With record-breaking heatwaves rolling across the northern hemisphere and entire regions threatened by unprecedented food insecurity, it is no longer possible to ignore the real and present danger posed by climate change.
Try as we might, there is no hiding from 40ºC temperatures across Europe, wildfires raging from Portugal to Yosemite National Park in the US and major rivers almost evaporating before our eyes.
The finance industry has come a long way over the last 10 years, with ESG and sustainable strategies moving from fringe interest to mainstream offerings. However, it remains vital for the sector to continue to drive the conversation forward, not only for the good of society but also to ensure that the next generation of investors do not suffer from an advice gap on the subject.
Crucially, change is also needed to avoid wider contingent liabilities to our own investment businesses.
It is important to appreciate that sustainable finance is much broader than measuring how organisations fare against ESG measures. Take, for instance, the Jersey Financial Services
Commission’s (JFSC) 2030 vision that aligns industry objectives with, amongst other things, the United Nations’ Sustainable Development Goals (SDGs).
However, the question is: will change be most effective when done voluntarily or imposed on the industry? The JFSC’s 2030 vision document paves a way forward without being punitive, setting the norms that the industry will be expected to meet by that date.
These include Jersey’s alignment with the European Union Action Plan on Sustainable Finance where needed, removing practical or regulatory barriers that prevent sustainable finance becoming mainstream in Jersey and creating fiscal incentives, grants or reliefs to support the transition. This gives the industry time to adapt, although the transformation to more sustainable finance practices will probably be driven by client demand.
The weight of regulation, both local and worldwide, will continue to move the sustainable investing landscape forward but it should become a self-fulfilling prophecy that businesses increasingly concentrate in these areas anyway. The fact that investors are capable of identifying sincerity in this space should also serve to drive businesses away from box-ticking approaches and towards a more thoughtful and intentional implementation.
Inasmuch as the JFSC’s 2030 vision document sets out the ambitions for Jersey to become a premier destination for sustainable finance, the context is much broader. Take, for example, financial institutions serving the needs of clients in Africa. The region is under growing pressure from the effects of climate change that is threatening food security, among
many other ills, yet it is still heavily dependent on the carbon economy.
Debates around a just transition focus on the need to move towards a more carbon neutral future without destroying economic activity that is crucial to communities’ immediate survival. Simply turning off the funding taps to push for meeting climate goals is therefore not always a realistic response.
True sustainable finance, therefore, needs to take into account not only the climate impact but also the effect on communities impacted by climate adaptation strategies. Balancing the needs of these communities with industry goals is one of the biggest challenges we face.
We have solid frameworks in the form of the JFSC’s policy document and many industry participants have enabling policies in place to promote sustainable finance. However, much more needs to be done to entrench these principles in the same manner as the ESG principles that have already been widely adopted.
Although this area of the investment market has grown significantly and will continue to do so at a high rate, it is obvious that there are a limited number of players with any substantial track record. The sooner businesses take decisive action on sustainable investing, the sooner they will have an offering that is credible to potential clients.
This is about restructuring their business now to meet future demand and is not just a moral imperative but a commercial one.
Information ubiquity means that companies who do not move in this direction risk their own ESG crisis and tainting their license to operate within society.
Families left homeless by wildfires, communities ravaged by the destruction of their livelihoods and industries destroyed by vanishing resources are unlikely to look kindly on inaction from the finance sector. The time for concrete action is now, with evidence mounting that an even more dire future awaits us if we are unable or unwilling to act.
Sustainable finance is here to stay and many investors have embraced ESG and see its principles as the new norm...