Banks were at the epicentre of the global financial crisis. Investors have been reluctant to reallocate to the banks and valuations remain a long way from pre-crisis levels.
We’ve been more positive on the outlook for banks, including their role in the energy transition.
A driving piece of regulation, the UN Net Zero Banking Alliance, has helped this. Crucially, it requires banks not just to assess their own operations, but those of the businesses they finance and invest in.
This initiative ought to spark muchneeded progress. For small, green infrastructure operators, access to traditional avenues of finance has been tricky to come by. The tide, however, is beginning to turn.
Barclays, for example, is aiming to facilitate over £100bn in green financing by 2030, supporting the transition by providing green loans, green bonds and project finance focused on renewables, energy efficiency and sustainable transport. But social and environmental sustainability requires more than innovation; it requires broad-based change across industries and supply chains. In this regard, Barclays has announced a collaboration with one of the leading energy, water and carbon reduction specialists, to help its corporate clients reduce emissions and pivot to more sustainable practices.
The challenge for banks is striking the right balance between supporting start-ups and innovators, while not starving incumbents or hard-to-abate sectors of capital. This means intermediating in the gradual transition from current cash flows to more environmentally sustainable technologies and processes with longer-term returns. The infrastructure we so often associate with a greener world – wind turbines, solar panels, battery storage and electric vehicles; are all heavily reliant on a range of industrial businesses, metals and minerals.
The transition to net-zero requires widespread changes to public policy, consumer and corporate behaviour. It also depends on significant capital investment to adapt and mitigate the effects of climate change in every industry. Governments and policy-makers will play their part, but as they have made clear, much of the heavy lifting will fall to the private sector, with banks acting as a transmission mechanism for change and policy deployment.
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Ajay Johal is an investment manager at Ruffer
Ruffer LLP is a limited liability partnership, registered in England with registered number OC305288 authorised and regulated by the Financial Conduct Authority. The information contained in this article does not constitute investment advice or research and should not be used as the basis of any investment decision.
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