Greening Capital – Why finance matters for Paris COP21
11th December 2015
Huw Davies, head of retail banking at Triodos Bank, shares his thoughts on why you can’t divorce your personal finances from the politics of climate change.
“As the World’s leaders try and reach a global agreement on climate change in Paris, I hope we hear enough mention of the global finance sector. Because while glass fronted bank offices may feel abstract and divorced from the reality of rising temperatures, melting ice and extreme weather, money is at work around the clock, being used to lend, invest, create, destroy, buy and change. Money is neutral, but how we use it as individuals and institutions gives it value. In short it can be used for positive change, or destructive activity. As spenders, lenders, savers, investors, pension holders, fund managers, bank CEOs – we decide.
“Money is not an inert force, but is used daily while invested or on deposit. A proportion of this vast sum, unknown to the majority, will be invested and lent to activities causing environmental harm.”
It’s easy to see and understand how certain activity is good or bad for the environment; that recycling will have a positive impact, whereas long-haul flights are accompanied by an environmental cost. But remarkably few people consider how, through their personal savings, investments, and pension, they could very likely be putting their wealth to work in actively destroying the planet they are trying to protect in other ways. And likewise, that this money could be a powerful force against climate change, if invested in solutions combatting it.
As a nation, we have a collective nest-egg of trillions of pounds in savings, investment funds, and pensions. This money is not an inert force, but is used daily while invested or on deposit. A proportion of this vast sum, unknown to the majority, will be invested and lent to activities causing environmental harm. Most Stocks and Shares ISAs on sale from high street banks will include investment in oil, mining, and other companies which are complicit in environmental destruction. Pensions will often invest in carbon. Even money in savings accounts will be lent to…. well, who knows – because there is so little transparency in the sector.
Banks increasingly talk of their green credentials, planting trees, reducing waste – but we need to cast a spotlight on the more fundamental workings of the sector. So, let’s have a discussion on the apparent contradiction between this laudable activity and then selling investment funds which contribute to environmental destruction. Let’s have a discussion about the need for pension funds to divest from carbon, not just for environmental reasons but for the long-term financial performance for investors. And let’s have a discussion about transparency, about the need for banks and funds to be clearer on what our money is doing while they have it – so we can decide whether we’re happy with that.
“The financial services industry – and big business generally – need to play an integral role in fighting climate change. Not in superficial ways, but by reviewing what they do and don’t do with the huge amounts of money in their hands.”
Recent research from Triodos Bank is illuminating; it found that climate change is an important issue for 60% of those surveyed, but two-thirds (65%) have never considered the potential impact of where their investments are held. Encouragingly, however, more than half (53%) of those polled did say that they would change their investments if they believed it could have a positive impact on climate change. It also found that almost half (48%) of UK adults believe banks have a responsibility to do more to tackle climate change, and that 39% said they want to see more ethical or sustainable banks in the UK.
There is growing consensus that the financial services industry – and big business generally – need to play an integral role in fighting climate change. Not in superficial ways, but by reviewing what they do and don’t do with the huge amounts of money in their hands. The financial sector around the World must now use the weight of its power and influence, moving from investment in unsustainable activities and into the environmentally positive alternatives we need to combat climate change. The sector can no longer hide behind its opaqueness and claims that customers are not interested. They are, and increasingly so. But we need to make that clear, as customers, shareholders, employees of banks.
After the credit crisis, banks were criticised for having lost their way, for being out of touch with reality and their place as useful parts of society. Has the sector learnt, has it reflected on its purpose and who it should serve, what its real potential is?
I hope so, because the time for leadership and vision is now. And with it, a very human problem – climate change – could be solved by a very human creation – finance.”