SMUG MONEY: How green will the year of green finance really be?

Written by Rebecca O'Connor on 14th January 2016

This morning, the United Nations Environment Programme is ushering in a Year of Green Finance for 2016 with a City of London Corporation event. Delegates will be in Washington tomorrow.

The spirit of COP21 talks in Paris before Christmas, at which a global agreement, however non-legal, was reached on carbon emissions, is very much alive. There are good reasons to expect the flow of capital to be redirected from dirty to clean wholesale this year. As UNEP says: “China has established a Green Finance Study Group in the G20 to be co-chaired by the People’s Bank of China and the Bank of England, with UNEP acting as secretariat. Many other countries are driving forward progress at national and global scales.”

But beware confirmation bias among green investment evangelists (including us, yes). While many enlightened institutions, notably fund managers Hermes and Alliance Trust, are blazing trails, sustainable and responsible investment in the UK still makes up little more than 1 per cent of the investment universe, according to UK Sustainable Investment Forum.

It’s easy, when you are in this glorious industry of people who understand both profit and planet imperatives, to forget that most people are still in the: “Now oil is so low, it’s time to buy it”, mentality. You need not look too far for evidence of this (the Money Week daily emails, for one).

Progress is huge, the level of agreement is astonishing (who’d have thought anyone would have even uttered a target of 1.5 degrees rather than 2 at COP21 – we’re getting bolder not meeker in the face of this challenge), and hearts and minds aligned. In the green finance industry.

With the exception of green consumers, most people remain in the dark. “The consumer is the sleeping giant”, to quote Georg Kell, vice chairman of Arabesque Partners.

It’s easy to dismiss the importance of little old, X Factor viewing, Ford Focus driving, Costa drinking, LDL buying Joe Public (whoever on earth he is). He’s not plunging billion pound investment mandates into this or that. All he has is a few credit cards and £1,100 net salary a month. We don’t need him.

Wrong. We (you) anyone in green finance does need him. True, the institutional fund managers hold most of the cards. And many of these guys did have a change of heart in 2015, successfully persuaded by the likes of the wonderful Carbon Tracker, Share Action and UKSIF of the benefits to themselves and their clients of a carbon-risk reduced portfolio.

But Joe Public is a voter. And votes are what make Governments do what they say. And besides private capital, there is that pesky business of fiscal policy to address. Regulation and incentives. Carbon taxes don’t impose themselves, and as long as you have an electorate that cares more about whether the turbine in a field 1 mile away affects their house price, rather than the personal benefits to them of a greener, more energy efficient, less carbon intensive economy, you have a Government that says nice things when they are in the room with you, but does things that completely contradict their green words, because of votes and wanting to win them.

People vote on the basis of how well off they feel, and governments, when they want to win elections, introduce policies that make people feel better off. On the whole, green policies do not do this. Because when purse strings are tight, horizons are short. We all get the theory of long-term sustainable returns and of course we all want to be green and not kill the planet, but it’s pretty hard to put it all into practice when you are already struggling to pay your bills and all you need is a rise in the personal income tax threshold.

This site is dedicated to making 2016 a year of green finance for everyone – not just the pension funds, but you and me, with our personal cash. The funds might have people’s money, but policy needs their support too and for that, we need to be able to successfully answer the question: “What’s in green finance for me?”