June 9, 2021 • 30 mins
In our inaugural episode of One Step Ahead, we spoke to Samu Slotte, Global Head of Sustainable Finance at Danske Bank, and Sean Kidney, CEO and Co-Founder of Climate Bonds Initiative. They gave their honest take on the urgent need to tackle the climate emergency, and the crucial role investors must play to enact change. Samu also gave concrete examples of green projects financed by Danske Bank’s green bonds, ranging from green buildings to renewable energy.
This episode was presented by Libby Potter.
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Episode Transcript
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Speaker 1 (00:02):
Welcome to One Step Ahead. Technological innovation and the need
to live more sustainably are profoundly reshaping how we travel,
work and play. In this podcast, business leaders and industry
disruptors break down how they're adapting to these trends, preparing
for what's next and helping to build a brighter future
for our planet. One Step Ahead is brought to you
(00:24):
by Lyxor ETF, a European pioneer of exchange traded funds.
To learn more about how you can keep your investments
ahead of change, visit lyxoretf. com. This podcast is for
informational purposes only, and should not be taken as investment
advice and/ or an offer to buy financial products.
Libby Potter (00:45):
Hello, I'm Libby Potter. In this episode of One Step
Ahead, we're looking at green bonds. A green bond is
a very simple and impactful way to invest for climate
action, as we're about to find out. We'll be exploring
how this booming market has grown and we'll dig into
some real life examples of eco- friendly projects funded by
(01:05):
green bonds. We'll also look at the difference between green
bonds and green loans. I'm joined by two guests who
know a lot about this subject, Sean Kidney, CEO and Co-
founder of the Climate Bonds Initiative and Samu Slotte, Global Head
of Sustainable Finance at Danske Bank. So hello and welcome
to you both. First of all, I'd like to ask
(01:28):
why sustainable issues are so important to you. Sean, would
you like to go first?
Sean Kidney (01:33):
Well, it's pretty straightforward, in a way. We have an
existential crisis. We are looking down the track at a
freight train coming towards us and the freight train by
this, I mean climate change. If you speak to a
climate scientist, good luck finding one that's willing to speak
(01:54):
to you because they're so annoyed that we've been ignoring them for
the last 30 years. They will tell you that we
have an extraordinary challenge, that we are looking at the
moment of effectively wholesale destruction of the way we run our world,
of our society and economy, because we have been traveling at the
worst possible trajectory of climate change for the last 30 years. Some
(02:15):
of the senior scientists I speak to are depressed, very
depressed because they tell me, in the words of one
retired professor, he doesn't see a future for his grandchildren.
He does not see a future for his grandchildren.
Libby Potter (02:29):
Wow.
Sean Kidney (02:30):
Because he thinks things are so grim. Now, I can
give you some details, like the fact that we've currently
got the highest GHG concentration in the atmosphere ever in
human history, since humans have been alive on the planet.
And we are heading to more than double that by the end of
the century.
Libby Potter (02:46):
Sean, can you explain what that is? You used an abbreviation
and I just want the-
Sean Kidney (02:49):
There's about 420 grams of parts per million of greenhouse gases
in the atmosphere, CO2 equivalent. It was 250 in the mid 1800s.
And we're heading to a thousand PPM, four times the
level of the mid 1800s. What does that mean? Well,
put it this way. If you've been in a meeting
room for three hours with the air conditioning not working,
(03:10):
talking about some arcane topic in finance and the atmosphere
is getting groggy and you are getting sleepy because the
air conditioning hasn't been working, that is a thousand PPM.
Our brains slow down. We become stupider. Now imagine the
whole atmosphere is like that at 2100, which is currently
what we're expected to. The great irony about this is
(03:32):
just the time we need our faculties to fix an
existential problem, humans will become stupider if we don't act
very quickly, putting aside the other effects. Now, I'm looking
at a situation where I think there is a reasonable risk
now. It's all about risk. We're risk people. There is
a reasonable risk of species extinction in the next century.
