HRH The Prince of Wales has urged treasurers to take action over climate change. Matt Packer explains why Prince Charles is fired up about green finance
On 13 November, His Royal Highness The Prince of Wales gave a video address to the Annual Dinner of The Association of Corporate Treasurers (ACT), highlighting the vital part that treasury teams must play in the fight against climate change.
“As good finance professionals,” he said, “you are aware of the positive impact on performance that can be achieved by incorporating environmental, social and governance [ESG] considerations into lending and investment processes.
“However, as leaders in financial markets, you need to do much more if we are to have any hope of addressing catastrophic climate change and its many inherent risks.”
Prince Charles stressed: “All of you in the room this evening, ladies and gentlemen, are in a position to take action by considering the relevance of environmental and social risks and opportunities in every financing decision you take.”
He added: “If we are to achieve a sustainable economy in the long run – responding to issues such as climate change within the time frames that are required – then sustainable finance must become the norm… and quickly.”
During his speech, Prince Charles cited a handful of authoritative sources on the development of climate change, and the levels of finance that will be required to fight it. Those sources have helped to fuel his interest in – and enthusiasm for – green bonds and other forms of sustainable finance.
Prince Charles is now focusing on raising awareness of different green finance options through his Accounting for Sustainability Project (A4S) and his recently established Sustainable Markets Council (SMC): an advisory board of public-private-philanthropic leaders, convened with the support of the World Economic Forum (WEF).
Here are some recent findings from those sources, plus some updates from Prince Charles’s own projects:
1. United Nations Intergovernmental Panel on Climate Change (IPCC)
In October last year, the IPCC published its landmark Special Report on Global Warming of 1.5°C. Compiled by 91 authors and editors in 40 countries and citing more than 6,000 scientific references, the report examined the potential impacts of allowing global warming to creep past a threshold of 1.5°C above pre-industrial levels.
IPCC Working Group I co-chair Panmao Zhai explained: “One of the key messages that comes out very strongly from this report is that we are already seeing the consequences of 1°C of global warming through more extreme weather, rising sea levels and diminishing Arctic sea ice, among other changes.”
With that in mind, the report noted: “Limiting warming to 1.5°C above pre-industrial levels would require transformative, systemic change, integrated with sustainable development.” Such change, it said, would require the “upscaling and acceleration” of efforts to implement far-reaching, multilevel and cross-sectoral mitigation measures.
It added: “While transitions in energy efficiency, carbon intensity of fuels, electrification and land-use change are under way in various countries, limiting warming to 1.5°C will require a greater scale and pace of change to transform energy, land, urban and industrial systems globally.”
More recently, the IPCC released its Special Report on the Ocean and Cryosphere in a Changing Climate, looking at the impacts of global warming on the planet’s frozen zones.
In a statement, the organisation pointed out: “Marine heatwaves have doubled in frequency since 1982 and are increasing in intensity. They are projected to further increase in frequency, duration, extent and intensity.
“Their frequency will be 20 times higher at 2°C warming, compared to pre-industrial levels. They would occur 50 times more often if emissions continue to increase strongly.”
It stressed: “As mountain glaciers retreat, they are also altering water availability and quality downstream, with implications for many sectors such as agriculture and hydropower.”
IPCC chair Hoesung Lee said: “The open sea, the Arctic, the Antarctic and the high mountains may seem far away to many people. But we depend on them and are influenced by them directly and indirectly in many ways – for weather and climate, for food and water, for energy, trade, transport, recreation and tourism.”
2. Business & Sustainable Development Commission
In its 2017 flagship report Better Business, Better World – backed by 35 top CEOs and civil society leaders – the Commission noted that putting the UN’s Sustainable Development Goals (SDGs) at the heart of the world’s economic strategy could open economic opportunities worth $12 trillion by 2030, and raise employment by up to 380 million jobs.
Following its research, the Commission acknowledged that, while the previous few decades had lifted hundreds of millions out of poverty, they had also been marred by unequal growth, rising job insecurity, swelling debt and environmental risks.
