Caroline Haas, NatWest’s Head of Climate & ESG Capital Markets, welcomed the guests and referred to the unintentional “perfect timing” of the networking evening as some key announcements around tackling climate change had made headlines in the run up to the NatWest event - such as the launch of the inaugural standards – IFRS S1 and IFRS S2 – of the International Sustainability Standards Board (ISSB), which Haas described as “incredibly helpful in creating a common account-based language that is comprehensive, consistent, verifiable and decision useful.” 

Haas also pointed to the UK’s Climate Change Committee’s warning  the previous week that its confidence in the UK meeting its decarbonisation goals from 2030 onwards is now markedly less than it was a year ago, underlining the urgency and importance of the public and private sector collaborating to apply systems thinking to successfully tackle climate change. But, Haas had positive news: quoting NatWest’s Annual Global Fixed Income Investor Survey, which this year focused on net-zero strategies, Haas stated that momentum for net zero is building: “It was encouraging to see that the investor community is mobilising globally despite some of the headwinds, with 71% of the 225 asset managers we surveyed saying they had made net-zero commitments, of which 34% felt that they would achieve net zero by 2040. 74% commented that they had sufficient emissions data, enabling over 80% to incorporate scope one or scope two emissions into their performance metrics of investee companies over the next two years.”

Event host Stuart Foster, Head of Financial Institutions at NatWest’s Commercial & Institutional Banking business, emphasised that “it is our engagement and the mobilisation of capital that will drive the decarbonisation of the real economy in a socially-minded manner”. While “the right thing to do for the planet and for future generations”, Foster stressed that the transition to net zero represents a significant growth opportunity, as, for example, outlined in NatWest’s “Springboard to sustainability” report, which identified a potential £175 billion revenue opportunity for the UK economy from small- and medium-sized businesses through the transition. 

Introducing one of the key discussion points of the event, ‘systems thinking’, Foster explained that “while working on identifying opportunities to support our customers within each sector, we realised the importance of understanding sectoral interdependencies and the need for a set of coordinated actions between sectors to achieve decarbonisation. As a result we implemented a ‘systems thinking approach’, which considers how carbon flows between sectors in the economy, and factors that determine the magnitude of those carbon flows; such as government policy, consumer preferences and behaviours.” Understanding these factors for each system will help identify opportunities to impact the size and direction of carbon flows in sectors within a system.

Foster outlined the five systems NatWest is prioritising due to their substantial impact on the UK’s carbon footprint and customers’ day-to-day lives: mobility, energy, property, food, and financial systems. 

Delivering the keynote address on “Connecting the dots from public to private: focusing on sustainability in private markets and the real economy”, Esohe Denise Odaro, Head of ESG & Sustainability at PAI Partners, outlined how sustainability in the financial system can be truly transformative and benefit the whole economy: “Today and in the future economy, which will need to be a new type of economy, finance will still be the means to put progress in motion.”

Odaro – recently recognised as one of the “Twenty Most Influential in ESG” by Private Equity News and IFC’s former Global Head of Investor Relations and Sustainable Finance Coordination – referred to the continued growth of the sustainable finance market, with the sustainable bond market forecast to reach $900 billion to $1 trillion in 2023¹, and praised the power the private sector has to drive net zero: “I see the tremendous opportunity the private market has. You are set up to bring about transformation arguably in a shorter amount of time than you would in the public markets: you don’t just have a seat at the table, you’ve made the table and you’re bringing people to the table,” while also highlighting the importance for each private sector player to consider how their company can create value in a new, net-zero economy.

Noting that increasing transparency through regulation, more and better ESG data, and the pressure of investors has helped to advance thinking in private markets, Odaro closed her keynote by emphasising the need to collaborate and innovate: “We cannot solve tomorrow’s challenges with yesterday’s tools, and optimal creativity doesn’t happen in complete isolation.”

Focusing on actionable solutions and systems thinking to achieve net zero, the four sustainability experts on the panel – including Katherine Stodulka, Systemiq’s Head of Sustainable Finance; Fiona Watson, Senior Director at WBCSD; Solange Chamberlain, Chief Operating Officer, NatWest Commercial and Institutional; and Dr Maria Carvalho, NatWest Group’s Head of Climate Economics & Data – agreed with panel moderator, Caroline Haas, that the standardisation of climate data will be a key accelerator for net zero and therefore needs to be prioritised: “We have to speak the same language across the world when we talk about climate and decarbonising. Standardisation and homogenisation of metrics play a vital role in measuring progress and benchmarking ourselves.”

The panellists provided inspiring food for thought:

• On systems thinking: Looking at systems means you are understanding their links and their interactions which is crucial to avoid the risk of simply shifting emissions from one sector to another but instead identify a way forward to decarbonise all sectors. As such, systemic thinking helps de-risking and paves the way for a “Just Transition” for everyone along the value chain.
• On upskilling and joint learning: Looking at systems also involves looking at the skills of supply chains within systems and whether these need to be adapted to help deliver solutions for the decarbonisation. One example is NatWest’s Sustainable Homes and Buildings Coalition which NatWest launched with partners to improve UK buildings’ energy efficiency by offering practical advice to building owners and tenants and jointly learning about the challenges on the way.
• On the financial materiality of net zero: The global decarbonisation offers vast economic growth. It is therefore crucial to focus on the new investment opportunities as much as on the need to decarbonise to halt climate change. “It is easy to dismiss the environmental campaigners. If you don’t show the investment opportunities – such as new technologies and new products – you will lose people on the way.”
• On collaborative policy development: Engaging in constructive policy development needs to be front and centre of everyone’s work – companies, financial services, investors, the public sector etc – with everyone expected to move in the same direction and hence also expected to be transparent about their lobbying work. Constructive policy development also includes calling out when regulation is not working and might not achieve its objectives (one example being the open dialogue about the challenges of the EU Taxonomy).
• On the role of the banking sector: Alongside a required shift in its financing approach – risk weighted assets, revenues and emissions need to all be considered before approving funding – banks can help turn their customers’ “fears into excitement” by not only helping them measure their climate and ESG risks but also helping them to identify the potential opportunities such as new profit pools, new geographical markets opening up etc. Furthermore, they can help their corporate customers navigate the “choppy waters” of a highly fragmented global climate policies space, which make it incredibly difficult for companies to comply. Internationally varying policies often mean a drain on resources while trying to ensure standards are fulfilled for each market – and come at a cost, too. Banks can make a difference here by helping their corporate customers to think through what regulation is going to do for their product offering, for their business model, for their financial planning, and how they can disclose the ESG information they are now required to provide. 
• On the role of investors, and the impact of KPIs: Investors can make sure they’re creating an environment for informed risk taking and innovation. This includes properly scrutinising sustainability linked KPIs. Are they the right KPIs? Are they really driving meaningful improvements in ESG? In this context, the market is increasingly experiencing an ESG capital allocation gap due to a disproportionate amount of money going into passive funds, which often use trackers that have methodologies that don’t necessarily achieve long-term impact on climate and ESG.