(03:53):
What the hell? We wouldn't get in a plane if we had
a 2% chance of a crash. We are heading out
to world with pacific chances of disaster for humans being
above 50% and species extinction still probably in the single digits, but
starting to appear. This is just like crazy. And you
know, it's easy. It's simple. The crazy thing about it is
(04:14):
to do this, to fix this is very simple. Okay. We've got to
switch to clean energy. We've got to switch to clean transport. We've got
to change the way we manage the panels in terms
of our land use, but we know what to do. There's
no rocket science. We've got to implement technologies that are already
out there. Yes, we're going to have to look at how to
make them financially viable, like the rate they capture, but
(04:34):
actually the technologies are out there. Now we just got
to scale them up. You know what's more? It's going
to take a lot of capital, like a lot of
capital, somewhere between 30 and 90, probably closer to 90
trillion by 2050. But we have the capital. We are
swamped by capital and we know where to put it
to work, which is shifting the planet to clean and green. And
(04:54):
if we do it, it's an investment boom. It's 90 years of
extraordinary levels of investment in infrastructure, which pays money as well.
We can design it to pay money. So it's kind
of like easy when you look at what we've got
to do. It's just that we've only just got started
because we've been fiddling for the last 30 years and not actually taking
(05:17):
serious action on this. We've put ourselves in a tricky
spot, but it's doable. When I spoke to a climate
scientist only a couple of weeks ago about just how grim things
are, he said the good news is all the emissions
that we have to address are human, are manmade. We
can fix it. We have not yet got feedback loops
coming in where we lose control of the climate because of
(05:40):
the Amazon collapsing, whatever. It's all about human emissions. So, hey it's possible.
Libby Potter (05:47):
Samu, it seems ridiculous to ask you after that impassioned and
undeniable exposition, but what is your reasoning for wanting to
become involved in this agenda?
Samu Slotte (06:00):
Well, I think Sean very well explained what this is all about. I
mean, we are facing existential threats, both from climate and
biodiversity. And I think there are a number of ways
we can address this. I mean, consumer behavior needs to
change. Policy needs to change, but clearly also the financial
markets have a huge role to play here. I mean,
we need to redirect capital. Capital allocations are really important for the transition
(06:25):
to more sustainable societies. I think I agree with Sean that we
know what needs to be done, and we need to act
on all of these three fronts, both as consumers, in
policy, and in the financial markets.
Libby Potter (06:38):
Also, Samu, Danske Bank actually partnered with the CBI a
few years ago, didn't it? Can you tell us why
you decided to issue a green bond when you did?
Samu Slotte (06:48):
Yeah. So Danske Bank issued a first green bond in
2019. And issuance of green bonds really fits into our
overall sustainability strategy. I mean, we want to redirect capital
flows and green finances is one of the ways of
doing that. And in order to give out green loans,
we should be issuing first green bonds. And that's what
(07:09):
we did then in 2019. I think important drivers for
why we did it is that green finance of course
creates transparency, and it creates rules around what we classify
as green. It also creates awareness amongst both our staff,
our other stakeholders, clients, investors, which is important. And finally,
(07:33):
I think also issuing a green bond helps us to
reach out to investors that we perhaps wouldn't otherwise reach
out to.
Libby Potter (07:40):
So you've pretty much answered my next question, which was
about how the CBI helped you in this. But maybe
Sean can answer. Can you explain briefly what the difference is
between a green loan and a green bond?
Sean Kidney (07:52):
Well, the answer is there's between a loan and a bond. The word green
is just a characteristic of any instrument. Goldman Sachs announced
last week, it's issuing green equity for, goodness' sakes. Same
principle. All it is, is the proceeds are allocated towards
something called green, and therein lies this interesting discussion, as
Samu alluded to. But any financing of any kind can
(08:19):
be allocated towards green, whether it be bonds, debt, different
kinds of debt, like (inaudible) , or covered bonds, fund brief
or equity or direct investment of various sorts. The issue
is how's the money being used. And is it consistent with
the growing understanding of where we need to allocate that money
(08:40):
to be able to make a difference to the planet?
