a varied panel during this Ethical Finance Round Table who delivered their thoughts on COP26, COP27, finance for nature and more, with a series of interesting presentations followed by a lively panel discussion. Click here to watch a recording of the full session now, or click on the names of each of the presenters - Hakima El-Haité, Ashley Hamilton Claxton, Sefton Laing & Jamie Ervin - to see their opening remarks.

Hakima El-Haité, President of Liberal International kicked off by asking how COP26 has succeeded in meeting the hopes of the global south. She emphasised the need to ask ourselves what we achieved and what is next. This COP26 was meant to show progress in CO2 emissions reductions and ambitions for next 5 years and show trust. The developed world was expected to fulfil its promises, and we missed an opportunity to be on the correct side of history, said Hakima.

Ashley Hamilton Claxton, Head of Responsible Investment at Royal London Asset Management followed, and explained that getting commitments from financial sector is easy; action is the hard part. COP26 has inspired more conversations with clients about climate in the past 3 months than RLAM have had in the prior 8 years. Ashley suggested that we need a bottom-up approach (carbon metrics, bonds etc.) but need to develop a high level plan as to how we are going to achieve NZ and the terms of the Glasgow Climate Pact. She cautioned that there is a risk that finance can become a distraction for policy makers - a panacaea for all of our problems around the environment. Finally, she explained that perfect data is a distraction; data will never going to paint a full picture or be complete and can tell a skewed side of a story but is vital for building tools and systems needed post COP and beyond.

Sefton Laing, Senior Climate and Environment Specialist at Baillie Gifford pointed out that COP26 was the first COP at which Big Finance truly arrived. The commitment to trillion dollar funds is a massive step forward, however there is a gap between allocated finance and practical action on the ground - money is not always regulated or properly allocated if you listen to NGOs. He echoed Ashley’s point about the need for strong governance and shifts towards policy to support the individual commitments we have seen particularly from financial services.

Finally, Jamison Ervin of UNDP highlighted 7 trends from the past year on financing nature and 7 predictions for the coming year, looking at how nature has contuined to shoot up the agenda on both climate and finance, and predicting that it will continue to do so.


Ethical Finance Round Table Summary: Leadership is crucial in driving better economies

Leadership is crucial in driving better economies. From fighting the climate crisis, to driving inclusion across business and society, we cannot build a better world without effective leadership. The pandemic, combined with the threat of the climate crisis, has created a uniquely challenging set of circumstances for leaders across the spectrum.

In the latest Ethical Finance Round Table, taking place on 5 May 2021 and entitled ‘Leadership: Embedding Responsibility’, Michael Cole-Fontayn, Chairman at the Chartered Institute for Securities and Investment (CISI) and the Association for Financial Markets in Europe (AFME); Helen Cook, Chief HR Officer at NatWest Group; and Karina Robinson, CEO at Robinson Hambro joined moderator Graham Burnside of GEFI to discuss the role of leadership in driving social and environmental responsibility in organisations. Despite the scale of the challenge, the panel offered optimism that leadership in the finance sector is moving in the right direction.

While the current global health and economic crisis has tested the resolve of leaders throughout finance, Michael Cole-Fontayn emphasised that climate change, biodiversity loss and social inequality offer a challenge many times greater. He added that, on top of these existential pressures, managers in the finance sector are facing increasingly complex demands from clients, governments and regulators.

Helen Cook discussed NatWest Group’s journey to put their purpose at the centre of the bank’s strategy, stressing the importance of action over words. While the NatWest journey began 5 years ago, it has become the bank’s ‘North Star’ during the pandemic by providing a guiding purpose through its three core tenets: enterprise, learning and climate. One manifestation of this has been the shift towards hybrid working, likely to continue after the pandemic. Helen also remarked on the ways in which her role has changed over the years, with investors more concerned than ever about the practical steps companies are taking to look after their employees.

Karina Robinson gave an optimistic view of the future: while the finance sector is in no way perfect, there is an effective ‘carrot and stick’ across the industry, with incentives to perform well allied with much-needed effective regulation. Even prior to Covid-19, Karina argues that there was general dissatisfaction with capitalism, consistent across generations and even income levels, and only by addressing this dissatisfaction can the business sector make the case for capitalism.

