The Green Finance Podcast Ep. 14: COP27 – is finance ready to move from pledges to implementation?

Hello everyone, welcome to the Green Finance podcast, Tearsheet's podcast covering the role of finance in our collective fight against climate change. 

COP27 ended around a week ago, and by now we've all probably seen the headlines – an agreement was finally reached to create a loss and damage fund to help poorer countries most impacted by climate change. Wealthier countries should pay, but exactly who will pay what is yet to be determined. 

While this agreement is a big milestone, there are some key aspects missing – there are no mentions of emissions peaking before 2025, or a clear follow-through on phasing down coal, which is discouraging.  

To help us get a better sense of what happened at the conference, today we're chatting with Lubomila Jordanova, the founder and CEO of PlanA, a Berlin-based startup developing a platform that enables companies to measure, monitor and reduce their environmental footprint and improve their ESG performance. She is also the founder of the GreenTech Alliance, a network of green technology companies that effectively fight the climate crisis.

I'm always excited to talk to Lubomila, she is truly a champion of sustainability, so make sure you follow her on LinkedIn for lots of insights on this topic. 

Before we start, I just want to encourage you to sign up for Tearsheet's Green Finance newsletter - that's where I put together our latest articles, research, charts, infographics, as well as videos and documentaries for finance professionals wanting to dive deeper into this subject.

Without further ado, let's dive right into today's episode.   

Hi Lubomila, and welcome to the Green Finance podcast. Very excited to have you on the show, especially given the timing of our recording, in the second week of COP27. You were there last week, could you tell us a little bit about that experience? What are some of your main takeaways from the conference? 

First of all, thank you so much for having me. It's always a pleasure, especially since the conference that we shed to be following the content and to be part of it. COP27 was, as any COP, quite a hopeful but also in a way divisive place. Because you do see a lot of people who think similarly, you see a lot of projects that give you a lot of confidence that we have the tools, and we're trying to scale them to the best amount possible. 

But on the other hand, you see a reflection of society in a small little village, that is with 40,000 people, where politics intertwine with business intertwine with social issues, but also social justice concerns. I love going to COP. I was there last year and this year, because I have selective attention, in the sense that I spend my time with people that I know would bring me out of this conference with a lot of ideas, a lot of concepts, a lot of hope. But I know how it could be quite difficult for many people to see it and then draw the line and kind of feel comfortable given how backed up it is also with both good but also not so positive news.

Definitely, with so many discussions on so many levels, it can be hard to stay focused and condense it into something tangible. Besides the overarching themes that have been widely covered by the press, how was it different compared to other years? Did the substance of the conversation change? 

It was evident that businesses had done their homework, which was so exciting to see and to hear. Last year, there were a lot of pledges, there were a lot of announcements by 2040, by 2050, x company is going to do a certain amount of work to achieve decarbonisation. This year, I met probably 150 Chief Sustainability Officers there, who all spoke with a lot of detail, and with a lot of practical examples of what they've done within the last 12 months. Projects related to insetting investment vehicles that were set up to support the value chain, to decarbonize businesses that have decided to fully transform their business model, a lot of big decisions had been made. 

It was so incredible to participate in conversations where the people on the other side were incredibly knowledgeable. Last year, this was not the case. Last year, there were a lot more 'I just became chief sustainability officer two weeks ago because we set up this position for COP26, because we know we need to participate here'. This year, it was a lot more concrete, which gave me so much hope on the political side. And I don't allow myself to speak about politics, but that's where there's still, I would say, a little detail on quite a lot of large, important projects, and a lack of confidence in some of the decisions that were made last year. Rumors that we're gonna go back to the two degree scenario rather than the 1.5. But, also some progress on some of the initiatives related to the high level champions. So the Race to Zero initiative, which I can go into more depth given it actually quite deeply connected to the finance industry.

