15 Jun 2021
15 Jun 2021
We’re excited to announce a brand new investing podcast, One Step Ahead, brought to you by Lyxor ETF.
New technologies and the global drive towards a sustainable life are quickly reshaping how we travel, work, and play. One Step Ahead is a new podcast in which business leaders and industry disruptors break down how they're adapting to the latest trends, preparing for what's next, and helping to build a brighter future for our planet. We hope you enjoy hearing their perspectives.
Remember: this podcast is for informational purposes only and should not be taken as investment advice and/or an offer to buy financial products.
In our first episode, former BBC journalist Libby Potter investigates the booming green bond market, digging into some real-life case studies of the eco-friendly projects they fund. She’s joined by Sean Kidney, CEO and co-founder of the Climate Bonds Initiative, and Samu Slotte, Global Head of Sustainable Finance at Danske Bank.
Sean and Samu gave their honest take on the urgent need to tackle the climate emergency, and the crucial role investors must play to enact change. Samu also gave concrete examples of green projects financed by Danske Bank’s green bonds, ranging from green buildings, to electric transport, to renewable energy.
Sean Kidney is CEO and co-founder of the Climate Bonds Initiative, an international NGO working to mobilise global capital for climate action. Projects include a green bond definitions and certification scheme with $34trn of assets represented on its Board; working with the Chinese central bank on how to grow green bonds in China; and market development programs in Brazil, Mexico, ASEAN and Africa. He was member of the 2017 EU High Level Expert Group on Sustainable Finance and a member of its successor, the EU Technical Expert Group on Sustainable Finance. Sean’s dedication to the cause has awarded him ‘Personality of the year for Green Bonds’ by Environmental Finance, as well as 'King of green bonds' by the FT.
Samu Slotte is Global Head of Sustainable Finance at Danske Bank, with the overall responsibility for ESG integration in Danske Bank’s Large Corporates and Institutions unit. His responsibilities include both integration of ESG risk assessment in the lending portfolios as well as supporting the bank’s clients in their transition to more sustainable business models via green and sustainable finance. His team is also responsible for developing the metrics for Danske Bank’s commitment to set a Paris aligned climate target for the corporate lending portfolio.
Sean: It's pretty straightforward. We have an existential crisis! We are looking down the track at a freight train coming towards us, and by that I mean climate change. If you speak to a climate scientist—good luck finding one that's willing to speak to you because we've been ignoring them for the last 30 years—they will tell you that we have an extraordinary challenge to face: we’re looking at the wholesale destruction of the way we run our world, our society, and economy, because we have been travelling on the worst possible trajectory of climate change for the last 30 years. Some of the scientists I speak to are very depressed.
Samu: I think Sean explained what this is all about very well. We are facing existential threats, both from climate and biodiversity. There are a number of ways we can address this. Consumer behaviour needs to change. Policy needs to change. But clearly also the financial markets have a huge role to play. We need to redirect capital. Capital allocations are really important for the transition to more sustainable societies. We know what needs to be done and we need to act on all of these three fronts, both as consumers in policy and in the financial markets.
Samu, Danske Bank partnered with the CBI a few years ago to launch a green bond. What green initiatives have been made possible with the proceeds of this and subsequent green bonds?
Samu: For a bank, when we see a green bond, we commit to give out green loans on the other side of the balance sheet, which then match those terms that we've set in the bond. […] If we look at the pool of green loans financed with the green bond issuance, about 50% is green and energy-efficient buildings, a large part is renewable energy, and clean transportation. We're mostly active in the Nordics. Much of our lending is in the Nordic countries. And if we look at which type of projects take place in Denmark, Sweden, Norway or Finland, it's very representative of what needs to happen in the real economy across the entire region. Buildings consume a lot of energy, particularly in our part of the world where heating is so important. That all needs to be decarbonised. But we also need to bring down the energy consumption of buildings. Buildings consume a lot of energy, and the less they consume, the less need there is to produce that with fossil fuel-produced heat and power. We're seeing green loans to real estate across the region.
But then here's where the country specific differences kick in. We've seen in Norway, for instance, projects on green, electrified transportation – one example would be financing to a company called Torghatten for electrified ferries. Then in terms of renewable energy, one interesting project would be an offshore wind park, Dogger Bank in the North Sea. I think it's going to be the world's largest offshore wind park, 3.6GW [gigawatts]. That's the equivalent of providing power to six million households.
How does the CBI taxonomy set standards for what constitutes a true green project?
Sean: Well, it's simple in a way. Read the scientist reports and avoid reading the government reports that are mediated by politics. It's as crude as that. […] There’s a continual watering-down of climate ambition through the political process, unfortunately. […] We go to the scientists and we say, tell us what the issues are, what are we going to do? And we translate that into criteria. When an investor or a bank uses carbon certification criteria, it is what the science is saying, translated into a binary tool that can be used in financial markets.
In a recent edition of The Economist, there was a comment on the EU taxonomy, which seemed to suggest that it couldn't work without better disclosure. Is corporate disclosure key to all of this?
Samu: Hmm. Yeah, of course we need disclosure, but we shouldn't wait for that to get going. I think everybody needs to accept that the taxonomy is not complete and in its final form yet – but we still start using it. Of course, there will be data gaps. I think the important thing is just to explain where the gaps are, and how we manage that and wait for full disclosure to improve. We can't sit around and just wait for more disclosure. We can get going with what we have now.
Catch up on the full inaugural episode of One Step Ahead to hear the rest, including:
Many thanks to our first podcast guests, Sean and Samu, and host Libby. We hope you’ll join us in upcoming episodes for more exclusive and unfiltered expert insights on the future of the planet – and how we can invest in a better future.
The day is coming when a company’s fortunes will depend on the size of its carbon footprint, the global warming scenario it implies and its willingness to address broader societal issues, just as much as ordinary financial metrics. The best investment decisions keep this bigger picture in mind.
Our SFDR 9 compliant Lyxor Green Bond (DR) UCITS ETF offers a simple way for investors to take direct climate action in their fixed income portfolios. You can also learn about the impact green bonds like Danske Bank’s had in our 2020 impact report.
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