Financing the Green Energy Transition

LSEG’s Group Head of Sustainability Jane Goodland speaks to Bryony Widdup, Partner at DLA Piper, to discuss the roadmap towards net zero and the critical role that the financial services industry has to play in climate action.

The conversation focuses on how sustainable finance and investments are mobilising capital, and engagement between the public and private sectors, as well as the NGO community, are bringing together implementation on these commitments.

Bryony also identifies some of the hurdles that the industry needs to address to achieve its climate goals, looking at the need for more public policy intervention, and a refocusing on transition finance, in order to ensure a framework for credible investments in green energy.

The Net Zero Conversations series was filmed at the Net Zero Delivery Summit, hosted by the City of London Corporation in association with the COP 26 UK Presidency 2022 and the Glasgow Financial Alliance for Net Zero (GFANZ).

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Bryony, welcome and thank you forjoining us on Net Zero Conversations.Thank you very much for having me.You're a partner at DLA Piper.Can you tell us about your role in the firm?I'm a partner in the finance team andI focus on sustainable finance and investments.I also work with banks and films and fintechs.In terms of thiswhole conversation we've been having hereabout mobilising capital and making investments,financing real, real economy businesses.So yeah I'm a transactional partnerfocused in the sustainability space.What role does fintech have in transitioning to net-zero?The fintech industry suffers,I think, has sufferedhistorically with challenges around ESG.It's amazing when we talk about fintech,how quickly the conversation cancome to Bitcoin and energy usage,which is a very small areaof the overall fintech space ofthe overall even digital asset space.However, it's very public.There's a lot of public awareness around that challenge.So energy usage and energy efficiency,is certainly something that needs to be solvedbefore fintech can startcredibly solving other ESG challenges.Transition planning in that space aswell is, is difficult.So we work with some ofthe global networks representingthe financial, the fintech industry.And we're having to work with them toestablish their own science-based pathways.There aren't those.That's one of the sectors wherethat's not currently in existence.If you look at guidance set by, for example,SBTI, we have to createthat and help them create that for themselves.But there's a lot of energy and a lotof commitment to doing that becausethis industry has great potential to actuallydeliver on some of the ESG challenges andnet-zero implementation challenges thatsectors like the financial services industry aresuffering on things like data and disclosure challenges.I mean, the potential is really obvious andthe FCA has run an ESG sandbox over the last year or so.Some really promising businesses inthere, offering solutions forregulated financial services business onthis data and disclosure issueSo, you know, that needs to be brought right into the mainstream.I think other opportunities,so carbon markets, the ability for,for blockchain and tokenisation to deliveron voluntary carbon markets,that's kind of more commonlydiscussed. Also perhaps on the demand side.So we've heard some of the speakers here at the summittalk about the problem with the demand side.How do you change consumer behaviour in order tobuild up the demand for net-zeroaligned both real economy,product, goods, but also services,net-zero aligned financial services.I think fintechs got a fantastic role to play on,really educating people toenable them to understand well,when I make this choice to spendthis money or buy this item,this is the, this is the carbon impact.By owning this item,this is the supply chain thatI'm owning in connection with this item.We don't have visibility on that really at the moment.Not, not, not really.Also potentially to ownyour own energy and take on that responsibility andalso opportunity of owning your own energy consumption.So great opportunities around that demand side.And then finally, I'd alsosay that in the investment side,if you tokenise investments,what you can do is you can connect the outcome,so the real-world outcome of the money that you put in,you can connect that really directly to the person whocommitted the pounds tomake the investment in the first place.And it's very transparent, it'sdisintermediated, it's very auditable.It's enabling people potentially to ownthe purpose for which they committedthe investment in the first place. Its kind of really,I guess the next generation of impact investing in a way.But a unitised basis, tobe really precise and really specificabout really understanding capital impactout. Exactly in that impact sense.But a lot of the world that I work inis you're looking at investment for net-zero purpose.So it's not... I don't just want to make