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Rapid financial innovation expected in the march to net zero

Rapid financial innovation expected in the march to net zero

Tuesday 24 January 2023

Rapid financial innovation expected in the march to net zero

Tuesday 24 January 2023


Innovation and disclosure regimes are two of the themes expected in sustainable finance this year.

Climate change, how the world adapts to it and biodiversity loss sit at the top of the most severe risks in the next decade, according to the latest World Economic Forum report.

“The science isn’t changing, but the global financial community response continues to evolve at pace,’ said Josephine Bush, Guernsey Finance’s sustainable finance strategic advisor at its recent industry update.

“We need to keep track of that.”

It was a topic at the top of the agenda at Davos when the WEF met last week.

“The Gfanz [The Glasgow Financial Alliance for Net Zero] initiative that rolls on subsumes within it the net zero alliances across banking, insurance, pension funds. It's a huge challenge, requiring new skills, new business models, and new investment.”

Gfanz formed during Cop26 and is a global coalition of financial institutions committed to decarbonising the economy.

The institutions involved have a combined $150tr. in assets.

Josephine_Bush.jpg


Pictured: Josephine Bush speaking at the Guernsey Finance Industry Update held at St James.

“This is a massive financial opportunity, requiring huge innovation across all sectors. So I think financial innovation and new product development will be a big theme for us. But alongside that, we also need policy innovation.

“There's a lot of calls for forward thinking on that to support financial flows, whether that's subsidies, incentives, blended finance initiatives, public private partnerships.”

There has been an increasing call for regulation to ensure good quality disclosure and transition plans.

“There's been a lot of pressure on the financial community and financial institutions to be market leaders in this space, and that's put real pressure on banks and the insurance sector to really have frameworks in place to really know how to engage around portfolios, assessments and greening of portfolios. That's not going to go away.”

David Schwimmer, the CEO of the London Stock Exchange group, has called for the mandation of disclosures for carbon emissions and transition plans within the private sector.

“So taking what's happening within the listed market and pushing them out into the private sector. [UN Special Envoy on Climate Action and Finance] Mark Carney has agreed with that and generally what Mark Carney wants, Mark Carney gets.”

Towards the end of last year, the Guernsey Financial Services Commission launched a Natural Capital Fund framework which offers a regulatory designation for funds to help channel investment into biodiversity and natural capital projects that make a positive contribution and/or significantly reduce harm to the natural world.

That sits alongside the Bailiwick’s existing regulated Guernsey Green Fund regime, which now channels more than £5.3bn into green investments.

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