“This mix,” it said, “has fuelled an anti-globalisation reaction in many countries, with business and financial interests seen as central to the problem, and is undermining the long-term economic growth that the world needs.”
Commission chair Mark Malloch-Brown said: “This report is a call to action to business leaders. We are on the edge and business as usual will drive more political opposition and land us with an economy that simply doesn’t work for enough people. We have to switch tracks to a business model that works for a new kind of inclusive growth.”
Designed to run for just two years, the Commission was closed in January 2018 – but its work continues through a number of spin-off ventures, of which the Blended Finance Taskforce holds the greatest interest for treasurers.
At an October event hosted by social enterprise Devex, Taskforce chair Jeremy Oppenheim warned that the global finance community is not on track to achieve the SDGs.
He said: “We need to rethink some of the ways in which we price risk, price assets, think about returns, decide what to invest in and what not to invest in… and if we continue to wait for policymakers to do it, then we’re part of the problem.”
Oppenheim added: “If we keep on just providing the money neutrally across the system, [we’re] going to keep on investing in the easy stuff, because that’s what we do, that’s how everything is geared up. We will have to find a way to shift the use of monetary instruments into much more aggressive SDG and climate-related investing.” See the Taskforce coverage here.
3. Climate Bonds Initiative (CBI)
Taskforce member and leading advocacy group for the green bonds industry has called for annual issuance in the field to rise to $1 trillion by 2021/22.
In October, the CBI announced that global green bonds issuance this year had passed the $200bn milestone – a new record – with energy dominating overall use of proceeds (33%), followed by low-carbon buildings (29%), low-carbon transport (20%) and water initiatives (9%).
CBI CEO Sean Kidney said: “Based on these figures, 2019 will be another record year for green finance… [however,] $200bn or $400bn a year is not enough to address the climate emergency and provide the capital at the scale urgently required for large-scale transition, adaptation and resilience.”
He stressed: “From here on, every year in the 2020s must be a record year for green finance. The climate challenge for global finance – regulators, banks, insurers and institutional investors – remains. Generating that first $1 trillion in annual green investment by 2021/22 is now critical. It’s the benchmark from which to measure year-on-year growth in climate-based investment towards 2030.”
That said, Prince Charles noted in his ACT video address, that $1 trillion of green bonds issuance per year is “just a drop in the ocean” compared to the size of the debt market that treasurers deal with every day.
4. A4S
Founded in 2004 as a means of urging the finance community to tackle the economic and social challenges that stem from climate change, A4S has since assembled an impressive Chief Financial Officer Leadership Network, comprised of CFOs determined to take a lead on sustainable decision-making.
Network members include Andrew Bonfield of Caterpillar, Harmit Singh of Levi Strauss & Co and Robin Washington of Gilead Sciences.
In September, A4S held a prestigious gathering for the launch of the Network’s US East Coast chapter, welcoming to the fold Claus Aagaard of Mars, Ewout Steenbergen of S&P Global and Mark Kaye of Moody’s Corporation.
Kaye said: “One of the defining challenges we face as business leaders is to embed social and environmental sustainability into our core business strategies and operational processes. I joined the A4S CFO Leadership Network because it provides an outstanding forum for sharing ideas and best practices, giving us all an opportunity for shared success in this important area.”
Download the A4S Essential Guide to Debt Finance here.
5. SMC
The Prince of Wales hosted the SMC’s inaugural meeting on 7 November.
According to a statement, he and the participants “reiterated their collective commitment to urgently drive sustainable markets, and discussed concrete action points for the coming months to help tackle decarbonisation and create sustainable markets”.
In addition, SMC members discussed ways to match investors with scalable sustainable investment opportunities, and explored how best to support ongoing efforts to create a series of globally recognised metrics for assessing the progress of sustainable finance.
The participants will convene again in January, during the WEF’s Annual Meeting in Davos.
About the author
Matt Packer is a freelance business, finance and leadership journalist