ESG Matters @ Ashurst episode 8

ESG Matters episode 8: transcript

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Over the last few months, I've been joined by climate action champions from around the world for our 30 for Net Zero 30 podcast series in the lead up to COP26. Today, I'm thrilled to be joined by James Close, head of climate change at NatWest. James, welcome to our podcast series. I know you're a real climate change advocate and have a commitment to enabling finance in particular to focus on the transition to net zero. Can you tell us a little bit about yourself and your work and how you got here?

James Close:
Well, thank you very much, Anna-Marie. It's really great to be on your podcast. I'd been working on climate change for the last 15 years. I first got involved when I saw Al Gore give his speech on An Inconvenient Truth in Sheffield, and I decided it was something I wanted to spend my time working on. I was lucky enough to work on a policy in the UK and then head over to Washington, where I was the director for climate change at the World Bank.

As part of our commitment, as the World Bank in the run-up to COP21 in Paris, we determined that we would increase our proportion of climate finance from about 15% at the time to over 28%. We managed to do that ahead of the 2020 deadline.

But what I learned from that was the power of finance in helping us make this transition to a lower carbon future. So when NatWest talked to me about joining them as their director for climate change, I was delighted to join, particularly because NatWest had taken up the role of a purpose-led bank and using money, finance for purpose-led activities, and putting climate change at the heart of that. So I'm really delighted to be at the heart of this conversation and to be part of NatWest's leadership here, which includes, of course, our sponsorship for COP26 in Glasgow in November.

Yeah, fascinating times to be involved, and a really interesting point you make around the power of finance. To that end, there's been a lot of conversation about what is the role of finance in this and how does sustainability get delivered through finance. What is the biggest shift that you've seen over the last 18 months or two years maybe regarding sustainability?

James Close:
Well, I think the first thing is that we started to measure it properly and we've really started to put best brains on getting the data that enables us to understand what money is flowing towards sustainability and climate action. I think we've linked that very closely to outcomes like emissions reduction, but also some of the biodiversity and ecosystems issues that sustainability addresses as well.

As a result of that, we've seen this wall of money for ESG investing be mobilized. That's going into equity investment and also into debt and bond financing. And there's been a huge amount of innovation there around ESG and green bonds, for example. Many of them sustainability links. What I think that's doing is starting to price the impact that good things are having on the planet. And ultimately, the counterpoint to that is that it's penalizing the pricing of finance for bad things.

Now, I think economists would argue that putting a price on carbon, a really meaningful price on carbon across the whole economy would be a much more effective way of doing it. And maybe we'll get to that point at some point in the future. But until we get there, this sort of recalibrating of financial flows through rewarding good actions and penalizing bad actions has really started to shift the agenda.

I think the creation of the Glasgow Financial Alliance for Net Zero and the Net-Zero Banking Alliance, which we joined as an inaugural member a month or so ago, will be a real mobilizer of this ambition towards net zero. And we'll have to start thinking about how we allocate capital in a way which is consistent with carbon. Because in a carbon-constrained world, we'll have to think about the best places to lend that enable us to hit the types of carbon targets that we're setting ourselves to get to that net zero point.

Carbon taxes, carbon credits, lots of items that people are openly debating kind of in the press and everywhere else at the moment, what do you think is the one specific action maybe that really could be a game-changer here to deliver on this net zero promise that everyone's talking about? Because hundreds and hundreds of companies are coming out with it, governments are coming out with it, but to really kind of make the action real, anything in specific?

James Close:
I'm going to sort of pivot the question a little bit if I may, Anna-Marie, because what I've learned in working in this field for the last 15 years is that it really is a system problem and you've got to think of it in systemic terms. Which means that for example, policy is very closely linked to finance, and finance is also what nudges behaviors and changes behaviors. So that's the frame I think about this is if you get policy set in the right direction, principally aligned with nationally determined contributions that countries are declaring, and having a long-term and consistent expectation of that goal of net zero, you can mobilize the finance for businesses and infrastructure and investments in a way that's consistent with that policy objective.

And then you start to see behavior change influencing both of them. The politicians feel as though they can be a bit more forward-leaning, because the population understands the impact of climate change and what we need to do about it.

And of course, the financial signals are also nudging people to make better decisions. We're starting to see that with electric vehicles, for example, where long-term policy has been set in terms of eliminating the internal combustion engine and putting a deadline for that. The infrastructure for charging is being rolled out. The pricing of an electric vehicle is still higher than an internal combustion engine vehicle, but the gap's closing. And of course, the running costs are much, much lower.

So the overall financial cost of ownership of an electric vehicle is now cheaper than it is for an internal combustion engine vehicle. And again, finance can help by smoothing that of financing through lease payments and ways in which you can then spread the cost of the upfront capital against the reduced running costs that you get from being an electric vehicle.

So if you can bring that system together and deal with policy finance and behavior change in a really thoughtful and consistent way, then we give ourselves the greatest chance of accelerating this transition in a way that's going to be manageable and also fair and just for all.

So I guess your one specific action is system change for the entire system and the whole business ecosystem.

James Close:
Yeah, and driven by a net zero target. I mean, the science tells us we need to get to net zero. Of course and again, simplistically, if we're not at net zero, more carbon is going into the atmosphere, so the temperature is continuing to rise. So that long-term target helps us then think about reinventing the system in a way that is going to be consistent with achieving it. And then if you can overlay some of the co-benefits on it and the support to the transition to make sure that it's fair and just, you're going to get a much better outcome and a much better journey in terms of the pace and the scale of the transition.

