Matt Rees is head of the Editorial Unit at the European Investment Bank. Founded in 1958, they provide finance and expertise for investment projects that contribute to furthering the EU’s policy objectives. Appointed to the role in 2015 where he writes about projects, people and industry issues, Matt previously held positions at Bloomberg, The Scotsman, Newsweek and Time Magazine.
Matt is the host of the European Investment Bank’s award-winning Climate Solutions podcast. The latest season delves into the true meaning of Green Finance. Launched alongside the upcoming audiobook ‘A Dictionary of Green Finance’ featuring informative, digestible episodes, the series unpicks what politicians, activists and economists are talking about when it comes to all the buzzwords around green finance.
Here Matt sits down with The Fintech Times to share some of his insights on green finance and the benefits of going green.
What is your definition of green finance?
It’s any financial instrument or technique that has been developed as a consequence of the need to combat the effects of climate change and environmental degradation. It’s a response to the need for massive financing to completely re-orientate our economies over the next decade—because, if we don’t do it by then, it’s just too late. The European Investment Bank, the EU bank, has pledged to support €1 trillion of climate and environmental investment by 2030. That’s a sign of how green finance needs to get.
What are the benefits of businesses going green?
Look at that €1 trillion in investment I just mentioned. That’s not charity; it’s for profit, and it’s a huge amount. If businesses want a piece of that, they have to go green. The flipside of that is this: If a business is investing now for the long-term, anything that’s not “sustainable” is either going to be regulated out of existence in a few years or will be subject to higher taxes on polluting industries. In other words, it’ll be a stranded asset. Not having stranded assets is a huge benefit of going green, to put it mildly.
What are the impacts of investing in green as opposed to other investment channels?
Green is the sector that is going to be expanding hugely in the next decade. We need to invest in basic climate action (wind farms, solar farms, energy efficiency), but we also need to find as-yet-unknown technologies that will help us cap the rise in temperatures. The biggest, most impactful innovations of the next decade will be in climate action and environmental sustainability. In part, this is because they have to be, otherwise humanity is cooked. It’s also because major financial institutions will increasingly be looking for their innovation investments in the green sector and, therefore, the financing will be there. In another sense, the impacts are more and more measurable. Not just in terms of the bottom line. Traditional investments might be measured in, say, jobs created. Green investments create jobs, but you can also report to your shareholders on the amount of carbon you have prevented being emitted. Thanks to the EU taxonomy on green finance, there is now agreement about how this is measured, audited and reported, so you can know the impact of your investment—and compare it with other instruments, too.
How popular is green finance, are the industry and consumers receptive to it or are some reluctant to make the change?
The green bond market illustrates the popularity very well. It has gone from nothing in 2007, when the European Investment Bank issued the first one, to over $700 billion. And it’s growing faster all the time. (These are bonds the proceeds of which are designated for investment in specific projects related to climate action: for example, the EIB sold a bond not long ago whose proceeds were to be used for energy efficiency work on hundreds of old apartments in Bucharest.) So much so that the European Investment Bank developed Sustainability Awareness Bonds, whose proceeds are used for water projects, education and afforestation, amongst other things. The first of these was issued in 2019. The Bank intended to sell €500 million of the bond, but it had orders for €1 billion. That shows how much the market is there for green finance. As for consumers, the European Investment Bank carries out a major climate survey of consumers in all the EU countries, the UK, the US and China. Our latest survey asked whether people wanted an economic recovery at all costs, even if it caused a rise in carbon emissions and involved investment in polluting industries, or a “green recovery”. Even though economic conditions are rather tough right now, 57% of people still chose a green recovery.
Why is it important to invest green?
If we don’t, humanity is in big trouble. But, as I said, investment isn’t charity. So a big reason to invest green would be to profit from saving humanity. You can recycle your rubbish and take fewer flights and drive an electric car, and that’s doing your part. But if you’re also investing, you should make it green investment, because that’s another part of your life where you can make a concrete contribution towards saving humanity.
What do you think is the future for green finance?
There are an increasing number of options for green investors. It is becoming a real market, but it still has some way to go. The decisive factor will be the expansion of higher-yielding green investments. For example, a European Investment Bank green bond pays a reasonable interest rate, but it’s not a high rate, because the EU bank is rated AAA. In other words, you haven’t taken a big risk investing in one of its bonds. But the Bank is also supporting the growth of riskier green financial instruments which, of course, bring a higher yield. Once you have that full spread of potential risks for investors to use in the creation of a diversified portfolio, you have a mature market. That in turn will bring us the kind of volume that’s desperately needed to save humanity from the damage we have done to our environment.