How can we transition finance for net zero?

Looking at the role of Financial Services in supporting customers to make the transition to net zero, and how companies can nudge customers towards more sustainable choices and behaviours.

Good afternoon and welcome to glasgow and to this insurance and long-term savings section of the green horizon summit it’s a great pleasure to be here in partnership with the green finance institute and the city of london corporation my name’s hugh evans i’m director general of the association of british insurers and i’m delighted to be here today with four leaders

Of our sector who are going to reflect on what we’ve learned from cop 26 so far talk about how our sector can play a more meaningful role in tackling climate change and building a more sustainable future and also think about some of the choices that face our customers and how we can work with them to help design a better world our format today is to have a 15-minute

Conversation with the president of the abi barry o’dwyer to reflect on some of those themes and then to join uh three ceos who are going to engage with some of these themes as they reflect for their own businesses and organizations barry edward president of the abi ceo of royal london group uh an industry veteran if i can say that 32 years in the sector what are

Your reflections on how the sector is working together now to tackle climate change and in particular when you think about the experience of the abi roadmap the sector-wide framework that we published earlier in the year yeah well you i think it’s pretty obvious that the insurance industry has a direct interest in helping people to promote resilience and also to

Manage the the effects of the physical effects of climate change but wider than that and we also have the fourth largest long-term savings market in the world here in the uk and so we will play a big part in helping people make responsible choices about how they invest their pension funds for instance and so it is a fiercely competitive industry because we act on

Behalf of consumers in managing their lives day to day but this has been an area where i think it’s been easy to promote collaboration because everybody gets it the whole industry is committed to making some real change we’ve obviously signed up to the 2050 net zero commitments but we’ve also gone further than that we were very very keen that we set shorter term

Horizon commitments so that we can hold the current generation of management to account for delivery not just promising delivery from somebody else and those 2025 targets i think are in the abi road map what practical effect do you think that has for a ceo like you and your board when you’re engaging with the choices uh both for the short term and for the medium term

Well it has a very real effect you know we spent a good deal of time in the last 12 months working on like many other companies working on articulating our purpose clearly and climate change addressing climate change was a central part of that probably in a way that it wouldn’t have been in for previous generations of management and so it has taken a good deal of

Senior executive time and board time thinking about how do we promote responsible investment across our company but also how do we get that message across to our customers let’s talk about investment you said correctly obviously this is the fourth largest sector in the world i think abr members have nearly two trillion pounds in assets uh many people’s pension

Savings that they are the custodians of when it comes to investing that money in the long run in a more sustainable way that helps fuel a more sustainable economy what what is the balance between what providers like you can do what regulators need to allow and what governments need to do to actually enable a sustainable sort of flow of investable assets yeah i

Mean it’s a great question because it is going to require collaboration across those three that you mentioned the industry the government and regulators and because to a large extent a lot of these assets the the 1.6 trillion that the industry looks after that they were built up under a different regulatory regime when we had different priorities and as a result

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They’re in products that are structured differently regulated differently have different attitudes for instance to liquidity and illiquidity different concepts around what’s what’s reasonable to charge which seem a little bit outdated in in addressing the challenge that’s ahead of us now so it is going to take a concerted effort and real collaboration across

Government regulators and industry to get ourselves into a position where um we can make some real change and invest that money in a different way now we have to be cognizant always of the promises that we’ve made to customers so where we’re making investments to back guaranteed returns we have to invest that prudently and cautiously um but there are opportunities

To flex uh with our customers to encourage our customers to invest differently and i think the the government is is alive to that because you can see it through the treasury reviews the solvency ii regime you can see it with the work going into productive finance and the the construction of the long-term long-term asset fund concept so there is a lot of work there

And a lot of positive intent but it does require a great deal of collaboration probably more than we’ve seen previously yeah it does indeed i mean obviously one of the findings of the treasury’s interim report on solvency ii back in the summer was that the regulatory regime for uk insurance and long-term savings companies is i think the phrase was not aligned with

Public policy objectives on green investment from what you’ve seen in the engagement you’ve had with both the government and regulators on this are you an optimist or a pessimist in terms of whether some of these reforms are going to come through that will enable the sector to fulfill some of its ambitions i think um i’d have to be an optimist but i mean you can

Be pessimistic about how long it takes sometimes uh but but we have to get there because um you know what an independent assessment of the 1.6 trillion that i talked about earlier an independent assessment looking at our sector figured that 900 billion of that could be put to use in in productive finance and that by some measures is about a third of what the

Uk needs to invest in order to give effect to the sort of the the transition that we need that we need to uh we need to get to the to net zero so we have to get there um i think it is though going to be incredibly challenging at times because we are moving from an old way of thinking and an old way of regulating an old way of legislating to a a brand new world

Where we have to think possibly in different time skills than we’ve thought of previously and that’s a challenge for everybody indeed well particularly solvency ii was framed in the immediate aftermath of the financial crisis so exactly it bears the hallmarks of that for those skeptics who are watching this broadcast and you know this is the insurance industry

I’m just going to greenwash everything put a bit of a you know nice facade on everything to try and get us off your backs what would you say to some of those skeptics some of the people who’ve been marching here in glasgow today about the level of good faith that is in the sector and how it can help persuade people who may be skeptical that it’s actually going to

Do some of the things it’s promising to do yeah well look i think everybody can understand where the skeptics are coming from and and it’s not just skepticism directed at our sector it’s it’s skepticism directed at capitalism and a business and and i think that comes back to this idea that um maybe businesses and governments have been thinking on a much shorter

