Greening the economy through transition financing

Financing the green transition is a mission critical for the world to meet its climate change goals. Public investments, such as the EU’s Green New Deal, will play a vital role in mobilizing public and private funds to help companies and countries achieve net zero. However, public money alone cannot provide the level of investment needed for the seismic change required. The European Commission estimates that half a trillion euros per year of additional investment in the EU will be needed to green its economy.


Panel (from left to right): Aleksandra Palinska – Eurosif, Ilan Jacobs – Citi, Dr Apostolos Thomadakis – European Capital Markets Institute (ECMI), Jane Gimber – FleishmanHillard


The City of London is a global leader in transition finance, its aim is for the UK to become a partner for countries and businesses seeking capital and expertise to help them achieve their climate goals. The city’s leading role was recognized at a summit held earlier this year in preparation for the COP 27 meeting in Sharm el-Sheikh, by Mark Carney, Co-Chair of Glasgow Financial Alliance for Net Zero (GFANZ ) and United Nations Special Envoy for Climate Action and Finance who said: “We can accelerate the transition to a net zero economy, building on London’s role as a center of international and sustainable finance, which summit can drive the shift from ambition to action that the world needs on its way to net zero. .”

You can’t be just 20% or 50% green. Europe must be more ambitious with mandatory standards and reporting

The City of London Corporation organized a roundtable of financial sector experts to discuss some of the challenges presented by the green transition in Brussels.

Speaking at the event, Chris Hayward, Policy Chair of the City of London Corporation, said: “The green transition to a low carbon economy will only succeed if it is properly funded. As the home of a leading global financial centre, the UK is able to support emerging markets in their transition to net zero by providing a full range of services, products and expertise.


Paul Hayward

Opening remarks by Chris Hayward, Policy Chairman of the City of London Corporation


“At the City Corporation, our goal for sustainable finance is for the UK to become the go-to partner for countries and companies seeking capital and expertise to help them achieve their climate goals.

Capital markets are essential

Dr Apostolos Thomadakis of the European Capital Markets Institute (ECMI) said capital markets were needed to fill the gap, but Europe still lacked well-developed markets for venture capital, stocks or bonds. This is a persistent problem linked to the EU’s dependence on bank financing and its patchwork of different tax and insolvency rules, which hinder the development of capital markets. The EU, for example, currently only attracts 10% of global venture capital funding.

The UK is able to support emerging markets in their transition to net zero by providing a full range of services, products and expertise

A banking perspective was provided by Citi Bank’s Head of ESG Policy, Regulation and Government Affairs, Ilan Jacobs, who agreed: “The response to transition financing cannot come from the public sector alone, as you pointed this out, but it cannot just come from banks’ balance sheets, it has to come from those deeply liquid capital markets that Europe needs to develop.

Transparency

One of Thomadakis’ concerns is that there is a proliferation of products with different ESG ratings, taxonomies and definitions that make it very difficult for retail investors to know how to invest in a greener future. Thomadakis says more standards and harmonization would help consumers.

The Executive Director of the European Sustainable Investment Forum (Eurosif), Aleksandra Palinska, has welcomed the European Sustainable Financial Disclosure Regulation (SFDR) which has been introduced to improve the transparency of declarations by sellers of investment products sustainable. However, as environmental, social and corporate governance criteria were often poorly defined or not explicitly defined, products that were not considered sustainable were now labeled, exposing the financial sector to accusations of greenwashing.


Panel 2

Dr Apostolos Thomadakis – European Capital Markets Institute (ECMI) and Jane Gimber – FleishmanHillard


From brown to green

Palinska also expressed concern that transitional investments are being neglected, especially in sectors where high energy consumption is difficult to reduce. Expanding the green taxonomy or introducing a “transition” category would help investors enable these sectors to transition from red to orange and then later to green, which could have a significant impact on shows.

Jacobs agreed with Palinska saying that there is not much difficulty raising funds for things that are green, while more action is needed in areas that are brown or semi-brown and help them make the transition. Jacobs gave three examples of where Citi, along with other banks, have agreed on principles for financing short-term pathways to achieve a zero or low-carbon future for shipping and more recently for l ‘steel. There is also an Aviation Climate Aligned Finance Working Group to find a similar approach for this challenging sector.

On the fact that the EU is a world leader, Thomadakis called for even more ambition from the EU: “I don’t think there is a middle way. You can’t be just 20% or 50% green. Europe needs to be more ambitious with mandatory standards and reporting.

The UK is also playing a leading role with the establishment of a working group to develop an operating model for transition funding and baseline transition plans. Hayward added: “We believe that in the UK we have a great opportunity to lead the financing of the transition, particularly given its existing strengths in voluntary carbon market disclosure.

Closing this discussion, moderator Jane Gimber, Associate Director at FleishmanHillard, thanked the panelists for the interesting and timely discussion. She stressed that financing the transition will be a key element of the upcoming COP 27 discussions in Sharm el-Sheikh in November.