Drawing on the experience and wisdom of Silvia Pavoni, an independent global expert on sustainable finance, the interview on Classic Business on Fine Music Radio drove home the message that decarbonising the global economy is now widely accepted as an urgent imperative, and there is a real tangible sense that things are moving in the right direction.
Pavoni, the founding editor at Sustainable Views, a newsletter by the Financial Times that brings readers the voices and data driving the ESG debate, said the change is being driven by pressure from all quarters. There was pressure from the regulators, multinational bodies like the World Bank and the African Development Bank, as well as from all stakeholders in business, including shareholders to chief executives, risk officers, customers and employees.
Silvia, whose pedigree includes roles as associate editor of The Banker as well as an advisory board member of the European Risk Management Council and the Women of the Future programme, said there was a growing understanding that “companies are not there only to provide return to shareholders” and that those “financial returns are very much linked to the way the company behaves, and its impact on the planet and people”.
Michael Avery had set up the conversation by raising questions about how the cost of transforming the world’s energy systems, estimated to be “somewhere around $1.6-3.8 trillion annually between 2016 and 2050”, would be financed. He noted that attention would surely be focused on this challenge at Cop27, the UN climate change conference being from November 6-18 in Sharm el-Sheikh in Egypt.
In the conversation, Pavoni noted that there had been growing calls for multilateral development banks to step in to provide funding, including recently from US Treasury Secretary Janet Yelland. But, she said, the capital available to these institutions is relatively limited, billions of dollars compared to a funding gap in the trillions.
The African Development Bank, for example, estimated that in the 10 years to 2030 just under $3 trillion would be required just for African countries to meet the decarbonisation commitments their economies made under the Paris Agreement.
“Those are huge figures, so private sector money is needed,” Pavoni added. But investors will tell you that their expertise in these areas is limited, that the risk profiles of some of these investments are too high. So, they are asking that the development banks get involved and reduce the risk, perhaps even absorb first losses on some of the projects.
“So, this is what we mean by blended finance.”
This is hugely important for the world, says Pavoni, in particular for some countries in Africa “to deal with the consequences of climate change, as well as the social consequences of transitioning away from fossil fuels towards renewable clean energy”.
Noting that many were talking about the upcoming Cop27 as the ‘African Cop’, Pavoni said it would be very interesting to see what comes out of the meetings, particularly if commitments from developed to developing countries would be strengthened.
Also, she said, everyone is looking at risk and return, at finding the right formula to ensuring that this imperative of decarbonising the world economy could make sense “when we look at the practicalities of running a business or running an investment fund and delivering results to your shareholders, as well as positive outcomes for the planet and for society”.
Not The Daily News, a weekly radio insert created by 10X Investments in partnership with Michael Avery and Classic Business, largely ignores the daily news in favour of focusing on longer-term themes that are driving the market.
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