Sustainable Finance Conference Special
Gemma Lawrence-Pardew Head of Sustainability, LMA
The 2024 LMA Flagship Sustainable Finance Conference has once again proven to be a landmark event in the sustainable finance calendar.
With 600 attendees from 30 jurisdictions, our Conference embraced a theme of exploration and resilience, aptly drawing on the rich imagery of The Odyssey.
The agenda offered a mix of inspiration and pragmatic insights, whether participants were embodying the steadfast wisdom of Penelope, the transformative vision of Circe, or navigating the challenging "in-between" spaces like Odysseus steering between Scylla and Charybdis. This diverse and metaphor-rich approach underscored the multidimensional challenges and opportunities in sustainable finance.
How Extreme Can You Go?
A trailblazer in the intersection of sports and sustainability, Extreme E continues to leverage its electrifying off-road racing series to inspire action and innovation.
Ali Russell, Managing Director of Extreme E, highlighted the transformative impact of the series on green technology innovation, emphasising the unparalleled pace at which advancements are being made. He noted that the intense environment of Extreme E’s competitive racing has catalysed progress in just one year that might otherwise take a decade in traditional research settings.
This rapid innovation stems from the series' unique demands – pushing electric vehicle performance, durability, and efficiency to new heights while operating in some of the world's most extreme environments. These breakthroughs not only enhance the sport but also hold significant potential for broader applications, driving sustainable technology forward in ways that extend far beyond the racetrack.
Its commitment to sustainability is evident in every aspect, from utilizing electric (and soon-to-be hydrogen) SUVs to minimizing its carbon footprint through initiatives like the RMS St. Helena, its floating paddock. But it is not just about the science – social action is equally important. Gender equality is a cornerstone of Extreme E’s mission, with every team required to field both a male and a female driver. This deliberate step not only ensures equal representation but also challenges stereotypes in motorsport.
The series' focus on equitable coaching and development opportunities has yielded impressive results. Over three years, the lap time gap between male and female drivers has shrunk dramatically from 3.5 seconds to just 0.5 seconds, a testament to the impact of consistent training and the levelling of opportunities. By championing inclusivity and demonstrating the tangible benefits of equity, Extreme E is paving the way for a more diverse and progressive future in motorsport and beyond.
Focusing on the audience, the conversation turned to what financiers should be doing. The challenge is not a lack of interest or commitment to the cause, but rather the crucial next step: transforming that commitment into tangible investment.
While many financiers are aware of the importance of supporting projects that promote sustainability, the real test lies in translating this awareness into actionable funding. It’s not just about pledging support; it’s about allocating financial resources to these projects in a timely and effective manner. This requires overcoming hurdles like traditional investment cycles, risk perception, and perhaps a lack of immediate returns in the short term.
For Extreme E and similar ventures to thrive, financiers must move beyond passive endorsement and embrace the opportunity to direct capital towards initiatives that are not only socially and environmentally progressive but also present long-term value. By ensuring that investments are made swiftly and at the right scale, financiers can help drive not only the success of these initiatives but also contribute to a more inclusive future in motorsports and beyond.
The Future of Finance: The Quest for Value Proposition
From the drive for gold to the quest for value, the Conference next tackled the multi-trillion-dollar question: is sustainability investible? This inquiry delves deep into the evolving definition of value itself. Traditionally tied to financial returns, the concept of value now faces a paradigm shift as environmental and social dimensions become integral to investment decisions.
The answer lies in broadening perspectives. Sustainability's investibility is undeniable when value is reimagined to encompass long-term environmental and social outcomes as integral to sustainable finance returns. This expanded remit not only aligns with global priorities but also drives resilience, innovation, and inclusive growth, setting the stage for a future where profitability and purpose coexist.
The investibility of sustainability is further illuminated when reframed as a question of risk – or the price – of inaction. Failing to prioritise sustainable investment doesn't just forego potential opportunities; it compounds future risks.
The devastating impact of recent extreme weather events serves as a stark reminder, with billions of dollars of uninsured losses making the cost of inaction painfully clear. Events like this underscore the urgent need for proactive investment strategies that mitigate climate risks and enhance resilience.
Sustainable investment is not merely a moral imperative; it’s a pragmatic approach to risk management, protecting businesses and economies from the escalating financial toll of environmental and social crises.
Facilitating sustainable investment is undoubtedly complex, with challenges such as greenwashing, evolving sustainability/transition frameworks, and a pressing need to enhance the education of market practitioners and wider stakeholders being but a few. Yet, these hurdles are not insurmountable. The financial community is actively and successfully navigating these obstacles, demonstrating resilience and ingenuity.
Collaboration among market participants, in compliance with applicable competition and anti-trust law and related regulation, is a critical driver of progress. Efforts to scale up sustainable finance include creating interoperable frameworks, improving transparency through enhanced disclosure, and leveraging innovative financial models like blended finance and credit risk insurance. These strategies are not only charting a path forward but are also recalibrating the compass to point firmly in the right direction.
