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Oliver Balch pick outs the highlights from a week where the City focused on green finance. The week saw the launch of the UK’s Green Finance Strategy, a green bond to tackle soy deforestation, the Ashden Awards, and a slew of London companies sign up to the Climate Group's RE100, EV100 and EP100 initiatives
LONDON IS famed as one of the planet’s most dynamic financial hubs, but for the first week in July it also set out to establish its credentials as a mover and shaker in the world of environmental finance, with more than 150 events to mark the city’s inaugural Climate Action Week.
Grabbing the week’s headlines was the UK government’s launch of its Green Finance Strategy. Dubbed the "Green Deal", (a nod to the US policy proposal of the same name), the idea of the UK’s political mandarins is to “seize the commercial potential” arising from the hoped-for transition towards a low-carbon economy. (See, 'Poor sister' of adaptation in spotlight at London Climate Week)
Progress is already under way. According to data from the International Energy Agency, the UK has succeeded in reducing carbon emissions by over 40% since 1990, despite its economy growing by two-thirds over the same period.
Official figures put the total number of jobs in the UK low-carbon sector at almost 400,000, around two-fifths of which (246,073) are based in London. Sales in this emergent market are also looking healthy. In London alone, low-carbon goods and services generated £39.7bn in sales revenues during 2017/2018, nearly double that of a decade ago (£20.9bn).
Yet the UK is still far from hitting its new ambitious emissions target of net zero by 2050, as recently championed by outgoing prime minister, Theresa May. The Committee on Climate Change saved the government's blushes by waiting until this week to publish its latest report to Parliament on progress towards meeting the existing target of a 80% reduction by 2050, which was set in 2008.
"UK action to curb greenhouse gas emissions is lagging far behind what is needed, even to meet previous, less stringent, emissions targets," the committee said. "Over the past year, the government has delivered just one of 25 critical policies needed to get emissions reductions back on track."
According to the governrment’s own calculations, a net-zero strategy will require investments of £70bn per year, equivalent to more than £1trn by the middle of this century. Not all will come from the state by any means. Fortunately, the government thinks private investors can be persuaded to loosen their purse strings. In a recent report, the Infrastructure and Projects Authority forecast that the current pipeline for low-carbon infrastructure and construction projects is set to reach £600bn in investment over the next decade, split relatively evenly between the private and public sectors.
To give direction to its Green Deal, the UK government has pledged to establish a Green Finance Institute (the details for which remain under wraps). Other measures up the government’s sleeve include a £5 million Green Home Finance Innovation Fund, which will pilot a variety of new products to incentivise energy efficiency retrofits over the next 18 months.
The 80-page green strategy report also clarifies that the government has been “carefully considering” the issuance of a sovereign green bond to help mainstream green products and services.
In addition, the government says it will use its forthcoming Environment Bill to give statutory weight to its much-vaunted 25 Year Environment Plan, which describes climate change as “the most serious long-term risk to the environment”.
Improving access to green investment also earns its own bullet-point in the new green finance strategy. Again, the move looks to draw on existing trends, most notably from the UK renewable energy sector, which has attracted more than £92bn in investment since 2010. Another proposal that could find its way onto the legislative agenda in the near future is climate-risk disclosure requirements for listed companies and large asset owners.
At present, the UK government says that it expects large corporations to comply voluntarily with the recommendations of the Task Force on Climate-related Financial Disclosures by 2022. In a joint statement, the Bank of England, the Financial Conduct Authority, the Financial Reporting Council and the Pensions Regulator collectively describe the move to mandate disclosure as “welcome”.
Khan calls for City Hall to be able to set its own building standards
LONDON MAYOR Sadiq Khan has enjoyed a mixed record on climate issues in recent months. On the one hand, environmentalists praised him for declaring the current situation a “climate emergency”. On the other, he faced criticism for urging Extinction Rebellion climate campaigners to desist from widespread protests in London, arguing that their efforts had become “counter-productive”.
In his speech opening the week at City Hall he called for the termination of the sale of fossil-fuel vehicles to be brought forward to 2030 and the cancellation of a VAT increase on solar and energy savings derived from clean-tech schemes. He also called for the London Mayor’s Office to be able to set its own carbon standards for London’s existing building stock, a power currently held by central government.
Meanwhile, Guy Opperman, minister for pensions and financial inclusion, urged pension trustees and fund managers to abide by the “prudent person principle” when dealing with climate-stressed assets. He cited a recent report by global consultancy Mercer that calculates a 94% fall in value for oil and gas stocks by 2050, assuming a 2C increase in global temperatures. Pension trustees who use tracker funds and who fail to pay close attention to their exposure to the hydrocarbon sector “need to have a long hard look” at themselves, he stated. (The same Mercer study – an update of its landmark 2015 report – foresees the value of renewable energy stocks soaring by 178% by the middle of this century).
