By Colin Cardwell

AS IF on cue, the day after Clare Foster and I recently spoke, two things happened. The UK government announced a commitment to major changes in tackling the climate emergency. The Sixth Carbon Budget aims to cut carbon emission by 78 per cent by 2035 – almost 15 years earlier than previously planned.

In addition, the Glasgow Financial Alliance for Net Zero (GFANZ), chaired by Mark Carney, UN Special Envoy on Climate Action and Finance, was launched. The Alliance unites more than 160 firms (together responsible for assets in excess of US$70 trillion) from the leading net zero initiatives across the financial system to accelerate the transition to net zero emissions by 2050 at the latest.

Foster, Head of Clean Energy and a project finance partner in the banking and finance team at leading corporate and commercial law firm Shepherd and Wedderburn, had just been discussing the need to focus on a green recovery from the Covid-19 and the role of the financial sector in that transition.

“To reach net zero the capex requirements are enormous. The UK financial sector is a global centre for excellence, and we now have an opportunity to demonstrate financial innovation in tackling climate change. Liquidity is not an issue, with plenty of money to finance the right type of project but the question is: how do you get the money to the right place and quickly, because the clock is ticking,” she says.

What we need, she believes, is disruptive collaboration to help clean energy projects move forward faster.

“There’s currently a spectrum of finance, starting from early-stage venture capital where the stakes are high and the risks and potential rewards are significant. Then, with proven technology it’s in the realm of commercial bank debt and subsequently into the capital markets, where the pension funds are increasingly active.”

Moving through that spectrum though can take years for a project. “In terms of the environmental challenge we’re facing we don’t have years to play with. So we need to encourage a new level of collaboration between venture capital funds, commercial bank debt and the capital markets, which need to move out of their comfort zones and separate silos.”

There is appetite from the financial sector, but it would move much faster if change was underpinned by government intervention in the form of regulation.

“For example, pension investment is largely determined by permitted asset classes, with investment managers allowed to operate in specific areas which restricts their ability to invest in certain sectors and technologies. Imagine the possibilities if we challenged the parameters of those categories of asset class to suggest that every investment ought to be based on a strategy that leads to decarbonisation and net zero?

“Institutions won’t necessarily do this unilaterally but government could fasttrack regulation to facilitate that change – it makes sense to do so because, in addition to the fact low-carbon investments are proven to deliver a better return, they also tick multiple boxes from a societal, sustainability and decarbonisation perspective. There’s a lot more those in the financial sector could achieve with some more encouragement from government,” Foster says.

“Much of this comes down to risk: while mature technologies like offshore and onshore wind are proven, that simply is not the case for some of the other technologies that we will need to deploy to achieve net zero. Everyone is talking about the potential of hydrogen and carbon capture and storage but investing and lending here is riskier than putting a turbine in the water or in the ground. That’s where government and large-scale utilities could help play their part in the de-risking process.”

Foster points to ScottishPower’s announcement earlier this month it plans to build a 20-megawatt electrolyser plant – the UK’s largest – to generate hydrogen from water at its Whitelee Windfarm site in East Renfrewshire. Up to eight tonnes of green hydrogen will be produced every day, enough to power more than 550 buses travelling between Edinburgh and Glasgow.

“That a large-scale utility such as ScottishPower is prepared to invest in this is a hugely positive sign to the market, which will help encourage many others to become similarly involved,” she says. The announcement of a UK Infrastructure Bank to co-invest with the private sector as part of the UK government’s spending review is another positive development.

“Given the UK Infrastructure Bank will have a shared mission with the private sector and government to accelerate investment in infrastructure, the opportunity for scaling up quickly is enormous and provides cause for real optimism. The bank will have £12 billion in public funding (which can be used for debt or equity) and another £10 billion in government guarantees that it can help to deploy as cornerstone investments in new technologies – something that is sorely needed.

“That should be to help de-risk those projects at the higher end of the risk spectrum and achieve a transformational form of lending because it’s a signal to the market that the government is prepared to put its money where its mouth is and encourage others to invest.”

Individuals also have an important part to play: “We should be interested in how our money is being invested and whether it can help move the dial on sustainability, biodiversity and net zero. If enough people ask what the carbon footprint of their product is and insist their investments are used in making a sustainable difference, then things will begin to change.

“There is plenty of money out there but there must be a greater degree of collaboration between the financial and energy sectors along with government, getting the right people together, having the right conversations and opting to work together. There is useful collaboration already but to get the speed we require we need more.”

As a member of the Edinburgh Climate Commission working on the city’s Climate Compact, Foster is working hard to bring the public and private sectors together in a collaborative strategy to decarbonise businesses, with a view to the capital city achieving its net zero objectives. Recently, Shepherd and Wedderburn committed to achieving net zero greenhouse gas emissions by 2030 and become the first professional services firm to sign the Edinburgh Climate Compact.

“As a firm we are working hard to help drive the green recovery. We recognise that, like the pandemic, climate change touches every sector of business,” she stresses. “We have to focus on treating the climate crisis with the same urgency as the pandemic. The green recovery is so crucial and why the financial sector has an enormous role to play. But to be clear, the climate crisis affects everyone and the question everyone should be asking themselves – from the individual to right across the financial sector – is: how can we do more – and do it faster?”

This article is brought to you in association with Shepherd Wedderburn