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Sustainable Finance Live 2023: Connecting capital with the right sustainability solutions

Sustainable Finance Live 2023: Connecting capital with the right sustainability solutions

Bursting on stage to lead the final panel session of the day, Anna-Marie Slot, global sustainability partner, Ashurst, outlined her hopes for a “rubber hits the road” panel. Getting straight to the crux of the matter, Slot asked the panel, how much money actually has to move to ensure impact?

Tatjana Greil Castro, co‑head of public markets, Muzinich, explains that it should be obvious or at least something that we could ‘google’ to understand the assets available. That said, if every institutions - pension funds, insurance companies, high net worth individuals, and so on, “were to set aside 1% of financial assets to invest in climate change mitigation and adaptation, that would be enough.”

More importantly than the returns, if this were to be achieved the remaining 99% of returns would be safeguarded. The impact of not mitigating against climate change is so large, says Greil Castro, that GDP could drop by 60%: “It’s really important to look at this holistically and safeguard the prosperity we’ve created over that last few hundred years.”

If that’s the case, Slot adds, where do we go now?

Deniz Harut, executive director, Pollination Group responds that the availability of data and track record are essential for financial institutions to understand and take risks accurately. “This concept of transition is a big disruption and we’re uncovering new risks […] However, as financial institutions move beyond risk we better understand the opportunities. I think there is a general acknowledgement in the industry that its going to require us to step outside our usual comfort zones and risk appetites to be able to allocate capital to these new areas.”

Pension money - why does ‘pension money’ have a different horizon?

Peter Bachmann, managing director of sustainable infrastructure, Gresham House says the UK Government is currently asking how it can “unlock” the (approx.) £300 billion sector. Additionally, how it can do the same with the corporate bond market - worth hundreds of trillions - is the level or scale of capital that should be mobilised in order to execute the transition effectively.

James Falzon, Green Cities programme, European Bank for Reconstruction and Development (EBRD), explains that the work the programme is doing is aiming to establish the link between the individual investments and the system level outcomes that we want to achieve. “One key challenge with this is often the static assessment, action plan, and identifying the investment. We get to a point where we’re asking whether these kinds of investments will contribute to system level changes […] We’re seeing exciting developments and we’re trying to work on this with financial services at a municipal level, to create a more direct link between the outcomes you want to achieve, and the financing instrument.”

On the government bonds market, Greil Castro recognises the recent pain experienced in the sector, and says that if we’re not incorporating climate change into our long-term thinking, consider the impact it is and will have on performance.

Bachmann says Gresham House believes in the importance of taking an holistic approach and tackling things at the source - for instance, why are micro plastics such an issue? He zooms out from the up-front issue to explain that tackling the systemic problem requires holistic thinking.

“How do you go and reach into those sectors? How do you point capital at some of those harder to reach industries? […] My big wish is that one day people properly account for their externalities, bring through a carbon tax for example.”

How do we finance these attempts?

Harut says that the money is flowing, but the challenge is linking it with the right projects and solutions. Drawing on data, Harut says: “The climate risk analytics market today is valued at $40 billion today, and Bank of America expects it to become a $2 trillion industry in the next couple of years. That just shows what the financial markets are going through.

“When you look at all the digital trends of innovation, around digitisation and ESG you see there's a huge flow of capital into venture climates strategies. I believe last year in Europe and North America, more than $80 billion was raised for venture capital strategies, half of which still goes to energy and hotbed sectors where technology advancement is needed. But also a carbon accounting, carbon offsetting, regulatory reporting space, showed around 479% growth year on year compared to 2021. This shows what the industry needs to enable them to deploy more capital. Beyond that, there are also skills required to deliver due diligence, the right investment decisions, and support the right innovation is going to be a key enabler,” explains Harut.

Bachmann adds that traditional VC and early stage businesses simply aren’t built for what is needed for this transition because it is such a capital heavy business. “We need infra startups that tackle these big sustainability challenges but then have the ability and the scale of capital to follow them through.”

The EBRD is demand-driven in terms of its approach to funding, says Falzon. Transport infrastructure, water, waste water infrastructure, urban redevelopment are focus areas for the EBRD, “we tackle the harder infrastructure sectors […] there are a lot of complexities going on in the wider world at the moment that make these projects extra difficult.”

Harut adds that stakeholder engagement is quite critical, when considering projects that Pollination want to be associated with this is very important. “It’s not just about climate and nature, but its about a just transition. Social elements are very important. In supporting younger startups or innovation, we always take a view of systemic changes and the industry vertical that the particular solution operates. It needs to be scalable, replicable and meaningfully solving for the problems of the entire value chain.”

To close off the panel, Slot asked the speaker to share where they see gaps in the market - Where is the demand but no supply:

  • Bachmann: Big water projects are desperately needed and that Gresham House is looking for more of these opportunities.
  • Harut: Nature finance and diversity - projects that have passed the concept or initial design stage that can deliver biodiversity outcomes.
  • Falzon: The “adaptation and resilience space is constantly overlooked. Very big issues and we’ve grossly underestimated the impacts of some of the extreme weather events that are coming through. These need to be addressed.”

Is it clear how to build and finance a sustainable city?

In the final session of the evening, Richard Peers of ResponsibleRisk concluded this year’s Sustainable Finance Live conference by outlining the objectives event.

The poll went up that begged the same question asked at the very beginning of the conference: is it clear what sustainable cities are and how could one be designed and financed? While at the beginning of the conference, the majority of attendees responded “somewhat”, at the end, most responded “yes.”

He outlined the discussions that took place at the event, focusing on funding and building sustainable cities through various sessions that focused on AI, behaviourial science, financial instruments, nature-related solutions, and geospatial data.

Peers asked attendees to keep an eye out for the results of the hackathon, in which teams were forming solutions on how to use AI and geospatial data to create a sustainable city, which will be released in the next couple of days.

Peers concluded: “Hopefully, what we have done today is describe that vision which we want for a sustainable city. There is a concentration risk there, so it's something we can get our hands around and it's present. We have discussed multiple factors from energy, nature, and the just transition, and how to understand behaviors to achieve our goal. What we have come back to again and again is on communities and not just individuals, communities of the business and public sector.”

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