Webinar 9 July 2020 ZYen Group 2020 Global

Webinar, 9 July 2020 © Z/Yen Group, 2020 Global Environmental Finance Choose Your Colour - Green/Brown, Black/Blue? Professor Michael Mainelli Executive Chairman, Z/Yen Group @mrmainelli michael_mainelli@zyen. com www. zyen. com

Agenda © Z/Yen Group, 2020 ♦ Green finance history ♦ Global Green Finance Index ♦ International perspectives on UK ♦ Green versus brown ♦ Blue versus black ♦ Making the most of COP 26 "Get a detailed grip on the big picture. " Chao Kli Ning

The ‘City’ Story So Far © Z/Yen Group, 2020 London Accord – Sharing Investment Research For The Sake Of The Planet City of London Corporation passes local Clean Air directive in 1953 leading to Clean Air Act of 1956. Policy Performance Bonds 2007 "The London Principles: The Role Of The UK Financial Services In Sustainable Development" , 2002 Johannesburg Earth Summit. 2019 2009 2017 1990 1995 2000 2010 2005 2007 1991 1992 Following COP 3 Kyoto (1997), City of London Corporation publishes – “Trading Emission Permits – A Business Opportunity For The City? ” (January 1999). COLC sets up shadow trading scheme, works with DTI, EU Emissions Trading System (ETS) adopts UK framework, launches April 2005. 2006 2008 2015 2020

Policy Implications In 2007, Or 2020 © Z/Yen Group, 2020 ♦ Focus on the Carbon Market - business investment follows the carbon price ♦ Avoid Carbon-Dumping Wars – duties on carbon ‘at the borders’ could be worse than anti-dumping trade wars ♦ Set International Standards – product level, carbon intensity, carbon offsets ♦ Set Higher Policy Standards to Realise Existing Positive Abatement Opportunities - lower consumption, and increase efficiency of existing energy ♦ Support More Research: ØQuantify the impact of forestry ØAssess carbon capture and sequestration ØEnergy storage is the great equaliser

The GFCI & GGFI World © Z/Yen Group, 2020

© Z/Yen Group, 2020 GFCI – 17 Out Of 108 Centres GFCI 27 Centre New York London Tokyo Shanghai Singapore Hong Kong Beijing San Francisco Geneva Los Angeles Shenzhen Dubai Frankfurt Zurich Paris Chicago Edinburgh Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 GFCI 26 Rating 769 742 741 740 738 737 734 732 729 723 722 721 720 719 718 717 716 Rank 1 2 6 5 4 3 7 12 26 13 9 8 15 14 17 16 29 Rating 790 773 757 761 762 771 748 736 706 735 739 740 733 734 728 732 701 Change in Rank 0 0 ▲ 3 ▲ 1 ▼ 3 0 ▲ 4 ▲ 17 ▲ 3 ▼ 2 ▼ 4 ▲ 2 0 ▲ 12 Change in Rating ▼ 21 ▼ 31 ▼ 16 ▼ 21 ▼ 24 ▼ 34 ▼ 14 ▼ 4 ▲ 23 ▼ 12 ▼ 17 ▼ 19 ▼ 13 ▼ 15 ▼ 10 ▼ 15 ▲ 15

GGFI – Quality Top 10 © Z/Yen Group, 2020 Centre GGFI 5 Rank Rating London 1 516 Amsterdam 2 510 Zurich 3 507 Stockholm 4 496 Copenhagen 5 491 Luxembourg 6 489 Paris 7 487 Hamburg 8 477 Geneva 9 476 Vienna 10 472

GGFI – Depth Top 10 © Z/Yen Group, 2020 Centre GGFI 5 Rank Rating Amsterdam 1 496 Luxembourg 2 488 Copenhagen 3 484 Zurich 3 483 Stockholm 5 474 London 6 470 Paris 7 460 Hamburg 8 456 Montreal 9 454 Geneva 10= 452 Vienna 10= 452

GGFI Conclusions © Z/Yen Group, 2020 ◆Growing confidence in the development of green finance across all regions. ◆Green cities do well – where a centre is focused on sustainability across the board, green finance is strong. ◆Long-established centres with a history of fossil-fuel financing tend to fare worse for depth than quality. ◆Premium to be gained from demonstrating leadership in innovation and particular sectors or products, for example, Amsterdam in banking and China across many fields of green finance.