The session ended with a Q&A; one particularly interesting question asked about the challenge of leading hybrid workforces, creating cohesive teams while some employees are in the office and others work remotely. Michael pointed out that those physically present tend to unconsciously exclude virtual participants, with Karina arguing for effective education to resolve this issue and Helen highlighting the role of behavioural scientists employed by NatWest Group to understand the psychology behind the challenges of a hybrid workforce. “Middle manager” might be a term with negative associations, but as Helen pointed out, it is becoming an increasingly difficult job as working patterns become more complex.


Upcoming Event: Ethical Finance Round Table 'Leadership: Embedding Responsibility', 5th May 2021 16.00 (BST)

We are pleased to invite you to our next Ethical Finance Round Table 'Leadership: Embedding Responsibility' which will take place on 5th May 2021 at 16:00 BST.

We will be welcoming three excellent industry- leaders to shed light on this important conversation: Michael Cole-Fontayn, Chairman of CISI, Helen Cook, Chief HR Officer of The  NatWest Group, and Karina Robinson, CEO of Robinson Hambro and Chair of the Lord Mayor’s Appeal Advisory Board.

Leadership is often an overlooked factor in the drive to create socially and environmentally responsible organisations in finance and beyond. While it is easy to make bold statements about social and environmental issues, real change can only be achieved via effective leadership at all levels of an organisation, ensuring that employees are empowered and motivated to enact changes.

We are delighted to be able to shed new light on this vitally important conversation. Discussion points will include:

  • Why should organisations want to embed social and environmental responsibility in their practices?
  • What role do ambitious targets on social and environmental issues play in driving change?
  • What role does organisational culture play in ensuring social and environmental issues are properly accounted for, and how can leaders foster a positive culture?
  • How can leaders communicate effectively with their organisations about changes?
  • How can companies effectively execute policies on diversity and inclusion (e.g. around gender, ethnicity or sexuality) when there is internal pushback on them?
  • What aspects of leadership on social and environmental issues are particular to the finance industry?

This event forms part of our Path to COP26 campaign.

You can register your interest by following the Zoom link below:

https://us02web.zoom.us/webinar/register/4916184056551/WN_0TKJK91JSS68llR1j8PsPw

 


Ethical Finance Round Table | Accounting for Sustainability

At the latest Ethical Finance Round Table, we were joined by Professor Michael Mainelli, Alderman and Sheriff of the City of London, founder of think-tank Z/Yen and qualified accountant, and Jon Williams; Partner, Sustainability and Climate Change, PwC. The discussion centred around the need for companies making commitments to net zero to truly understand what this means for their business models year on year, as well as emissions trading schemes and the need to price embed the true cost of externalities within the economic system.

Key headlines

Michael Mainelli

  • Green finance was born with the creation of sulphur dioxide permit trading
  • The EU Emission Trading Scheme is often dismissed, but appropriate carbon pricing was not achieved due to governments issuing too many permits
  • Carbon pricing works. Miles driven in America dropped 4% in 2011 due to a 32% increase in oil prices, not due to an outbreak of environmental awareness
  • Policy performance bonds could be a useful tool for governments and companies to deliver on their commitments and hedge against climate and policy risk.

Jon Williams

  • Over 1,500 companies and 50 countries have made net zero commitments, but very few understand the true scale of the challenge to achieve this.
  • To meet the Paris commitment to limit global warming to 1.5C means an annual reduction in carbon of over 11% No economy in history has achieved this on a sustained level; the global reduction in 2019 was 2.4%.
  • Financial institutions are unsure of their “carbon liabilities”, and have assumed around 2/3 of the reductions they need for net zero will come from government policy outwith their control. If they are required to offset these emissions, it could cost as much a 500% of the profits from these assets.
  • if the finance sector is to support this transition, every finance professional needs to start understanding these issues and supporting their clients to deal with them.

Watch now:

Michael began by explaining that green finance as we commonly know it came into being with the trading of sulphur dioxide permits in the USA in 1992. Traders thought they might be able to bring down these emissions by around 20%, but actually managed to halve them in just 4 years, creating considerable optimism around carbon permits going into the Kyoto climate conference.