The Financial Compass: Salvaging the Supply Chain
From the quest for value to salvaging supply chains, the next session focused on the need for sustainable finance to be embedded in supply chain management.
One solution is Caixabank’s innovative 'sustainable supply chain finance' (SSCF) product – a structure first described in Horizons02. The SSFC product, which will be launched in the near future, envisages a ‘double approach,’ where the focus encompasses both clients and suppliers; the sustainability performance of each supplier being measured, thereby providing greater granularity of ESG data throughout the entire supply chain.
The typical incentive structure of sustainability-linked loans is maintained, with a different price adjustment being applied to the supply chain finance payment according to the ESG performance of the supplier as assessed by third-party ESG data providers. The best ESG performers will receive a lower price adjustment to their payment, whilst the worst performers will receive a higher price adjustment.
This approach would incentivise excellent performance while offering pathways for improvement to those falling behind. In addition, it enables the corporate and institutional clients to understand the global performance of their supply chain, detect areas for development and achieve a progressive improvement in the global sustainability performance of suppliers.
With the rising costs of sustainable materials, collaboration with suppliers becomes essential to align cost structures with green product development goals. Linking key performance indicators to both client and supplier ESG metrics fosters deeper collaboration and ensures alignment with sustainability targets. Furthermore, access to detailed ESG data can influence pricing, supply chain decisions, and regulatory reporting. This data is critical given evolving global legislation demanding transparent ESG disclosures.
By embedding performance-based incentives into supply chain finance, this approach not only drives individual supplier improvements but also strengthens the sustainability performance of entire industries. This creates a pathway for achieving global ESG goals while addressing pressing regulatory and financial challenges.
A View from Deck: Sailing through Sustainability
As with any quest, you need a compass and a bearing. Henriette Bergesen therefore stepped up to the helm to set out Odfjell’s leadership in harnessing transition finance to drive the shipping industry towards a more sustainable future.
Diving into the distinction between green and transition labels – reflecting on a recent transaction regarding the installation of energy-saving technologies on existing vessels to maximise energy efficiency and reduce business costs – Henriette noted that whilst the technologies themselves may be considered ‘green’, the transaction itself cannot be considered fully green because the underlying ships are still burning fossil fuels.
“A green loan should be green from day one – and it should have zero direct emissions. We are on our way to being net zero and not being reliant on fossil fuels, but we are not yet there. Our transition investments can contribute to the progress.”
This discussion surrounding the boundary between "green" and "transition" finance strikes at the heart of global discussions on sustainable development. This boundary is far from fixed, reflecting the complex and varied realities of different geographies, sectors, and entities.
From definitions to value, Henriette noted the strategic value of leveraging the "transition" label to attract investors. In the context of industries like shipping, which face complex and costly decarbonization pathways, the transition label offers a pragmatic bridge for aligning with sustainability goals while engaging a broad investor base. There were structuring challenges in the absence of formal transition finance guidelines, including defining appropriate key eligibility criteria and reporting metrics to satisfy investor and lender scrutiny while ensuring credibility. However, these obstacles were all surmountable, when parties (financial institutions, advisors and corporates) seek to work together.
Odfjell’s proactive approach reflects the broader need for transformative action in shipping, a sector responsible for about 3% of global CO₂ emissions. By setting clear goals and aligning financial frameworks with sustainability objectives, companies like Odfjell are acting as a "compass," guiding the industry toward a greener future while ensuring long-term business resilience.
Tinges of Green: Sirens of Transition
Much like magnetic deviation can disrupt a compass, divergent views on what constitutes an effective or acceptable transition can derail progress toward sustainability. The next session explored the challenges of navigating these differences and aligning stakeholders for cohesive action.
When assessing the key factors to unlocking the transition of the real economy, the LMA’s trusted slido poll demonstrated a majority in the room opined greater policy action and regulatory certainty was needed to shift the dial on transition. Across Europe, there is currently a lack of transition-specific regulatory metrics or taxonomy to support banks’ acceleration of transition finance. With the panel’s observation that banks respond quickly to clear regulatory incentives, the current uncertainty breeds market participants’ hesitation.
Returning to the audience, it was asked: do we need a clear transition finance label? 83% of respondents voted in favour, with a transition label, encased in clear parameters, helping both to bridge the slight gap between the sustainability-linked instrument and the current demands of transition, and mitigate the greenwashing risk in labelling a transition loan product as ‘sustainable’.
However, use of a clear transition label will not be a panacea to all the challenges in surmounting the transition of the real economy. There are multiple layers of complexity to the concept, and the panel expressed a need for a more fundamental coalescence of the market around an agreed definition and scope of transition; once these unchartered waters of agreeing an approach to carbon lock-in, or deciding whether to use sector-specific abatement curves for benchmarking, are surpassed, then the ‘nuts and bolts’ of product labelling can be added to the foundations.
