Green Finance is Here to Stay
Caroline Barr, Senior Associate at CMS discusses the rise in green finance initiatives in the UK and why they’re here to stay.
Green finance is here to stay
Caroline Barr, Senior Associate at CMS explores the rise in green finance initiatives in the UK as the country looks to establish itself as a world-leader in sustainable banking.
Green Finance used to be considered niche, but is now firmly on its way into mainstream banking and investments.
Sustainable finance, also known as ethical, responsible or green finance, is the process of investing in accordance with certain values, affording ethical, environmental, social and governance criteria the same weight as financial returns.
According to the Ethical Consumer Markets Report, the combined total value of the UK’s ethical banking, credit unions, ethical investments and share issue markets almost doubled from £21.9bn to £39.3bn between 2016 and 2017.
Green finance is growing
The Financial Conduct Authority recently launched a discussion paper on the impact of climate change and green finance on financial services. The regulator pointed out that there are now more than 70 green bonds listed on the London Stock Exchange, raising more than $22bn in seven currencies. Thirty-eight green companies have raised $10bn in London. And in the retail sector, we’ve recently seen the introduction of the UK’s first green mortgage.
This Spring, the UK government will publish the UK’s first ever Green Finance Strategy, setting out long-term plans to boost the take-up of green finance.
Traditionally the mainstay of businesses’ corporate social responsibility (CSR) programmes and philanthropic gestures, the buzzword ‘sustainability’ is a key post-crisis development in the commercial banking sector. The virtues of sustainable forms of finance are now frequently extolled by financial heavyweights like Michael Bloomberg and Blackrock’s Larry Fink as central to maintaining the integrity of the financial system.
Engaging with themes of sustainability is also beneficial from a PR perspective, as Royal Bank of Scotland found last year when it announced substantial reductions in fossil fuel exposures.
Investment houses such as Kames Capital and Aberdeen Standard Investments are recognised for their lengthy contribution to the ethical capital markets through their capabilities in managing ‘sin-stock’ screened ethical funds.
Investing in businesses that have a demonstrably positive social, environmental or economic impact through sustainable or ‘impact’ investing is increasingly the norm and is being driven at a global level by United Nations initiatives like the Principles for Responsible Banking and Sustainable Development Goals.
Making a difference is also at the heart of financial decision-making amongst millennials and Generation Z-ers.
Looking to the future, the signs are that sustainable finance is here to stay – and will continue transforming the financial services market.
The Spring issue of Chartered Banker magazine has an in-depth feature on Green Finance if you’d like to explore this topic further.