Monumental times for sustainable finance

17 July 2020

Written by Tim Hames Former BVCA Director-General

Tim Hames, former Director-General of the BVCA, gives his take on Guernsey’s Sustainable Finance Week.

It is hard to imagine crossing the Rubicon remotely, virtually or by webcast. Yet a triumph of timing meant that Guernsey Finance achieved precisely that with its Sustainable Finance Week agendaFinancing sustainability in the post Covid era: the role of private capital’.

It was brave, bordering on bonkers, to persist with this initiative at all, as in so many other instances, conferences and events such as these have been postponed or cancelled. It was, though, exactly the right call, as it allowed Guernsey Green Finance to capture the spirit of this extraordinary moment.

These really are monumental times for the sustainable finance movement. It has spent years, even decades, moving from the fringe of debate and investment decisions to closer to the mainstream. It has made solid and steady progress, but even six months ago, if we were to be entirely honest with ourselves, it had not made the transition completely. It was knocking at a door not yet open to it.

The coronavirus crisis has changed everything. It has been a catalyst for individuals and institutions everywhere to ask themselves fundamental questions about the way we live our lives, organise our economy, and structure society. Although the pandemic was not triggered by systemic failure in the manner of the global financial crisis some 12 years ago, it has forced us to think about systemic risks and systemic rewards in a manner that we felt no obligation to do before isolation and lockdown.

The three webinars and four podcasts held over a week in June had much in common and forged a compelling message. In many respects, the freewheeling, rather than unduly formal nature of the debates, the almost arithmetically-perfect gender balance of the various speakers, and the shared sense that building back better is a serious strategy, not simply a slick slogan, meant that the conference looked and sounded and somehow felt different from the forums of the past, and offered a strong sense of what events like these will be like once we reach the point when they return to being held in person.

What then were the key conclusions? Participants and those in the audience will have their own take on it, but to me there were five aspects that were especially significant.

The first, as alluded to, is the overwhelming impression that “recovery” as it comes will not be about merely seeking to restore the “old” normal as swiftly as possible, but be seen as the welcome chance to create a new order. Indeed, it would be a tragedy, even an outrage, if the thousands of deaths worldwide were taken as some sort of unwelcome interruption, and not seized as the chance to make fundamental changes. The fragility of the previous system has been exposed, and we must avoid repeating its many failings.

The second is that the relationship between public capital and private capital will not be the same and that some deep thinking needs to be done to ensure the two of them collaborate effectively. There has to be a substantial role for private capital in the challenge to come. It would be dogmatic and dangerous to assume that ministers and officials hold a monopoly on wisdom.

The third is the importance of those who have resources at their disposal in the private sphere, whether as high net worth individuals, family offices or independent funds, to show leadership and offer a direction. The notion that billionaires will save the planet is not a very comfortable one for many people (and it is certainly not the case that only plutocrats can come to the Earth’s rescue) but there is clearly a disproportionately big opportunity and responsibility for those who hold money disproportionately. Development of green and sustainable private fund regimes and services catering to private wealth, as Guernsey itself has been quietly doing for some time, is paramount to harnessing that opportunity.

The fourth theme was that of the need to put more weight on the long-term. “Just in time” has run out of time as the means by which we should wish to conduct our affairs. Patient capital is now at a premium. We need to think about how we can alter our incentives so that there is a stronger steer towards investments in areas such as the life sciences, where it is inevitable that results take time. This had, in fairness, been an emerging thesis in the UK before the crisis, but it must be embedded.

Finally, it was obvious from several of the speakers, and much of the conversation moderated by Dr Andy Sloan, that of the various routes on offer, direct involvement in impact investment had more appeal to many potential new entrants to this sphere than any of the other alternative options.

Sustainable Finance has, therefore, had its long and overdue mainstreaming moment. When Julius Caesar crossed the actual River Rubicon in 49 BC, he supposedly exclaimed “alea iacta est” (the die is cast). The die is now cast for sustainable and green finance at the very centre of a new economy.

Tim Hames was Director-General of the British Venture Capital Association from 2013 to 2019.

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