Abundance Investment’s Bruce Davis tells Marc Shoffman how a shift in government thinking will support the growth of green finance this year
Crowd Bonds platform Abundance Investment has been among the loudest voices in green finance in recent years. Its platform has let investors fund a range of renewable energy projects and it has helped to pioneer community municipal investments, which enable councils to fund local renewable projects. Now its managing director Bruce Davis says the government and financial services are finally understanding its importance.
The government already has a target of net zero carbon emissions by 2050 but the Budget last month outlined how financial services can get involved. The Budget document, which outlines how the government will balance the nation’s finances, may be known as the red book but the document was rather green this year. It outlined plans for a new green savings bond and also altered the remit of the Bank of England’s monetary policy committee “to reflect the importance of environmental sustainability and the transition to net zero.”
Davis explains why this shift, as well as the government’s green bonds plan, will help the Abundance platform and help the economy hit net zero.
Marc Shoffman: What difference will the extra Bank of England responsibilities make?
Bruce Davis: It’s a big deal from a monetary perspective. It is a structural change to the financial system. Until now, the position of the Bank was that it was neutral on environmental issues and considered them a political issue. They previously saw climate change as a material financial risk but not actively in terms of an alignment with the government’s net zero target.
MS: How will the new Bank of England powers help green finance?
BD: Now it will be proactive in shifting the financial system. Which means everything from banks and pension funds to crowd bonds will have a responsibility to make sure the financial system is contributing to net zero. Money is no longer neutral on the climate and green finance is just finance. The Bank can have a bias towards green bonds and away from brown. For example, it could be harder for fossil fuel companies to raise funds.
The Bank of England is the prudential regulator of big purchasers of corporate bonds and could require banks to report on their environmental exposure. It can tell pension funds and banks that they should invest in green opportunities and regulated firms will have to report on how they are meeting net zero targets. This will affect the risk weighting of certain assets. I wouldn’t be surprised if other banks follow suit.
MS: Why have attitudes to the climate shifted?
BD: It has been a slow process. The green finance strategy was presented by the Treasury in 2018 and we made similar recommendations to this. It has taken a process of two years to get the Treasury machine to look carefully and consider it as a policy. It’s a lot of hard work from pretty committed civil servants behind the scenes who were driving the green finance strategy. The shift has also been helped to some extent by lobbying from groups such as a ourselves and well-argued economic papers.
MS: What has been holding green finance back?
BD: Finance does not do new things very willingly, there are always risks of unintended consequences. The balance has shifted when there was a clear economic argument and opportunity with the pandemic to hit the reset button. The economy has to be built back. It is an unusual recession in that it is deliberate. That offers opportunities as you build back up to do things you haven’t previously considered. From a political perspective, polling shows 80 to 90 per cent want action taken on the climate. We are not dealing with 52 per cents.
MS: What difference will government-backed green bonds make?
BD: The green sovereign bonds are great news. There are two elements to it. There is a green gilt which is £15bn of issuance and there will also be a National Savings and Investments product as a savings version. From a green bond market point of view, a sovereign bond is an important marker that green investment is now mainstream. It gives out a strong signal for other structures such as Abundance’s community municipal investments (CMIs).
We will do more CMIs off the back of this. We are talking to five or six local authorities at the moment about launching CMIs. I don’t know how many will come out this year. Covid is their priority right now and that is the only reason we haven’t had more.
MS: What involvement has Abundance had with the government’s green strategy?
BD: We have had meetings with the Treasury and put forward the case that green gilts should be accessible to retail investors. There was a lot of interest in how that may work and what it will mean. We will see if it has any benefits to crowdfunding structures.
MS: How realistic is the government’s net zero target?
BD: It is realistic in the sense that it is necessary. It is really about whether we can do it earlier. The sooner the better with carbon budgets. The big challenges we have are the heating of people’s homes, supply and transport. We have to continue the trends on energy generation. We don’t have the same momentum when it comes to transport and heat.
We are waiting for the government to publish its strategy to give an indication of what it prefers as heat sources. There is a really polarised debate going on around how we heat our homes. We look at all projects based on their merit but it affects what we look at in the pipeline.