Insights: why green finance is the key to building a sustainable future

05 June 2019

The Barclays UK Chairman Sir Ian Cheshire was an early adopter of the sustainability agenda. Formerly the CEO of retailer multinational Kingfisher, he was Chair of the advisory board of the Cambridge Institute for Sustainability Leadership, and is a previous winner in The Guardian’s Sustainable Business Awards. 

He explains how sustainability is becoming a normal part of business thinking, why green banking is an opportunity, not a threat – and how Barclays is leading the field through products, relationships and collaboration.

Green finance and the broader sustainability agenda have gradually become more mainstream across the business world. Thinking on those issues started out in particular niches, but has now become part of a general shift in how the economy is moving from a ‘take, make and dispose’ linear economy to a circular economy – and how businesses are increasingly asking themselves whether their business models and future are sustainable in a different world.

What we’ve seen in the last five years is the finance community really starting to look at this not as a threat but much more as an opportunity. Finance is the key enabler of this, and I’m really pleased to see Barclays has been part of it.

The whole sustainability agenda is really about creating change and trying to imagine what a future economy will look like. The challenge is a bit different than for a retail company.

Finance firms need to try accelerating the new moves into sustainability by providing finance that fits the purpose like green mortgages and green bonds. Finance runs through the whole sustainability agenda and is a key agent for change, because much of the subject is about taking new ideas and putting them into action, and without the finance that wouldn’t happen.

Barclays has an interesting role to play in this and it was one of the reasons I was keen to get involved with the company.

We have an opportunity to do two things: the first is to help develop products, which the team have done, responding to people’s appetite for a different type of investment or a different type of financial instrument.

The second is to use our relationships – which are extraordinary in terms of global reach – to help other businesses and our clients really understand the opportunities that are represented by the coming sustainability revolution and the green finance opportunities that come out of it.

Our Green Frontiers conference was amazing and the message of the day – to all our customers – was that this change is coming, and it’s a set of opportunities that we should be leading into and not worrying about defensively.

Sustaining profits 

There’s been a lot of confusion in the past that sustainability equals not being in business, and also an idea that customers would happily pay a 20% premium for something more sustainable.

Actually, I think the challenge for businesses broadly and Barclays in particular is to make this ‘business as usual’ – it’s part of how we change our models as we move forward, but it also has to be absolutely a part of the business logic for whatever enterprise it is. Otherwise it becomes a bit of a token gesture or a “greenwash” and it won’t last.

One of the challenges is how – across a very diverse bank – you can co-ordinate this activity, and to some extent getting going is fantastic, but it needs to become more systemic. We also have to make sure we have good measures in place and are providing good data on how this is really working as opposed to some vague green assertion. So, we need authentic products, authentic programmes, and good data backing it up.

It’s always hard to predict how change accelerates and takes root, but what we’re seeing for the first time in my working career – which is 30 plus years – is sustainability becoming a normal part of thinking about the future of your business.

That wasn’t always true. In some cases, there’s a lot more progress than others – if I think about the debate we were having 20 years ago in the timber industry, it’s changed beyond recognition. Each industry is going to have to work out how the rate of change is going to develop, but we have clear pressures on the environment, natural resources and climate that say the sooner we can make that change the better.

Barclays UK Chairman Sir Ian Cheshire

Sir Ian Cheshire, Chairman of Barclays UK

Short-term targets, long-term goals

There’s always a notable level of challenge in any business about what you do short-term versus long-term and how you balance this out. On the sustainability agenda it is particularly important to make sure the longer-term agenda is stressed as well as the quarterly reporting cycles, and this is where we can make a difference.

I’m thinking particularly of the pressures on pension fund trustees, for example, who are chained theoretically to a quarterly reporting cycle and yet are thinking about 20 and 30-year returns. And, actually, they are the people who should be allowed to think more long-term.

It’s not an excuse not to be a good business, it’s not an excuse to dump the short-term, but we’re looking to rebalance and make people aware of the longer-term, truly sustainable value creation that comes from a different model.

There are a wide range of customers involved in this – anything from a massive fund looking to invest in green bonds to an individual wanting to put £10 a month into an ISA. We’ve seen a huge growth in customer interest and have a great opportunity to bring different products to those clients – I think it is a fantastic stage to be involved at, because people are receptive, saying “show me something I can invest in or a product or mortgage I can buy”. We’re mutually discovering what it is we can do.

Clearly the challenge on green finance is not a one-bank challenge – it’s a structural, systemic change and many different players are involved.

The key is to make sure we’re leading in our sector, but also collaborating with the other key groups: the exchanges, the providers of data, the players bringing new and interesting innovations into the area. I think this is going to require a complete ecosystem to work around it to produce that change.

The essence of that is the collaborative spirit and the openness we see at the Green Frontiers conference, where people were willing to share, because we need to be part of a systemic change, and that can only happen together.