Opperman also highlighted the potential impact of legislation introduced in June that obliges UK defined benefit schemes, which represent £1.5tr in assets under management, to publish their policies on climate change. Finally, he let the pensions industry know that the Pensions Regulator would soon introduce a legally enforceable code that will require trustees to prove they have given consideration to environmental, social and governance risks and issues in their portfolios.
Green bond to fight deforestation
LONDON CLIMATE Action Week saw the launch on the London Stock Exchange of the world’s first bond to finance a deforestation-free commodity.
The Responsible Commodities Facility, which was launched with support from the UK government’s Partnership for Forests and the UN Environment Programme, will incentivise soy farmers in Brazil’s Cerrado region to plant on land previously cleared for grazing, rather than cut down forests.
Deforestation in the Cerrado region, one of the most biodiverse in the world, is accelerating. As Shaun Kingsbury, chairman of Sustainable Investment Management, explained at the launch, rising demand for soy could result in the conversion of more than 6m hectares of the Cerrado over the next 10 years.
The RCM plans to issue $1bn in green bonds over the next four years, resulting in 180m tonnes of responsibly produced soy and corn, worth around $43bn in the first decade. The first $300m bond issuance is planned for the planting season of 2020.
In 2015, LSEG became the first major exchange in the world to launch a dedicated green bond segment. It now has over 100 active bonds in this category, which have raised more than $29 billion in 12 currencies.
Coalition of companies vows to green London’s building stock
LONDON'S SKYLINE is world famous: St Paul's, Westminster Palace, the London Eye, the Shard. Yet, if the UK capital is to achieve its low-carbon ambitions, it will need to urgently resolve the problem of its energy-hungry building stock. Buildings account for around 40% of UK carbon emissions at present, although the high density of London’s real-estate is reckoned to put that figure above 70% for the national capital.
In an effort to reduce the carbon footprint of business premises, a coalition of 10 commercial landlords and business tenants used the recent Climate Action Week to accelerate action. All the coalition’s members publicly pledged to sign up to at least one of the RE100, EV100 and EP100 initiatives, and meet challenging targets around renewable electricity, electric vehicles/charging points, and smart efficient energy. The initiatives are co-ordinated by The Climate Group, a business-led network. Members of the new coalition include the property development and management firms Canary Wharf Group, Derwent London, and Landsec, among others.
The move is timely. According to a recent report released by climate news provider Edie and social business Big Clean Switch, business tenants struggle to adopt energy-saving measures in their rented premises. The Going 100% report, published in association with RE100, finds that four in five (80%) companies find it hard to engage landlords around switching to renewables. More often than not, this is because landlords and managing agents believe (erroneously) that renewable electricity comes at a premium.A similarly high proportion (88%) of tenants encounter difficulties securing accurate energy data for the sites that they occupy. Understandably, therefore, a majority of the commercial tenants surveyed (60%) said that they would welcome moves to educate and inspire landlords and managing agents to switch to renewable energy.
Under rules that came into force in the UK in April 2018, no commercial property with an energy performance rating of F or G (on a scale of A, being best, and G, being worst) can legally be let. By 2020, the plan is to extend this same ruling to residential properties. According to research carried out by UK property consultancy Allsop in 2017, 18% of commercial stock (worth £157 billion) and 10% of residential property stock (worth £570 billion) in England and Wales fell into the F or G categories, effectively making them unrentable.
Ashden Awards puts spotlight on solutions
ENERGY-CONSCIOUS property owners would be advised to look at the winners of this year’s Ashden Awards, one of Climate Week's main events. Of particular note is Energiesprong UK, which specialises in retrofitting existing real estate. Singled out for the top-spot in the sustainable buildings category, the firm treats all aspects of a property’s emissions’ profile in one go: namely, the provision of electricity, heat, hot water and ventilation.
As part of its approach, Energiesprong typically manufacturers new walls and roofs off-site and then fits them around the existing house. An initial project involving 10 social housing units in Nottingham has seen carbon emissions drop by 86%. Originating in the Netherlands, Energiesprong also has operations in the US, Germany and France.
Other winners included Highview Power, winner of the Impax award for energy innovation. The UK company's CRYOBattery technology stores energy at giga-scale capacity using the freely available resource of air, which is cooled, stored as a liquid, then converted back into a pressurised gas when needed to produce electricity.
Chinese software company EQuota, meanwhile, won the international award for sustainable cities and buildings for its use of artificial intelligence and big data technology to monitor and manage energy use in buildings, saving its customers more than $6.8m in energy bills.
The high-profile former Irish president Mary Robinson, who gave the keynote address at Ashden and spoke at the Green Finance summit, was one of many who paid homage to the Swedish teenage activist Greta Thunberg, quoting her comment at this year’s WEF meeting in Davos: “Our house is on fire, and all you care about is money.” She said she’d been impressed by what she’d seen at London Climate Action week, saying: “There is change happening. It isn’t happening fast enough, but it is happening.”
Additional reporting from Terry Slavin