What you need to know about sustainable finance

10 November, 2021Vera Spender Koubek
Green shoot growing out of money

As the world’s leaders discuss climate change policy at COP26, Vera Spender Koubek outlines key green finance issues and how banking and finance can help us reach net zero.

What’s ‘net zero’?

In December 2015, the Paris Agreement set a goal to limit global warming to well below two – preferably to 1.5 degrees – centigrade compared to pre-industrial levels.

To achieve this, countries who signed the Paris Agreement agreed ‘national contributions’ towards the global effort to reduce carbon emissions.

In 2018, the Intergovernmental Panel on Climate change (IPCC) concluded that simply reducing carbon emissions is not enough. We have to, in fact, achieve net zero no later than 2055 if we want to limit global warming to 1.5 degrees centigrade.

The UK became the first major economy to commit to ‘net zero’ emissions by 2050. Earlier this year, President Biden persuaded a number of country leaders to commit and there are now a total of 137 countries pledging net zero, including the UK.

‘Net zero’ refers to the balance between the total amount of carbon emitted and what is offset by removing carbon from the atmosphere.

But please don’t be misled. Net zero first and foremost means eliminating carbon emissions from all industrial processes. Offset should only be used for carbon that cannot be eliminated.

You can imagine this means a huge change to the way we’re doing business. 

For countries to honour their commitment to net zero, they’ll need to invest in changing the way we do things. And there is also a need for financial help to developing countries.

The cost of net zero varies, but all estimates are nine-figure numbers, and that’s cost per year.

Needless to say that at the moment, practically no one is on track and lots is expected from COP26, which is happening right now in Glasgow.

What’s net zero got to do with banking and finance?

Development towards net zero requires major transformational change – probably the biggest the world has ever seen – and that has to be financed.

That's where financial services step in because financing and investment is the business of bankers.

The United Nations Environment Programme Finance Initiative (UNEP FI) is working with banks, insurers and investors to help create a sustainable finance sector.

We have already seen mobilisations of funds around the Sustainable Development Goals (SDGs) – sometimes referred to as ‘the 2030 agenda’.

240 members of UNEP FI have committed around $62trn of assets to delivering the agenda. And now we are seeing a momentum building around sustainable finance.

The finance sector is perhaps a bit behind other sectors in sustainability efforts but it’s good to see the change finally happening.

What’s the next step in sustainable finance?

The financial sector is getting better at financing green – through financial markets, regulation and the propositions that banks are offering to their clients.

But we also need to green finance. That means reframing how we think about profit – thinking more long-term and taking a more holistic approach.

Leaders need to be driving this message.

We still associate leadership with being competitive, powerful, tough but a leader also has to be collaborative, compassionate and a good communicator. They need to be able to mentor their staff and allow them to make mistakes. The challenge ahead of us is unprecedented and we have to allow for trial and error.

To deliver this transformational change, we need diverse teams. We need equal opportunities, we need everybody on board. That’s the only way to get better decisions, more ideas and more innovation. 

Vera Spender Koubek
A visiting lecturer at LIBF, Vera Spender Koubek is a sustainability consultant, adviser and trainer. She has worked in financial services for 15 years, delivering multimillion-pound transformation programmes. In higher education she develops and leads courses in business, finance, leadership and transformation for sustainability.

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