So a real opportunity, I think, for businesses to recreate how they're operating. If I can take it personal for a moment, what is your own commitment to net zero, since we're all part of this system change? Anything in particular that you've done or you're looking to do?

James Close:
Yeah, no, well, a few things, Anna-Marie. When we came back from Washington, we refurbished our house. It's originally built in 1847 and was a very leaky and drafty home with limited potential for doing solar PV, but we did manage to put some solar thermal for water heating. We looked at ground-source heat pumps, but practically, they wouldn't work. So we just did as much energy efficiency as we possibly could to make it as energy efficient as possible. And as a result, we've actually found that we've got extremely low electricity and gas bills to the point where we're still repaying the addition with the original increased direct debit. And we've actually got a payment of zero as we worked through all our credits from the original overpayment. So that's one thing that we've done.

The other thing that I've got on my list of things to do is to finalize my order for my electric car. We at NatWest have got a very good partnership with Octopus, where we can get our residential charging points installed. I'm really excited about the prospect of driving an electric car. My slight challenge there is to have a range of at least 250 miles, because both my wife and my parents live up in the north of England. So we want to be able to make that trip in one go. But I've spotted the right car to buy, and I need to now just go and put the order in and enjoy driving it, I think.

Maybe investigate some kind of battery that you can take with you on the 250 mile radius. I guess last question for you. You've made some really interesting comments so far. But if you could get one person or a group even to take a particular action, what would it be and who would it be that you'd want to really motivate?

James Close:
Well, I think I would choose... I don't know whether it's... I think this person is already taking action and showed amazing leadership, really, and particularly creating a framework for thinking about addressing climate change, both in terms of the intellectual framework and the book that he's just written called Value(s), which is a very significant contribution to this debate. And also promoting the TCFD requirements that have been adopted by many organizations. Of course, that's Mark Carney, who's leading the UN work on climate finance and has been advising the UK prime minister in the run-up to COP26 as well.

We've been working with him as he builds this coalition of organizations that are committing to net zero in the finance space, this Glasgow Financial Alliance for Net Zero. The reason why I think having that sort of convening power and authority to enable us, as the finance industry, to think along similar lines and in the right kind of collective way is that you're starting to align the asset owners, the asset managers, and the banks in ways that enable the finance to flow in a far more consistent manner.

What it's also doing is it's forcing us to think about collaborations, how we work with others in the way in which we can mobilize this finance and the kind of partnerships that are going to support this transition. And particularly in relation to, for example, data and analysis. We're all working through the Climate Biennial Exploratory Scenario of the Bank of England, which will give us some bottom-up data on customers and what their emissions are.

But alongside that, we're also working with Microsoft to help many of our other businesses start to track their emissions. Particularly important for small and medium sized enterprises. Some of the research that we did suggested that 88% of them were committed to sustainability, but only half of them knew where to start. So given better data, they'll have a better chance to initiate their actions, which will also enable us to support them in pricing their long-term creditworthiness better, and that we'll be able to allocate our capital more effectively.
So we're starting to build a system that is aligned towards net zero from a financial point of view. And I think Mark's leadership there, with many others, has been quite instrumental to do that. He's building off the work that Michael Bloomberg did, for example. And now in the US, we're seeing Janet Yellen talking about some of these things as well.

So those leaders in climate finance, I think, are particularly important at the policy level. And then for each of the individual banks, they're also going to have to take a leading role in enabling that to happen. I've been really delighted in how our CEO, Alison Rose, has taken that leadership role and has built a coalition within the organization that are thoroughly committed to some really ambitious targets.

So I think in many ways, we have the component parts in place. It's just we all have to raise our ambition and our commitment to make sure that we can get them delivered as quickly as possible. Because if we let this window that we've got, the window of the decisive decade, as many people describe it, pass by without putting the action that we need to, then we really are putting the planet in peril. The consequences of that will be really severe for all of us.

But I think, we, in the climate movement, describe ourselves as stubborn optimists. I think that sort of stubborn optimism of mobilizing, acting, and delivering will get us to deliver really challenging 2030 targets in a way that is probably faster than we think we can do. And I remember that Lord Stern told us that we can usually go faster than we think. I think he may well be right, as we get the conditions in place and the building blocks aligned, and we follow the leadership of people like Mark Carney and others who are helping us set the framework and drive this really exciting transition to a net zero economy.

Great comments, James, and thank you for sharing with us. I think the takeaway is the power of finance to really use data, measure impact, and affect system change so that we can have actions now that last into the future and give us a sustainable and resilient planet. So thanks very much for joining us today. Appreciate your comments and your insights.

James Close:
No, my pleasure Anna-Marie. Thank you very much for inviting me, and look forward to collaborating more on all of this. So thank you.

Thank you for listening to this podcast. We hope you found it worthwhile. To learn more about the issues we've just covered, please visit

This 30 for Net Zero 30 episode is just one small part of our continuing podcast series, ESG Matters @ Ashurst. Make sure you don't miss any of our future episodes by subscribing via Apple Podcast, Spotify, or wherever you listen to your podcasts. While you're there, you can also listen to our other episodes and leave a rating or review. In the meantime, thanks again for listening and goodbye for now.

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