A small group in the City of London, including Professor Mainelli, then picked this up and ran a market around this in London, later developed by the EU in 2002 to become their emissions trading scheme (ETS). This is often thought of as a failure, though Prof. Mainelli argues that the carbon price it produced did fairly reflect the supply of and demand for permits, but the issue was that far too many permits were issued by governments – roughly double what was needed. While governments had committed to keeping the price above 25 euro/tn, it plummeted to pennies shortly after launch.

Top-down pressure on capital allocation is good, explained Prof. Mainelli, but plans and awareness alone are insufficient. There needs to be an internalisation of environmental factors into the billions of everyday economic decisions. Incorporating environmental factors into prices works: in 2011, Americans drove 4% fewer miles not because of “awareness” of issues, but due to a 32% increase in oil prices. In fact, China has now implemented an internal emissions market, so even communists think that carbon markets work.

In Prof. Mainelli's view, carbon pricing is achievable and effective, and if companies internalise carbon in their decisions , there will be no need for banks to decarbonise their loan books, as many are calling for, as the carbon will be internalised in traditional measures of risk and reward. Some of the voluntary schemes, however, leave something to be desired; the issuer of a 25-year carbon credit could simply burn the forest after 26 years!

One area Prof Mainelli felt had a lot of potential was that of policy performance bonds. They were proposed a number of years ago, but never truly caught on in the Anglophone finance community. They have been successful in France, with major companies including Danone and Enel issuing them. One major opportunity around them could be in governments buying bonds – if you miss your emissions target, you pay interest, but if not, you essentially get free government money. The UK government is looking to do this ahead of COP26, which would effectively allow financiers to hedge against government policy. Sadly, progress in this area has not been as fast as it needs to be; one of Prof Mainelli’s final slides was taken from 2007, and the issues remain largely the same in 2021.

Jon Williams sits on the TCFD, and explained that the endgame for TCFD is forward-looking metrics, but this requires a level of information that businesses and the finance industry just do not have right now.

He posed the question of what is meant by “net zero”? Over 1,500 companies and 50 governments have made announcements or commitments around net zero, but what do they really mean when they make these announcements? Have they got concrete plans and timetables, or are these more “aspirational” commitments? PwC’s Net Zero Economy Index 2020 shows some of the data around net zero and decarbonisation. By combining carbon data and a macroeconomic model, PwC estimate that global carbon intensity fell by 2.4% in 2019.

This is still below what is needed – the decarbonisation rate needed to limit global temperature increases to 2C would be 7.7% per year, and to limit to 1.5C would be 11.7% per year, which no economy in history has every achieved on a sustained basis. The companies that are committing to net zero need to understand that this level of decarbonisation is implied, and start to plan how they will actually achieve that. This is a huge challenge, much bigger than the one faced by COVID.

What is the role of finance? Providing the capital to help the economy transition from where it is today to where it needs to be in 10 or 20 years. Financial institutions need to move from looking merely at their own emissions, to those embedded in their loan books, or portfolios, and to do this it needs more data on emissions downstream.

Financial institutions are largely unsure what their balance sheet and loan books are actually exposed to – most companies  borrow for liquidity, not to tie themselves to financing specific projects. Many have made huge assumptions about how large residual emissions will be – in other words, how much of the emissions reductions will be achieved by government policy without any active interventions on their part. If these assumptions turn out to be inaccurate, the cost of offsetting residual emissions will vastly outweigh the profits from the assets behind them.

Jon concluded by saying that net zero is not a myth. It is a reality, but a very difficult reality. Companies need to take net zero seriously. The pathway to net zero includes climate risk and impact baselining, strategy development, organisational transformation and transparency and reporting. Ultimately, if the finance sector is to support this transition, every finance professional needs to start understanding these issues and supporting their clients to deal with them.

The Q&A at the end of the session discussed a number of issues. Michael Mainelli highlighted that the tools for carbon reduction can also be used for maintaining biodiversity, but this is much harder to measure, and that trade is a key issue – it has been a major driver of growth over the last half-century, but there may need to be adjustments for embodied emissions. Jon argued that the furore over pricing nature is often misplaced – it is not that there is a price at which you can destroy nature, but instead that there is a need to put a price on the ‘free ride’ that people get out of emissions, nature and biodiversity.


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.