green finance

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The Reform will extend tenors and reduce borrowers’ fees to encourage commercial bank lending into energy transition projects.

By Tom Bartlett, JP Sweny, Alexander Buckeridge-Hocking, and Samuel Burleton

The Organisation for Economic Co-operation and Development (OECD) has agreed a landmark deal to modernise the Arrangement on Officially Supported Export Credits (the OECD Arrangement), which is a welcome update for commercial banks, borrowers, and export credit agencies (ECAs) alike.

After several years of negotiation, the participants (Australia, Canada, the European Union, Japan, Korea, New Zealand, Norway, Switzerland, Turkey, the United Kingdom, and the United States) reached an agreement on 31 March 2023, to provide incentives and more favourable terms for financing energy transition projects.

In this article, we summarise the main changes to the OECD Arrangement and how they will benefit project financings and the wider energy transition.

The strategy sets out plans to reduce emissions from key sectors of the UK economy to ensure that the UK remains on track for net zero by 2050.

By Conrad Andersen, John Balsdon, David Berman, Paul A. Davies, Nicola Higgs, Sam Newhouse, Simon J. Tysoe, Michael D. Green, James Bee, and Anne Mainwaring

On 19 October 2021, the UK government published its climate change strategy, “Net Zero Strategy: Build Back Greener” (the Strategy), which outlines plans to support the UK economy’s transition to a greener and more sustainable future. On 31 October, the UK will host the 2021 United Nations Climate Change Conference, COP26, in Glasgow.

Last year, Prime Minister Boris Johnson set out a 10-point plan for a “green industrial revolution”, which laid the foundation for a green economic recovery from the impact of COVID-19. The Strategy builds on that approach to align the UK with its carbon budget and nationally determined contribution to the Paris Agreement, both of which aim to reduce economy-wide greenhouse gas (GHG) emissions by at least 68% by 2030 and 78% by 2035, compared to 1990 levels. Further, the Strategy details the UK’s vision for a decarbonised economy by 2050.

Sustainable finance and its surrounding infrastructure offers growing potential for deals and green innovation.

By Tom Evans, Paul Davies, David Walker, Ignacio Domínguez, Michael Green, Aaron Franklin, Laura Kichenside, and Catherine Campbell

The global sustainable finance market has expanded rapidly in recent years, approaching US$320 billion in new issuances in the first 10 months of 2019. Sustainable finance — which is dominated by green bonds, but also includes sustainable bonds, sustainability-linked bonds and loans, and social bonds — represents a growing opportunity for private equity-backed businesses to tap into burgeoning demand from asset managers to put capital to work in investments that meet sustainability criteria. Further, recent M&A activity in environmental, social, and governance (ESG) ratings businesses demonstrates an increasing demand for ESG measurements and metrics from investors and regulators, presenting new PE investment opportunities. In our view, sustainable finance and its surrounding infrastructure — especially companies that support and assess compliance — offers potential beyond mere demonstration of green credentials.

By Paul Davies, Bridget Reineking, and Andrew Westgate

Since establishing the People’s Bank of China’s Green Finance Task Force in 2014, China has encouraged green financing mechanisms through a variety of pioneering initiatives. For example, the country has designated five green finance pilot zones, within which financial institutions are incentivised to provide credit and special funds for environmentally friendly industries.

However, investors have yet to take full advantage of these developments. The lack of uptake may in part relate to recommendations set out in the Green Task Force Final Report published in April 2015. In particular, recommendation 13 of the Report proposes imposing environmental lender liability on banks – the practical consequence of which is that banks and other financial institutions become liable for environmental pollution or damage caused by their borrowers. Although green projects are by nature less environmental risk-laden than other projects, they are not risk-free. As a result, investors have been hesitant to utilize the new financing mechanisms, and banks are equally hesitant to offer financing in the face of uncertain associated liabilities.

By Paul Davies and Andrew Westgate

On 18 October 2017, the 19th National Congress of the Chinese Communist Party will convene, after the week-long National Day holiday, marking one of the most important dates on the Chinese political calendar. Among the issues that National Congress members will surely discuss, is the importance of implementing strategies to further China’s green development. A crucial aspect of this discussion will be determining how funding can be channelled towards clean development.

China has achieved unprecedented economic growth over the last four decades, and is predicted to become the world’s largest economy before 2030, overtaking the United States. A by-product of this success however, has been severe damage to China’s ecology and environment, which the country is already taking action to address.

By Paul Davies and Michael Green

The UK government has announced that it is bringing together a new taskforce led by senior financiers in order to encourage the growth of “green finance”. The taskforce, which will be chaired by Sir Roger Gifford, former lord mayor of London, has six months to develop proposals aimed at accelerating investment in low-carbon projects.

The UK’s climate change minister, Claire Perry, announced the initiative in New York at the opening of Climate Week. According to Perry, “The transition to a low-carbon economy is a multi-billion pound investment opportunity and a key part of this government’s industrial strategy”.

By Paul Davies, Michael Green and Ei Nge Htut

The High Level Expert Group on sustainable finance  (the Group), which the European Commission (the EC) established, published its interim report on 13 July 2017. The report sets out the key steps required to create a financial system that supports sustainable investment, as well as identifying areas for financial policy reform. The EC vice presidents welcomed these initial recommendations. In addition, the EC praised the recommendations’ “great potential” to enable the bloc to lead on green finance.

The Group acknowledged that the recommended investment requirements (including the €177 billion required annually to meet the 2030 climate and energy targets) might appear “overwhelming”. However, the Group emphasised that private capital is currently “available and willing” to back such recommendations.

The Group’s recommendations include:

By Paul Davies and Andrew Westgate 

Climate change has become a key concern for China in recent years, as evidenced by its pledge to reduce carbon emissions per unit of GDP by 60% from 2015 levels by 2030. As we have previously written, it has also become a leader in the emerging field of green finance, and the world leader in installing renewable energy capacity. Moreover, climate change has become one of the few areas in which China has taken an active role on the international stage, promoting green finance at the G20 summit in Hangzhou last year, and joining the United States in championing the Paris Agreement.

Meanwhile, climate change continues to be highly controversial in the US, and the future of the Clean Power Plan – the Obama administration’s primary domestic policy to address it – remains uncertain. President Donald Trump, who took office on January 20, 2017, has expressed skepticism regarding climate change, and has stated that he will seek to repeal the Clean Power Plan. In the international arena, President Trump has also vowed to withdraw from the Paris Agreement (though he has more recently said he has an open mind towards the agreement).

By Paul Davies and Michael Green

The Vice-President of the European Investment Bank, Jonathan Taylor called for “a renewed effort from the world’s financial institutions to make the Paris Agreement a reality” at the COP 22 Conference, held last month in Marrakesh.

Green finance will have an instrumental role to play in the transition of countries to a low carbon economy. Indeed, sovereign green bonds have been described by financial analysts as “the perfect financial vehicle” and “missing link” to enable signatories to finance their sustainable infrastructure.

There have been a number of notable developments in green finance in recent months, sustaining its momentum.