Funding the Green Transition: The Importance of Sustainable Finance
There are numerous opportunities and obstacles for corporations in the U.S. and EU as they invest in the transition toward sustainable finance.
Air Date: December 8, 2021
Moderator: Tom Quaadman, Executive Vice President, Center for Capital Markets Competitiveness (CCMC), U.S. Chamber of Commerce
Featured Guests: Judson Berkey, Head of Engagement and Regulatory Strategy, Chief Sustainability Officer, UBS, David Henry Doyle, Head of Government Affairs & Public Policy, EMEA, S&P Global, Ilan Jacobs, Director of Government Affairs and ESG Policy Specialist, Citi
Sustainability has become an important topic across nearly every sector of the economy, including finance. Sustainable finance involves considering environmental, social, and governance (ESG) factors when making investment decisions so that more long-term investments can be made in sustainable economic activities and projects.
Among corporate leaders, the “green transition” toward sustainable finance means considering the ESG impact of their operations and committing more resources toward reducing their carbon footprint and increasing their overall sustainability. In other words, private sector funding is essential to supporting sustainability across industries.
In a panel discussion at the U.S. Chamber of Commerce’s third annual Transatlantic Business Works Summit, business leaders discussed the progress and challenges of these initiatives and how U.S. and EU corporations can continue to advance sustainability goals.
The Private Sector Plays a ‘Leading Role’ in Funding the Transatlantic Green Transition
Growing public demand for ESG-related disclosures has accelerated discussions in the U.S. and EU about sustainable finance. Global financial institutions have the opportunity to play a leading role in funding “green” investments and sustainability initiatives, said Ilan Jacobs, director of government affairs and ESG Policy Specialist at Citi.
“In the run-up to COP 26, we saw quite a large increase in the number of [corporations] that are mobilizing on [sustainable] action,” said Jacobs. “There [were] over 5,000 different companies that joined the ‘Race to Zero’… 40% of global financial assets and $130 trillion, all committed to aligning their activities [toward] transitioning to net-zero [carbon emissions].”
Jacobs said Citi has made a net-zero commitment by 2050, which includes all of the emissions that are associated with its financing. In April of 2021, Citi also committed $1 trillion to sustainable finance by 2030, with $500 billion going to renewable energy projects, clean green technology, water conservation, and environmental finance.
Corporations Need ‘Clear Policy Signals’ to Encourage More Green Investments
Corporations alone can’t achieve these important sustainability goals, said Jacobs. The private sector and government leaders from both sides of the Atlantic must cooperate to foster regulatory predictability and commercial stability as companies prioritize sustainability.
“We can't transform the global economy on our own,” said Jacobs. “This isn't just going to be driven by finance. The most important thing really, which would hopefully open the floodgates to private capital, is really clear policy signals from governments.”
Strong Transatlantic Policies and Reporting Requirements Can Help Incentivize Sustainability
David Henry Doyle, head of government affairs and public policy for EMEA at S&P Global, emphasized the importance of government policies in advancing the green transition.
“We ... estimate that, under a strong global policy framework to address climate change, companies are going to see something like $285 billion in carbon pricing costs just in 2025,” said Doyle. “To put that in perspective, that's 13% of their earnings ... at risk, potentially from higher carbon prices, [and] those costs are going to significantly rise over time.”
Doyle, who chairs the Sustainable Finance Task Force at the American Chamber of Commerce to the EU, also advocated for closing the gap at the policymaker level when it comes to transatlantic sustainability efforts.
“That's a massive opportunity, and doing [it on] an international level rather than just the bilateral level is even more important,” said Doyle.
Judson Berkey, head of engagement and regulatory strategy and chief sustainability officer at UBS, also noted that international cooperation on accounting standards could help disparate systems better coexist, especially for global companies.
“Getting [those] international standards in place — having companies really start to report on it and provide that foundational data that helps us as investors [and] lenders really understand where companies are on their transitionary path is absolutely critical,” Berkey said.