Financing the Transition: a strategy to deliver carbon targets

The event was hosted by Lord Smith of Finsbury, Chairman of the Environment Agency, who outlined the background to the report.

It argues that a more radical approach to financing low carbon projects is needed to ensure carbon targets are met and examines how Government can reduce the risk for business to take low carbon options. The report also reflects the wider role of the Aldersgate Group, in bringing the environmental and business worlds together, helping them to work in ways that are mutually advantageous.

Ed Miliband, Secretary of State for the Department of Energy and Climate Change welcomed the report, describing it as very timely and important.

He paid tribute to the work of the Aldersgate Group: “I think it is incredibly important and you are an incredibly important voice in the debate on low carbon and climate change in this country.” He proceeded to make four points:

1. Discussions around climate change should involve more than a vision of how to avoid disaster. There are positives to a low carbon economy, such as jobs and energy security, which should be made prominent.

2. For the change to a low carbon economy to take place, business must have the confidence to invest. Government has taken steps to create certainty at the national level and an ambitious agreement at Copenhagen will be essential to generate confidence at an international scale.

3. Government should support and encourage the development of new technologies through policies which require more than a strong carbon price. For example, a levy on electricity bills to finance clean coal and carbon capture and storage.

4. An atmosphere of openness will encourage debate and discussion between Government and business. Discussions on the recommendations of the report and feedback to Government would be welcome.

Peter Young, Chairman of the Aldersgate Group put the report into context, as a response to the low carbon strategies launched by the Government in the summer.

The Aldersgate Group has identified measures to bridge and accelerate the transition to a low carbon economy, focusing on three areas: green finance; green jobs and skills; and resource efficiency. These themes were informed by the sense of a lack of pace, a belief reflected by the Committee on Climate Change’s report which was published on Monday 12th October 2009. The CCC noted that over 2003-2007 the UK only achieved a 1% reduction in GHG emissions per annum, when 3% is required.

Emma Howard Boyd, Head of Socially Responsible Investment at Jupiter Asset Management chaired the two roundtables which contributed to the report’s findings.

The number of representatives from across the financial spectrum in the height of the summer demonstrates the amount of interest in this area. Two themes in particular emerged from the discussions:

1. The sense of optimism about the financial opportunities in the UK: there has been a huge amount of innovation in this area which now needs to be scaled up to cement London as the centre of green and sustainable finance.

2. The timescales are too long for much of the existing regulation for the Low Carbon Transition to carry impact. Decisions made on a daily basis have a much shorter timeframes.

Nick Robbins, Head of Climate Change, Centre of Excellence at HSBC broadened the discussion to include the international arena, noting that “it is important to recognise how fast the climate change community is getting behind the shift to a low carbon economy.”

Many international groups have been looking at developing a new relationship with public finance, particularly the big development banks and the big pension funds who want to invest a large amount, but need new mechanisms to reduce the risk and allow them to generate returns. A great deal of expertise in Britain in the City of London is being devoted to designing new cooperative frameworks for developing countries. The Report is timely because it is bringing some of these widely discussed issues back into the context of the UK economy, with a view to seeing how they can be deployed here. This includes consideration on reducing risk for investors, seeking new types of finance, bond and debt mechanisms and also the development of new institutions which might fill gaps in the UK’s financial architecture.

This report chimes with discussions in many countries where low carbon is now seen as a case of national economic strategy. Korea, for example, views this as the next phase of their growth path and are mobilising public funds, development finance and also local pension funds to invest in it.

He urged the conclusions of the report to be taken on board so the UK economy could move forward. 

Nick Mabey, Chief Executive of E3G felt that ideas put forward in the report could be built upon by other projects being undertaken at this time within the financial sector.

A central issue is to develop ideas on financing the low carbon recovery, so when the crisis phase ends, the recovery is low carbon.

He suggested: “we have a breathing space, global emissions are finally dropping, which gives us the chance to re-tool our economy, the chance to put in place policies and institutions.” The alternative is a fast pick up in a high carbon, high energy path, which is clearly unviable.

The first financing challenge was the crisis and getting through it; the second is recovery, where balance sheets are rebuilt and actors in the market remain cautious. Once in the recovery phase, the issue will become scaling up and proving to investors that new economic models are stable.

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