Samu Slotte (08:42):
Yeah. And of course for a bank, I mean, when we issue a
green bond, what we commit to is to give out green loads
on the other side of the balance sheet, which then
matched those terms that we've set in the bond. So
as Sean put it, any instrument can be green, but
for a bank, a green loan would be matched by
issuing then in the capital markets a green bond.
Libby Potter (09:04):
Samu, can you tell us what sort of projects were
made possible, what green initiatives were made possible from the
proceeds of the green bonds that you issued?
Samu Slotte (09:14):
If we look at the green pool that we have,
pool of green loans that are financed with the green
bond nations, it's roughly split in... or 50% of that
is buildings, green and energy efficient buildings. A large part
is renewable energy. And then we have clean transportation. And
I think it's quite interesting to look at what the
(09:38):
projects that we financed are and where they are geographically
placed. I mean, Danske Bank, we are mostly active in
the Nordics. Much of our lending is in the Nordic
countries. And if we look at which type of projects
take place in Denmark, which type of projects takes place
in Sweden, Norway and Finland, it's very representative of what
actually needs to happen in the real economy in those
(10:00):
countries. If buildings, that's across the entire region. So buildings
consumes a lot of energy, particularly in our part of
the world where heating is so important, and that all
needs to be decarbonized, but we also need to bring
down the energy consumption of buildings. Buildings consume a lot
(10:21):
of energy, and the less they consume, the less there
is need to produce that with fossil fuel produced heat
and power. So we're seeing green loans to real estate
across the region. But then here's where the country specific
differences kick in. We've seen in Norway, for instance, projects
(10:42):
to green transportation, so electrified transportation. One example would be
financing to a company called (Dhorkhaten) for electrified ferries.
And these are big ferries, I mean really large ferries.
So that would be one type of a project. Then
in terms of renewable energy, one for instance, interesting project
(11:04):
would be an offshore wind park, Dogger Bank in the
North Sea. A really large project. I actually think it's
going to be the world's largest offshore wind park, 3.
6 gigabytes, so when completed, fully completed. And I think
that's the equivalent of... we're able to provide power to
six million households. So a really big project. And that's
(11:26):
one of the projects we've been involved in in the last year.
Libby Potter (11:29):
Can we talk a bit more, Sean, though, about the
measurement and classification of these green financial instruments? It's been
touched upon already, but it's something that you know a
lot about because of your work with the EU and
obviously the CBI. Could you talk to me about how
the CBI's taxonomy that you've developed set standards for what
constitutes a true green project?
Sean Kidney (11:52):
Well, it's simple in a way. Read the scientist reports
and avoid reading the government reports that are mediated by
politics. It's as crude as that. And when we've developed
criteria in our taxonomy, we'd gone to the domain experts in
an area like transport, say, and said, " What have we
(12:12):
got to do here to meet our climate commitments as exemplified
by the Paris Agreement? What does it look like?" You
know that the government paddle on climate change, the science reports are
superb, but they all go to a member state committee.
And then by the time it gets to a national climate change
plan, they're saying, " Well, the IPC says this, but that looks really tough,
(12:35):
right? What about we just do this, which is..." And
then you've got a national climate change plan, which in
most cases is way too weak compared to what we
actually have to do globally. And so you've got this
continual watering down through political process, unfortunately, because of the
lack of ambition on the part of most governments to act
commensurate with what the scientists are saying, the unmediated scientists.