Definitely, because the finance sector was a key focus last year, with former Governor of the Bank of England Mark Carney assembling the Glasgow Financial Alliance for Net Zero, with many pledges being made. Where do you think the conversation is now for this sector?

It is important to recognize what is the part of the financial industry in the whole sustainable transformation of our economy. On one hand, it has a job to support the mitigation of climate change, which is essentially financing the sustainable future. This is transformative financing, be it in vehicles, be it in just packages that can allow for sustainable projects to be scaled, that means technology, that means improvement of infrastructure, that also means education. This is a really huge part that finance professionals and also financial management institutions can play. 

On the other hand, you have the adaptation part. Unfortunately, we're quite advanced when it comes to climate change and the negative repercussions on the whole economy. And at this point, we need phasing out of investments from fossil fuels. Also, the way we approach a financing industry, supporting only the transformational projects that would allow for industries to adapt to the negative repercussions on supply chains and value chains. 

In this context, if I put it into what this consortium of institutions is meant to achieve, was to support these two kinds of pieces of work, which are quite significant. And then enable actually a few key vehicles to be set up. But also, I would say, for the whole industry to transform itself. 

One of the key topics that was covered as a result from what happened last year is a lot more focused on governance of data. And also like just starting to map out metrics and setting targets for the whole financial industry. We need to remind ourselves that last year, this was not even the case, you would look into financial institutions, and they had no aligned way of thinking about sustainability. So that by itself is quite a big deal. 

The second element has been defining an implementation strategy. There was a report that came out, of course, on the finance corp last week that specifically outlined what are the products, what are the services, what are the activities, what is the framework for decision making, as well as policies and conditions that should allow for the transformation of the financial industry, again, a significant piece of work. 

And finally, there was an element for engagement, which was how, after setting up such a vehicle, such a vision for the financial industry, you can engage your clients, your portfolio companies, also industry as well as government in the public sector.

It's true, the whole process has deep ramifications and the pressure is mounting for finance and banking to move from targets to solutions. However, this is a daunting task for most folks in this industry, and many don’t know where to start. After all, not a single bank had emission-reducing targets at the beginning of 2021. What does a decarbonization strategy look like for banks and financial institutions?

We work with a lot of different banks, BNP Paribas, Deutsche Bank, as well as more new banks, like N26, Solaris Bank, and others. And on a practical level, what we see on the day to day is, first of all, setting the overall target for the institution and then starting to use this as activation commitment for all the different elements of the value chain to be decarbonized. 

What this means is that you start looking first at the monitoring bit, so you look into assessing where you're standing. After the target has been aligned to understand what is the amount of emissions, you need to reduce what is the amount of negative impact you need to eliminate and then translate this into different initiatives. 

With this in mind, I think the banking sector, similar to what I was saying earlier, has two parts to play. One is to update the approach that it has to existing activities within the bank. This is how you change your thinking about who you finance? How do you assess climate risk? And also, how do you identify which of your clients at the most dire need for support on this transformation journey for that need to be able to finance that? 

The second element is really big. Having a bit more, I would say, risk seeking, when you support the transformation or technology that is needed in order to scale viable solutions for decarbonisation. I cannot stress enough as someone that is building a tech company, but also as the founder of the Green Tech Alliance, where we have more than 2000 members developing green technology, how difficult it is for companies that are developing, for example, hardware, that is for carbon capture, or new materials, things that are maybe not first in mind when someone thinks about technology to actually get financing. 

So a bank also needs to start developing more innovative thinking in order to support the scaling of these technologies that will be essential. Given the state of climate change, we're past the point of being able to solely focus on updating our approach to how we finance, maybe phasing out fossil fuel related investments, we need to also rely on technology for this kind of large collection of issues to be addressed at scale.

Yeah, for sure. We do need to migrate this capital away from fossil fuels and towards more sustainable technologies. But scale is an issue here, there needs to be more infrastructure built around that, to facilitate high volumes in these new markets or sectors. And I'm wondering here, is this what's really missing from this whole equation? What is deterring banks or investors? Is it the economics of it all? Or is it just the fact that the momentum is not yet strong enough? What do you think?

