27th December 2019, Richard Howard, @RDHoward
“Just keep swimming” – Dory, Finding Nemo (2003)
This year has shown Green Finance is firmly in the transition phase, moving towards increased integration with the traditional finance industry. In summary, we believe there have been three areas of progress in 2019:
Firstly, a selection of governments around the world are laying out plans for regulation of the green finance industry and, although this is not all governments, these regulations will act as a test bed, which can then be easily replicated in other jurisdictions.
Secondly, individual companies are waking up to the benefits of green finance and climate awareness, with many pledges having been made. Time will tell if these promises are kept and not just ‘greenwashing’, but the intention is firmly there.
Finally, and most importantly, we as a society are waking up to the climate crisis. Led by the school strikes, Greta Thunberg, and Extinction Rebellion a wider engagement with climate change is occurring across the globe. This is expected to filter through not only to sustainable finance, but to governments and companies alike. As millennials gain more capital and start to invest, they are looking for greener investment options. As voters demand more climate action, environmental issues will climb political agendas. This is not to say that there is not opposition, but 2019 has shown that steady progress can occur. Our job now is to maintain and accelerate that progress into 2020 and beyond.
Below is a summary of the key Green Finance events and trends in 2019:
Governmental and Political Changes
- UK government and institutions have started taking concrete steps towards climate neutrality, with the signing of a net-zero commitment into law, as well as integration of green finance into the finance industry (preliminary FCA rules and launching of the Green Finance Institute) [1, 2, 3].
- EU’s green finance taxonomy takes shape. After a few months of haggling over whether nuclear and natural gas should be included in the definition, the ‘do no harm’ approach is agreed upon [4].
- European Investment Bank is to stop funding of fossil fuel projects after 2021 [31]
- Climate emergencies have been declared in a range of cities and jurisdictions across the world [5].
- The idea of a Green New Deal has emerged in the US, although there has been significant push back from many politicians [6]. The ideas, however, have permeated through wider political debate as well as across the Atlantic, where the EU has actively promoted the idea – especially after the gains made by the Greens at the EU parliamentary elections.
- COP25 turned out to be a disappointment, with carbon pricing, reporting and transparency and ambition being the major sticking points [7].
Industry and Finance Changes
- Industry pledges were a large theme of the year. Whether genuine, just plain ‘greenwashing’, or keeping up appearances we will see but at stages this year firms were falling over themselves to make sure their pledges were heard, especially after the UN Climate Action Summit in New York [8, 9, 10].
- Many influential business groups and leaders spoke out about the need for climate action and the wider impact of capitalism on the environment. For example, Bank of England Governor Mark Carney has been repeatedly warning about the effects of climate change throughout the year [11, 12]. Another news item, which resonated in the popular press, was the announcement by the Business Roundtable regarding the singular pursuit of profit and how other factors would need to be factored into business in the future to measure success [13]. Although this announcement does not explicitly mention climate change, the environment is included in the statement, the message of redefining the role of a corporation to serve the wider populous is important.
- Numerous stories and reports have described the continuing decrease in the cost of renewable energy projects. The stand out story in the UK was the low cost of new offshore wind projects reaching grid parity with the wholesale market of electricity. The other news coming out of the UK was the decreasing coal use, with the UK experiencing a full two weeks without coal generation. Power purchase agreements (PPAs) also featured heavily this year as companies look to power their operations solely from renewable energy [14, 15, 16].
- There were multiple reports regarding the increased demand for ESG investments as well as the projected demand as millennials start investing in larger quantities [17, 18].
- Some oil majors have accelerated their acquisition plans of renewable energy companies. Shell have been the most aggressive with the communication of their plans to become a more general energy company, as opposed to an oil and gas company. That said the oil majors are still investing much larger amounts in oil and gas projects. [19, 20, 21, 22, 23]
- Calls for more formal and regulated company climate change disclosures, especially around the risks to firms [24].
Cultural Changes
- Climate change as a political and cultural issue was brought much more to the fore and as the year wore on climate protests and strikes became an increasingly common and well attended.
- Greta Thunberg’s growing influence cannot be understated. By acting as a living embodiment of the resentment and anger of Generation Z (the generation after millennials, i.e. born after the mid-90s) she has gained audiences with the UN, governments and the Pope. She has given speeches to a range of different organisations whilst her voyages across the Atlantic have served to give her and her cause even more coverage [25]. As a result she was named Time Magazine’s person of the year [26, 27]
- “The Greta Effect” has led to a surge in climate demonstrations. The school strikes/Fridays for Future, climate action weeks, and Extinction Rebellion have all been covered comprehensively by the mainstream news outlets. This intern has led to climate change being included in political debates as well as forcing companies to show off their green credentials.
- Numerous of surveys document the rise in demand for individual’s investments to be socially aligned [28, 29, 30]
And finally… GreenFinanceGuide.com was created!