© Z/Yen Group, 2020 External Critique Of UK ♦ Core academic centre for climate change thinking, more widely not a particularly ‘green’ country – mediocre infrastructure, reliance on EU for water quality standards, etc. ♦ Inconsistent government policies, yet recognised improvement over the years, e. g. offshore wind, but with some embarrassing flipflops and fiascos, e. g. 2013 Green Deal ♦ ‘Dash for gas’ is foundation for many decarbonisation claims, but: ØFounded on poor thinking about 1990 electricity privatisations – instead of a ‘baseload’ market and a ‘spot’ market, government wanted only a spot market – drove out baseload providers – capacity market a serious improvement Ø‘Brittleness’ in UK energy provision without baseload or storage capacity increasing ØReaching an interesting point of change or vulnerability in energy security ♦ 2008 Committee on Climate Change good political statement ♦ Net Zero extremely ambitious, so all eyes on signs of hypocrisy

What’s On Practitioners’ Minds? © Z/Yen Group, 2020 Most Interesting Areas Of Green Finance

Greenwashing? © Z/Yen Group, 2020 Most Impact on Green Finance

COP 26 © Z/Yen Group, 2020 UN Framework Convention On Climate Change (1992) Annual Conference of the Parties (COP) Ø In 1997 COP 3 met in Kyoto and set out greenhouse gas reduction obligations, emissions trading, and other mechanisms Ø In 2015 COP 21 met in Paris and the result was the Paris Agreement – goal to keep the temperature increase below 2 °C – national plans to mitigate CO 2 Cop 26 is important because Ø All countries need to submit their new long-term goals for mitigation Ø It will finish work COP 25 was unable to conclude, such as setting out the rules for a carbon market between countries Ø It will come just after the US presidential election with potential implications for US climate policy and US participation in COP 26

Financial Institution Planning © Z/Yen Group, 2020

Priorities for the UK Presidency © Z/Yen Group, 2020 29 June 2020 - COP 26 President and Business Secretary Alok Sharma and Environment Secretary George Eustice meet more than 200 business leaders to outline their plans to deliver a ‘green’ coronavirus recovery Ø More companies to commit to 100 per cent renewable sources by 2050 through the ‘RE 100’ initiative and the Powering Past Coal Alliance Ø Zero emission road transport, bringing forward the end of the sale of new petrol, diesel and hybrid cars and vans from 2040 to 2035 Ø Further progress on the Task Force on Climate. Related Financial Disclosures agenda, Coalition for Climate Resilient Investment by integrating climate risks into infrastructure investment decision making Ø Active participation in the Race to Zero Coalition

© Z/Yen Group, 2020 What Could Covid-19 Mean? ♦ COP 26 has been delayed by 1 year alongside a global economic downturn of unknown permanence ♦ Have transient environmental improvements helped convince people that behaviour change is needed? ♦ Is some behaviour change permanent - more home working, less commuting, less air travel, lower energy requirements? ♦ Investment is needed, but does society think that the financial system in the round, e. g. pricing externalities, has a role to play, or is the emphasis on behavioural awareness and regulation? ♦ Rethinking macro-economics and fiscal policies

Green versus Brown © Z/Yen Group, 2020 ØCarbon tax = tradable carbon permits + auction/price ØPolicy performance bonds https: //www. longfinance. net/research/r esearch/sustainability/policyperformance-bonds/ (aka ESG ‘linked’, sustainability ‘linked’) q. Natural policy hedge to bring followon investment q. Mechanism for open trade, e. g. link issuance (% of government debt) and price to tariffs, if any • Danone (2018), Louis Dreyfus (2019), Nokia (2019), Enel (2019), Wilmar International Limited (2018), Bunge Finance Europe BV (2019). WSP (2020), Más. Móvil (2019), COFCO International (2019)

Policy Performance Bond Example © Z/Yen Group, 2020 Net Zero Over = -4. 00% pa Target = -3. 45% pa Under = -2. 00% pa 120 100 80 60 40 2016 2021 2026 2031 2036 2041 2046 2051 -20 -40 Target Over-performance Under-performance Interest rate 2056

Blue versus Black © Z/Yen Group, 2020 ♦ COP 26 a unique opportunity to create government green policy performance gilts/bonds ♦ Blue – rational – essential action ØMarket failures – externalities, lack of competition, asymmetric information, agency issues ØThus – carbon tax, competition, open data, better regulation and standards markets ØStorage market is perhaps the biggest question: q. Electric vehicle battery network q. Hydrogen q. Compressed air q. Water ♦ Black – financial ØGovernment policy risk is the distinguishing factor in green finance ØAdvanced use of green finance in UK’s own interest "Get a detailed grip on the big picture. " Chao Kli Ning

When Would We Know Commerce Is Working? © Z/Yen Group, 2020 Thank you! “Get a big picture grip on the details. ” Chao Kli Ning