Many financial industry climate initiatives are authentic … they’re just not working

In a guest column six years ago James Vaccaro, then Director of Corporate Strategy at Triodos Bank, introduced the United Nations' Principles of Responsible Banking to my community. Six years later, are they working? Apparently not. In a new guest column, James argues the industry efforts may be authentic, but they need better management to succeed. This is why his latest venture has launched the Climate Finance Catalyst Contest to find the real breakthrough financial solutions to decarbonise the banking sector. Read on to find out more ...

Finance has a climate innovation gap. We need catalytic ideas to fill it.

By James Vaccaro, Chief Catalyst, Climate Safe Lending Network

There are a huge number of people in finance working hard on climate, but emissions are on the rise and there are still flows of finance going into misaligned activities. While policy changes are needed, they won’t solve the climate crisis alone. It will take fresh thinking and creativity to drive innovation and positive impact in the real economy at the pace we need.

Despite the huge effort of teams in the finance industry there remains an innovation deficit in sustainable finance. It’s already been shown that many ‘sustainable finance practices’ are not catalysing deep transitions.  Yes, there is some subterfuge and greenwashing going on, but many initiatives do have authentic intentions  - they’re just not working optimally and need to be redesigned and upgraded.

Also, the recurrent phenomenon of there not being enough finance for green projects, but finance not having enough green projects to invest in, suggests that we’re not just dealing with a funding gap. There are systemic barriers at play and these need to be addressed with innovative solutions to unblock flows of finance.

Some in the industry express concerns that the focus on technology often overshadows the urgent environmental needs. Others find that efforts, such as carbon calculators, aren't having the expected impact on clients. The lack of peer examples and the resistance to moving into new areas also hinder progress.

Ultimately, we’re facing an innovation gap which leads to finance being blocked from reaching where it is needed most.

This is why the Climate Safe Lending Network has launched the Climate Finance Catalyst Contest, the first global search for breakthrough financial solutions to decarbonise the banking sector and real economy.  And if you have an idea, we want to hear from you.

The Contest aims to crowdsource the highest impact ideas which can be scaled up and implemented by banks, lending institutions and others who finance the real economy.

Judges of the Contest come from numerous international organisations such as the United Nations Environment Programme Finance Initiative, the Global Alliance for Banking on Values (GABV) and Green Digital Finance Alliance. The judge's bench also includes none-other than the brains of The Finanser, Chris Skinner himself. You couldn’t present your idea to a more esteemed crowd of finance experts.

The Contest is focused on three categories, designed to seek out the most transformative and viable ideas that could be scaled up by financial institutions so that they can:

• Go Faster: helping their existing clients accelerate in their transition journeys. In most developed economies and sectors that will mean reaching net zero in the 2030s with deep reductions made very soon.
• Go Further: broadening their scope to be able to support emerging approaches, technologies and business models that can help address environmental challenges.
• Go Fairer: integrating social justice into every activity, recognising the vast structural and historical inequalities, and ensuring that all communities are supported in leading their own journeys to resilience in the face of environmental challenges.

Building on the seeds of innovation

There are inspiring examples of innovation that motivate positive change and that we want to build on through the Contest. These include approaches leveraging behavioural insights, blended finance mechanisms, social impact bonds, collaborations for scale, and new technologies to reduce information barriers. The aim is to encourage lenders to be catalysts of transition, recognizing their role as gatekeepers for real economy change.

The ideas could come from anyone, anywhere

Many more people are working in sustainability within financial institutions today than ever before. And beyond sustainability teams, everyone in finance is becoming more literate and aware of sustainability issues.

The whole ecosystem is part of this challenge, so new catalytic approaches may emerge from the margins. That is why Climate Safe Lending Network is allowing entries to the Climate Finance Catalyst Contest from anyone, anywhere. As James Niven of the GABV observed: “scalability of ideas often comes more through inspiration rather than replication. It’s a deep understanding of context that can be critical to the success of an idea.”

Why should lenders be catalysts of transition?

In the aftermath of the 2008 financial crisis, many questioned how banks could be ‘socially useful’. The purpose, surely, is to respond to ideas and enterprises capable of delivering long term wellbeing for all by supporting them in becoming economically viable. Providing the money might be the transaction that everyone sees, but the real creativity and value is everything that leads up to that point and circulates around it. That’s the ecosystem where we need innovation the most.

Lending institutions are often the gatekeepers for real economy transition. They hold up a mirror reflecting back economic patterns and amplify what’s out there – whether that is inertia or momentum. We need catalytic intervention to rapidly scale transitions so that these approaches become entirely normal. It’s happened before.

Not so long ago, financing wind turbines or solar panels seemed fairly exotic. Today, in many countries, it’s quick and easy. Finance played a role in reducing the friction in the market which led to the economies of scale, lowering of cost and increase in demand which has seen the renewable energy market accelerate beyond predictions. It could do the same again across many of the transitions which might feel beyond reach today.

The world is waiting for the best ideas

If you have an idea which attaches to any of the three categories, then we’d love you to submit an entry to the Catalyst Contest. There’s a very short and simple application process which won’t take long. You won’t be judged on the track record or performance of the concept – it’s the potential of the idea and the evidence that it could be impactful and scalable that matters to us. Your ideas could help inspire and catalyse others into action and help supercharge the transition. Find out more here and submit your idea by 31 December 2023.