Since 1875, the Chartered Banker Institute—the oldest institute of bankers in the world—has played a leading role in helping to raise professional standards in banking through the education and training of bankers and, in particular, in instilling principles of stewardship, prudence and professionalism in banking. No bank can go very far wrong if it embeds these principles into its culture, operations and activities. When it does not, a bank can and does go very wrong indeed, as we saw a decade ago.
Traditionally, the key principle of stewardship was interpreted narrowly by bankers as being a steward of depositors’ and clients’ best interests. More recently—and this has been brought into sharp focus by the recent IPCC (Intergovernmental Panel on Climate Change) report calling for an acceleration of efforts to mitigate climate change—stewardship of our natural resources and planet Earth for future generations should form a part, I would argue, of every professional’s duty.
Acting with integrity, care and diligence, as codes and conduct rules mean, in my view, doing so with regard to the much wider interests of the environment and planet as well as with the specific interests of customers, clients and counterparties in mind.
Which brings me to green finance, and why I firmly believe that green-finance values and principles must form the foundation for the future of banking and financial services worldwide.
Mitigating the effects of climate change and managing a successful transition to a low-carbon world is, in the view of many, the greatest global challenge for this and future generations. Facilitating this transition will require the combined and sustained efforts of global bodies such as the United Nations, national governments and the private sector. The Global Commission on the Economy and Climate (GCEC) estimates around $93 trillion of global infrastructure investment between 2015 and 2030 will need to be green in order to meet climate-change commitments, with the majority of that finance (80 percent) coming from the private sector facilitated by the financial-services sector. We are already seeing rapid growth in the green-finance sector, with the green-bond market alone growing by 78 percent between 2016 and 2017 to $155 billion in issuances.
In the United Kingdom, as in many jurisdictions, climate change is now very clearly on the radar of financial regulators. During Green GB & NI Weekin mid-October, the Bank of England (BoE), through the Prudential Regulation Authority (PRA), issued a Consultation Paper that set out its expectations for the management of financial risks from climate change. One such expectation is that the boards of banks and insurers will be required to identify a senior executive to take charge of managing climate-change risks and report to the board. On the same day as the PRA launched their consultation, the Financial Conduct Authority (FCA) issued a Discussion Paper on the impact of climate change and green finance on financial services. At the launch of this, Andrew Bailey, chief executive of the FCA, announced that the PRA and FCA were setting up a Climate Financial Risk Forum, designed to help the financial sector manage the financial risks from climate change and support innovation for financial products and services in green finance. The FCA has also launched a Green FinTech Challenge to spur innovation in this area.
Meanwhile, many central banks from around the world are joining forces to warn about the financial risks of climate change, responding to and building on the work of the Task Force on Climate-related Financial Disclosures (TCFD). The European Union (EU) through the European Commission(EC)is examining how to integrate sustainability considerations into its financial-policy framework in order to mobilise finance for sustainable growth. Promoting and embedding climate and transition risk, and opportunities, into the financial-services sectoris a high priority for many regulators and policymakers. We have already seen some stress tests for climate-change scenarios. Will we, in the future, also see capital relief for green lending or penalties for brown lending?
I believe thatwhile the interest in green finance from regulators and policymakers is very welcome, it is customer and client demand that will ultimately reshape our sector to align fully around green finance. Investment banks, asset managers and pension funds cannot ignore the very significant opportunities created by the sums needed to support global infrastructure investment. At a retail level, societal trends will continue to play an ever-increasing role in the development of green finance. As EY (Ernst & Young) reported in October 2017, Millennials and women are a fast-growing influence in financial services worldwide, and we can expect to see good corporate governance, social responsibility and positive environmental impacts reflected in their investment decisions. EY estimated that Millennials will receive more than $30 trillion of inheritable wealth in the United States alone in the coming decades, and the global income of women will grow from $13 trillion to $18 trillion in the next five years—more than the gross domestic product (GDP) growth of China and India combined during the same period. It is no surprise, therefore, that we are seeing new ESG (environmental, social and governance) and green funds, investments and products being launched and promoted almost daily. A good example is Barclays’ new Green Mortgage, which offers homebuyers a discount for purchasing a new, energy-efficient home. Launched earlier this year, it quickly became one of the bank’s best-selling mortgage products.
The Millennial generation will not only have an impact on our sector as customers; within the next decade in many countries, Millennials and subsequent generations will account for 50 percent or more of colleagues employed in financial services. They will expect their values and beliefs to be reflected by their organisations, or they will seek careers elsewhere.
Successfully embedding green finance at the heart of our sector requires many policy, regulatory, structural, operational and cultural changes, as I have briefly discussed above. It also requires developing the capabilities of large numbers of financial-services professionals—current and future—with the knowledge and skills needed to help customers and communities direct investments to support the transition to a low-carbon world, address climate risk and explore green-finance opportunities. The Green Finance Revolution will be led by individuals leading their organisationsand a re-purposed professional community committed to green-finance values and principles.
I’m proud that, at the Chartered Banker Institute, we are playing our part. Earlier this year, at the global Green Finance Summit, we launched the world’s first Green Finance Certificate. This is a new global benchmark qualification for the knowledge and skills required by green-finance professionals—bankers, insurers, investment managers, analysts and consultants, central bankers and regulators—who will become the leaders, shapers andinfluencers in our sector. It provides learners with a comprehensive overview and understanding of the climate science underpinning the transition to a low-carbon world, green-finance principles andpractice, risk management, and green-finance products and services. It also highlights how organisationsand individuals can take an active role in supporting the transition to a low-carbon world.
Green finance will continue to be shaped and re-formed by innovation as well as by the other forces I have mentioned in my earlier remarks, such as changing demographics, customer demands and regulation. Such developments lead me to believe that the green-finance sector, what many may still see as a specialist field, will very rapidly become part of the mainstream of banking and finance—with sustainability, stewardship and other green-finance values part of everyday, ordinary banking practice. The opportunity it provides for the finance sector and finance professionals should not be underestimated; it is the opportunity not just to trade profitably but to play a key role in solving our greatest global challenge. This will not only help embed green finance within our sector but will demonstrate in a very practical way the social purpose of banking and help reconnect banks and society.