Environment

Climate Finance Week is worthy but can’t mask the fact Irish Finance needs to stop promoting high carbon emitters By John Vivian Cooke In “The Sun Also Rises”, Ernest Hemingway notes that there are two ways to go bankrupt: “gradually, then suddenly”. It is difficult not to draw the conclusion that, for all the earnest recognition of the scale of the climate crisis expressed by individual participants in Climate Finance Week 2021, Ireland`s financial institutions have missed this lesson. At least, that is the conclusion to be drawn from the depressingly modest targets and entirely inadequate timetables that the industry revealed during a week-long series of panels, presentations and seminars. Climate Finance Week Ireland is now in its fourth year and attracts over 5,000 virtual attendees. It is organised by Sustainable Finance Ireland in association with the Department of Finance, and sponsored by AIB.  Speakers included Gro Harlem Brundtland, James Cameron, Brian Hayes and Colin Hunt.   The conference´s set piece, “Irish Sustainable Finance Roadmap”, was notable for the absence of quantifiable milestone targets to achieve net zero industry by 2050. Instead, the focus was on identifying opportunities for new business and a detailed plan of preparatory actions, dedicated to capability building and consultations to be completed by next year`s conference. It is unsurprising that an industry event, convened to discuss the business implications of climate change, should focus on the opportunities for profit. So there was much talk about the implications of the loss of value of underlying assets held as investments or as collateral due to climate change, and, how best to position Ireland to maximise new business opportunities in financing the transition to a green economy. In this context, individual participants can be forgiven for showcasing their own products and services as the nature of any industry-run event is given to bouts of self-promotion.   Some consolation came from the genuine engagement by participants in treating the subject of climate change seriously and from sessions that gave details of the mechanisms by which the financial services industry will respond to the climate crisis.   Green Finance   There was widespread enthusiasm for the prospect of financing the transition to a green economy. Many participants are planning to develop a full ‘suite’ of green financial products to be marketed at advantageous prices. This is not to be sniffed at. The World Bank estimates that public funds will only cover about one third of the total cost of moving to a global net zero economy with the private sector funding the remaining costs. All parts of the economy will have significant borrowing requirements to pay for this transition and Irish financial institutions are eager to capture some of that business with green loans; green bonds; green equity funds; and climate insurance. But, in moving into the sustainable finance market, the industry is merely ensuring its own continued profitability by responding to market signals of future customer demand.   Disclosure and Reporting   The obligations on businesses to disclose the environmental and social impact of their business activities was a major theme that emerged. The International Financial Reporting Standards Foundation is expected to publish a global standard at the imminent COP 26 which will bring order to the patchwork of existing reporting standards. Such a global standard for measuring companies` carbon management will allow comparison between different sets of published ESG reports and, moreover, encourage further ESG reporting by removing the need to generate different data sets for different reporting standards. Irrespective of the outcome of COP 26, the EUis pushing ahead with new reporting regulations that update the 2014 Non-Financial Reporting Directive.   At the moment, Environmental, Social, and Governance (ESG) disclosures are published voluntarily in response to investor demands or as part of companies’ own ESG targets. However, it was noted that there is currently increased “supervisory engagement” with financial regulators as a prelude to the introduction of formal mandatory ESG disclosure regulations. The Bank of England is in the process of developing formal guidelines and, not only will companies have to disclose their GHG emissions but they will also have to disclose the financial risk to the value of the assets on their balance sheets from the impact of climate change. It was suggested that one possible consequence of similar reporting of financial risk would be the requirement that Irish banks might have to hold greater capital reserves over property they hold as collateral.   Capability Building   It was made clear throughout the week that Irish finance companies are not equipped to deliver a net zero financial industry in the immediate future. For the moment, they have neither the sufficient staff with relevant skills nor the business support and IT systems to become sustainable finance providers. As seen in the Roadmap, the industry is only in the very initial stages of laying the ground work for this change, and, most are still at the problem-scoping stage; still trying to figure out what sustainable finance would look like before they even begin to start to reconfigure their business models.   Sarah Dempsey, Head of Sustainability Communications and Partnerships at AIB, gave specific examples of how this problem manifests itself on a day-to-day basis. The current information systems that AIB uses predate the concept of carbon management and were designed to provide information for financial control and regulatory compliance. As a result, the bank does not have access to data for validating data carbon emissions. For example, a substantial portion of its historic mortgage book is secured by homes that have never had a BER rating. Moreover, its effort to decarbonise its operations has a lag time as smaller suppliers in a complex supply chain do not have the capacity to produce data on their own carbon emissions. In fact, AIB spent the last 12 months mapping their loan book against carbon emissions as preliminary step to designing a carbon management system. That AIB is seen as the leader among Irish banks in sustainable finance shows just