Term horizon than uh the activists would would rather and actually i think they have a point but the the the great thing about our industry is that we systematically think long term you know we take on liabilities for 30 40 years and we invest then to meet those liabilities i think you know with with some changes to the way that we look at how we manage risk and

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How we perceive risk in in other words we factor in risk to the planet and risk to the climate as well as the sort of the conventional risk return equations that we all do i think we can make some serious change and we can start to show the skeptical outsider that we really do mean business and and coming back to what i said earlier some of those shorter term

Targets were specifically designed to do that to make sure that it wasn’t just um uh me and my counterparts promising on behalf of our successor successor but actually that we were taking action that we could be we could be held to account to in the next few years sure but there’s a challenge there is no i mean you know these are not necessarily people who are

Going to play their way through company accounts uh or necessarily believe middle-aged people in suits uh telling them that they’re they want to save the planet too i mean there’s quite a challenge for our sector isn’t that given the uh traditional sort of stereotypes and barriers between you know uh the leadership of our sector and many of the younger people in

Our community yeah and look i’m certain that we won’t always get the communication right but but that shouldn’t stop us actually taking the action that we need to take and so you know there has been a focus on on climate uh disclosures um but to be honest some of that is quite confusing and and very detailed now we’re moving to a more standardized disclosure regime

And a new taxonomy and hopefully that’ll make a difference make it easier to to look through companies statements to to measure exactly what’s going on in a consistent way across companies and i think that will drive action because what gets measured gets done yeah and how we measure is going to be one of the key challenges you say isn’t at the moment we have an

Inconsistent set of frameworks inconsistent within countries never mind across jurisdictions so that’s going to be a key a key challenge uh can we talk briefly about the sort of fiduciary duties because you like every other ceo of a major company have duties uh to the people who’ve invested their money with you how much of a conflict is it on a day-to-day basis

Or when you’re making some of these strategic decisions to reconcile your statutory fiduciary duties to look after the financial interests of the people who’ve invested their money with you at the same time as trying to make progress on climate change and sustainability issues it is a real challenge and part of the challenge there is actually getting our message

Across to customers that there’s no point in us helping them to invest to generate great returns on their pension assets only for them to retire into a world where they’re struggling to to have reliable sources of food or reliable heating of their homes etc so we have we’ve started at royal london we started changing the uh discussion that we have with customers

About what what they’re trying to achieve to we talk about protecting their standard of living in retirement rather than generating the best return making it clear that the standard of living is is much more than just the size of their pension fund and that has resonated very very well with customers people do get it you know they and they want nobody wants to

Invest their pension fund in a way that destroys the planet what actually probably hasn’t been so obvious to people is how they can invest their pension fund for good now we have taken some action um to tilt some of our default funds uh towards low carbon investments but within the fiduciary duty that we’ve got and and within the deal if you like that we have

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With our existing customers but we think as we increase the volume on the discussion with customers and make um more sustainable options available to them and talk to them about their responsibility to invest their pension fund in a way that’s that looks after the planet as well as our responsibility to to do what we say you know we talk at royal london about

Being mutually responsible with our customers for delivering that standard of living so i think that message is resonating because the make my money matters campaign i think is estimated that uh the power of a pension fund can be 21 times more impactful on individuals carbon footprint than giving up meat and not flying both of which are pretty tough choices for

Most of us i suspect um so how far do you think people are on the journey when you talk to your customers and and read what they say in focus groups and so on how far do you think that they are on the journey of beginning to understand the potential power of their pension pot it’s quite well it’s quite interesting actually when you speak to customers then you do

Get this i i recycle everything that i can i buy local food and clothing and drive less or buy an ev or whatever so people are actually trying to do the right thing and and i think it’s actually it’s amazing when you introduce the power of their pension that people it’s almost like a light bulb comes on and people realize actually that there was this aspect of

Their life that they hadn’t really thought but has a huge amount of power so i think we’re pushing on an open door with that conversation and also i think the industry can use different examples so so for instance on the general insurance side of our industry how can we help customers understand why we would want them to get their car repaired rather than or have

Having it replaced or something that is damaged having it repaired rather than replaced and there are lots of examples across the industry both on the general insurance side and in the long-term savings side where we can we can nudge customers towards understanding where they can have an even bigger impact well those are themes we’re going to explore in the second

Half of this session we’re nearly out of time on this part of the session but i wanted to ask you before we finish what are your reflections on this week’s events uh cop and the the balance of of debate uh and yeah what do you think success looks like for our sector over the next few years in terms of the issues we’ve been talking about over the last 15 minutes i

Think you know it’s it’s good to get the sort of injection of optimism which inevitably comes with um the focus of the world being on cop and uh and i suppose everybody’s sort of reminding themselves of the some of the challenges um but we have to make sure that that persists once everybody leaves glasgow and um some of the challenges that that you were referring

To i think we’ve got a big challenge in trying to figure out how do we create investable assets that people can put their pension scheme into and that it comes back again to collaboration between government regulators and industry because we’re talking about some very serious amounts of infrastructure that we need to build with very long tail paybacks and it’s not

It’s not naturally investments that would be made in the past by the private sector but you can see from everything that has been said this week the reliance that we have on the private sector is huge so we need to work together to try and create those investable assets for the future good well that’s something we’ll talk about in the next session in the meantime

Barry eduard president of the abi and ceo of royal london group thank you very much

Transcribed from video
How can we transition finance for net zero? By The Global City