We need education as a first step. Quite often, there's a discrepancy between the level of understanding of the severity of the issues and also, the level of importance this topic has, as we think about stabilizing our economy. At the moment, we live in a situation of continuous crises. And that is, by itself, quite distracting and disturbing. If you combine this with climate change, you might feel a bit insecure, where to place your attention. 

We should focus on climate change as the sole issue within the instability of our economy, we've had close to 12 years of more or less like, quite a stable, but not a good way, not in a growth driven way. Economy, like GDP, has been quite flat as a metric, which is a demonstration that by extracting resources from our planet and not taking care of it, we cannot assume that our economic model is valid. So as a whole, I think, by focusing our attention on understanding the severity of the issues, we are better equipped to manage more sustainably businesses, financial institutions, and others.

Indeed there's so many things to pay attention to these days, that the climate agenda is getting lost in the noise. But kind of going back to the Chief Sustainability Officers that you mentioned - now the climate agenda has a representative in the boardroom, right? Are they the ones that are meant to add fuel to the fire, to use a bad metaphor?

I think it's a team play. There's no one person that is going to fix it. The most advanced companies that we work with within our client portfolio, have placed sustainability more or less in every single department in one way or another. Because you need an integral thinking when you think about the transformation of your business. I think it's just a matter of making it an agenda on a top level, educating the employees across the board, and then essentially allowing for everyone to find a way to play their part. The Chief Sustainability Officer, quite often what you hear from them is that they're working towards making their jobs redundant.

Yeah, that makes sense when you think about it. What are you looking forward to next year, at the next COP? What would you like to see come to fruition by then?

I'm quite positive of what I've seen at COP on the business side. I think businesses have stepped up their responsibility and understood that they should not rely on a government or on frameworks to set the scene for them. Because beyond compliance, there's a lot to do for business, if they really want to transform their model into a sustainable one. 

I hope to see a lot more urgency, I think it's never enough. Just two days ago, there was an announcement that yet again, we're going to have the highest level of emissions in 2022, after a short decrease in the emissions in the beginning of COVID. There is no news that is particularly positive on the climate side. So I would hope that the urgency in people's minds can allow for us to actually start having tangible results that reflect this also on the state of the health of the planet.

Given your experience with the bank partners that you have at Plan A, how has the collaboration been so far? And what are some of the steps like some practical steps for a bank to partner with a climate tech solution like Plan A?

So we have been able to secure the trust of all these different financial institutions, including also private equities, VCs and others. We have a big focus on being science driven, also being focused on decarbonisation, and risk mitigation, and finally being aligned to policy. I think a lot of the financial institutions are particularly concerned about all of the different kinds of elements of this decarbonisation sustainability journey, that does include compliance, that does include also understanding the different steps you need to take. So having a more big view of what the big problem is that you need to solve for yourself, and then breaking it down into what is relevant to the particular departments, team members and others.

When do you think we're going to start seeing tangible results? How long do you think it will take for them to actually move the needle? 

I think there's a lot of vehicles that have been set up in the last few months/years, but they're just still an ignorable amount in the context of the whole balance sheet of a bank or financial institution. I think there is a necessity for us to move away from this idea that ESG is one portfolio product. And there's other types we need to have a certain set of criteria related to environmental, social and governance topics for any lending activity. There is no either/or, there's really only one way to look into what is good for the stability of our economy. 

The impact that climate change has, and will further have on how healthy our economy is indescribable, but they've also been placed into financial models, but not yet with the financial risk associated with them. I think it's just a matter of time for us to really focus our efforts on starting to think across the borders. We need a minimum criteria that gets us in, in a direction towards becoming more sustainable, scaling these vehicles, starting to implement these metrics across the board and also, again, education.