itsound like impact in emerging markets,living standards sense, whichis often when you say impact,that's kind of where people's minds go.Actually net-zero transition isan impact investment environment. You aretrying to make a direct change,a direct transition towards green in this world.So the same theory applies there too.Yeah, absolutely. And we'vespoken about the role of finance,but but can we just touch on the role of blended finance?And we've heard a bit about that over the last few daysabout that should bea focus area as we move towards COP27.Your thoughts on blended finance?So blended finance is all about scaling capital flows.They're clever structures.It's using risk appetitealigned with the kind of money thatmay or may be available for projects.And then splitting up the capital that'savailable toaccommodate the different risk appetite of investors.So a very long time ago I was a securitisation lawyer.I still do some securitisation work.And a lot of the learnings from that sectoron tranching of risk, ofhow you can createinvestment instruments at the top of a structure,that enable investors with those different risk appetitesto all come together in the same structure,create a capital pool,and then onwardly invest that intounderlying, I mean in that case it was loan pools,but I mean, here in some cases you arelooking at the underlying investments being loans.Loans out into emerging market economies, for exmaple,to enable businesses in those economies to borrow money,to improve technology, to invest in agritech,to invest in solar, etc....So that, that, that is a part of this framework.And when we say blended finance,we're talking about bringing the DFIs, the quasi-public financial institutionsalongside private finance,using public money, perhaps grants, guarantees, etc...DFI money, to de-risk those investment opportunitiesin order that the very big amountsof scaled private finance can,can come in and look atthat opportunity and say, well actually,the return here if I takethe senior piece is sufficient becausethe risk is being offsetby by what's been done on the blended.end. I thinkthere's great opportunity around those structures.We're working with our clientsto help them to develop scalable structures.You've got to build that understanding.You've got to educate the market.Then you've got to build the appetite,the familiarity of this structure.So these aren't structures that arecommonly used today, right?They are used, there are projects.Blended finance, especially bringing in kind ofguarantees to try tooffset some of the risk, that's been done.But what we haven't seen yet is thisat the scale that they're kind of commitments,Well, really need in orderto achieve those capital flows.So it's the scale of it that really hasn't yet been seen.And that's what we're working on tryingto get the structures that can support that scale.And it really strikes me thatthe legal profession and firms like yours have gota massive role to play in kind of reallyaccelerating that type of practice.Yeah, absolutely.Bringing together as wellthese different stakeholders, creatingtrusted structures that have beentested from the local law side,from the tax side, the regulatory side.Understanding all of the different bitsaround the edge that you need todemonstrate have been tested in order toget these actors to the tableand put the money into this pooled part.Yeah.I think we have real strength andvalue in doing that. Yeah, it's fascinating.And I think there's a really good opportunity forcredible partnerships to really emerge right now.So one final question, if I may,as we as we look towards COP27,what would be the one thing that we really need to getright in order to make it a great success.I think this conversation on adaptation,so a lot of what I've been talking aboutis climate change mitigation.Even at the projected temperature rises thatwe will get to if we considerourselves to have been successfulin terms of net-zero goals,there is still so much that needs to be donearound adaptation and resilience.I think supporting, enabling,lifting up that piece of the conversation.All of this investment structure piecethat I've been talking about, impact and purpose.You can apply all of that inthe adaptation and resilience contexts as well.Insurers clearly have a huge role to play there too.So really enabling that conversationto come to the fore at the next COP,I think that should be a main focus.And particularly in the case of some ofthe emerging economies who are onthe sharp end of some of the climate changesthat we, that we're already seeing. Exactly, and I was on a call the other week,we were talking to one of the island nations.And they said, the thing is,we see there's a lot ofenthusiasm around climate finance,but it's enthusiasm around climate that we need.And so getting that balancein probably better than we have done so far.That's gonna be really key.Great. Thank you so much for your time today.Thank you very much.

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