Transition plans are all the rage, and for good reason too; they allow entities to know where they stand relative to their transition targets, whilst also reassuring lenders by pinpointing where their investment is being directed. Though the associated teething issues of data availability will be resolved in time as more comprehensive reporting occurs under CSRD, the panel cited a need for a methodology to be developed to consistently assess the credibility of transition plans; this will require close collaboration with third-party providers and sector-specific knowledge. The importance of transition plans cannot be overstated- the ‘glue’ that links the ambitiousness, measurability, materiality, and transparency of an entity’s transition progress.
There are some success stories that can teach us valuable lessons about how to get transition right – Japan being the most obvious. Japan has fostered the financial ecosystem to support transition, with triangular cooperation between government, banks, and their clients, to develop sector-specific transition pathways for each industry. In many regions across the world, government support – a vital component of the ecosystem, is the missing piece of the transition puzzle. One thing is certain, the finance sector cannot afford to wait for government to get into gear, and so relationship banks and financial institutions must take the initiative.
The reputational risk of transition needs to be analysed at three distinct levels: the ecosystem, the product, and then the marketplace. Regarding the latter, rather than the asymmetry of information that exists in the sustainability-linked market, where banks effectively bet on their clients’ ability to meet KPIs, banks’ obligations to report to their stakeholders and regulators means transition products demand information symmetry. At a product level, Riccardo Sallustio proposed a potential solution whereby general corporate purpose transition-linked loans could be underpinned by a bucket of agreed KPIs, based on factors such as R&D or carbon intensity. The entire ecosystem could then develop around this set of agreed KPIs, which could be sector and asset based. This would allow a precise pinpointing of transitional activities, mitigating the reputational risk that starts to rear its head at the entity level.
The journey toward a sustainable global economy is undoubtedly challenging, with intricate dynamics requiring coordinated efforts across industries and regions. Yet, the opportunities are immense. By fostering a shared vision and leveraging the collective power of innovation, finance, and policy, there is a real potential to not only address urgent climate and social challenges but also redefine economic systems for the better. This is a pivotal moment to seize momentum and reshape the future for a more sustainable and inclusive global economy.
Geopolitics of Sustainability: From Ithaca to New Horizons
To round off our LMA Odyssey, David Chmiel provided a thought-provoking analysis of the geopolitics of sustainability, grounding the sustainability journey in the realities of a world shaped by shifting political landscapes, especially as we complete 2024—a pivotal year of elections across major economies.
Governments’ action on climate change is hindered by a public opinion paradox, a paradox highlighted by recent surveys (Ipsos and Peoples’ Climate Vote 2024). While long-term climate concern is high – 50-60% of G7 respondents report being "very or extremely worried" – the immediate urgency among the public is lower, with only 25-30% identifying it as a pressing short-term issue. This misalignment between public perception and political action creates a cycle of inaction.
Building on this, and looking at the overall picture whilst noting geographical anomalies, the Edelman Trust Barometer 2024 reveals a growing trust gap between business and government, a dynamic that adds complexity to climate action. Public trust in business outpaces trust in government, reflecting a belief that companies may be more capable or willing to drive meaningful change. However, the Peoples’ Climate Vote 2024 underscores public ambivalence about business efforts on climate, often calling for greater government intervention. This creates a paradoxical expectation: businesses are trusted, but governments are still seen as essential to setting the rules and frameworks for action.
On top of all this, and given the state of today’s world, it is vital to acknowledge the evolving nexus between sustainability and national security, which is swiftly becoming a pivotal consideration in global energy strategies. The war in Ukraine and escalating tensions in the Middle East have exposed vulnerabilities in reliance on oil and gas, accelerating the push toward energy diversification and a renewable transition. However, this shift has also highlighted new risks, particularly in the security of energy infrastructure, evidenced by Sweden’s recent veto of thirteen offshore windfarms in the Baltic Sea because of the planned infrastructure’s susceptibility to attack. It is likely we will see the increasing incorporation of national security metrics into ESG frameworks; accordingly, there is a new acronym for our lexicon: Environmental National Security Social Governance (ENSSG) – an acronym likely to become common in 2025 and beyond.
Conclusion
Our Conference stands as a powerful testament to the world's increasing dedication to sustainability. Through collaboration, innovation, and strategic navigation, the event illuminated pathways toward a more sustainable financial landscape, offering attendees both inspiration and actionable insights.
Now, the responsibility shifts to each delegate to carry forward the momentum. Equipped with the knowledge and ideas shared, it is time to transform discussions into impactful actions. By leveraging the tools, networks, and strategies explored during the conference, delegates can contribute meaningfully to building a sustainable future for all.
We look forward to highlighting the results of such action at next year's event – taking place on 5 November 2025 in London. Block that date in your diaries now!
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