(12:58):
So we go to the scientists and we say, " Tell
us what the issues are, what we got do?" And we translate
that into criteria. So when an investor or a bank
uses current bond certification criteria, it is what the science
are saying translated into a binary tool that can be
used in financial markets. So of course there's a translation exercise
there. And as a result, you can have confidence that
(13:20):
if you're investing in that kind of area, yes, there is
a solid argument as to why it's consistent with meeting
our targets, really, which then you could look at, well
as if (inaudible) the national climate change plan's a
slightly separate issue. So that's how we've done it. And we've managed
to convince the European Union. And I've been in various (inaudible)
committees for years now that they should do one
(13:42):
and they should keep it science- based and full credits
to the European Commission for their willingness to entertain tough
approaches to climate change as exemplified by their commitment to
the 2015 net zero target. And now the 2030, 55% cap
emissions targets, critically important targets reflected in the IPC 2018 report and what
(14:04):
the scientists say. And that's now represented in the taxonomy. Now
we're still having bunt fights at the edges. The truth
is that national climate change plans in Europe have not
caught up with either science or the European Commission's new
2030 commitment. And in that space between national climate change
(14:26):
plans and the new commitments we have is an argument.
Hang on. Really? I've got to do... Hang on. No. And
that's exactly what we're experiencing in Europe now, as we
have debates about what should be in the taxonomy necessary and
overview debates and discussion.
Libby Potter (14:42):
In The Economist last week, there was a comment on
the EU taxonomy, and they seem to suggest that it
couldn't work without better disclosure. I don't know if that's
something, Samu, you can talk about, about the fact that
corporate disclosure is everything, and without it, the taxonomy will fail.
Samu Slotte (15:02):
Yeah, of course we need disclosure, but we shouldn't wait
for that to get going. I mean, I think everybody
needs to accept that the taxonomy is not complete and sort
of final form yet, but we still start using it. And
of course there will be data gaps. And I think
the important thing is just to, explain where the gaps
(15:22):
are and how we manage that and wait for disclosure
to improve. We can't sit around and just wait for
more disclosure. We can get going with what we have now.
Libby Potter (15:32):
Sean, can you actually talk about how the CBI plays
a role in auditing the green bond proceeds? What do you expect
in terms of reporting documentation?
Sean Kidney (15:43):
Well, it's important to note that we're not a government
regulator. We provide a voluntary opportunity for people to do
certification with some protocols, rules associated. Think of it as
a green bond principle turned into mandatory. Plus we attach
a taxonomy you can use. And separately, we track all
(16:03):
green bonds issued at the market for the purposes of
reporting to index providers and investors. So we do expect
people to get an independent review. It does not mean
we would exclude a bond if it has got any bit of review
from our green bond listings, we take a very open
approach. What counts is where the money's going, not necessarily
(16:23):
the formality of the paperwork. Got to be clear about that. But
a lot of investors like the formality of the paperwork,
most investors do in fact, and so we try and support them. We're
making it clear. We do expect people to do post
issued supporting. And in fact, just today, we've launched our
40,000 word post issuance reports, which is looking at who's
(16:46):
reporting and how it's going. And I'm going to tell you, everyone
is reporting. We're doing pretty well. There are a few people
like small US munies that aren't, for regulatory reasons. But generally
we're very good. We've done a very good job at
the European Commission level on translating the science into appropriate criteria.
Libby Potter (17:06):
So Samu, let's step back a bit and just talk
about the role of Danske Bank in the kind of
general decarbonization efforts of the climate change initiatives. What do
you believe about your role when it comes to achieving
that ultra ambitious, seemingly 1. 5 degree global warming goal,
(17:29):
which was outlined in the Paris Agreement? Should your investors
care about this?
Samu Slotte (17:34):
Well, absolutely, they should care about this. And I think
even if we're now talking mainly green finance here, you
are absolutely right that we need to look at this
at all finance, not just the green part of it.
So for us, for instance, as a bank, yes, we
do have green loans and that's an important part of
our overall sustainability strategy, but it's still just a small
(17:57):
piece of our total lending. We need also to look
at the total lending. That's what we're doing. We have
actually set a commitment a bit more than a year
ago that by 2023, we will have a Paris- aligned
metrics in place for the entire corporate lending book. We're
working on that. We will go through sector by sector,
(18:19):
our exposures, look at the carbon intensity of that, and
set targets on how we can bring down, how we can
reallocate capital within that sector so that we're aligned with
the goals of the Paris Agreement. And as said, by 2023, we
will have these metrics in place. But that doesn't mean
that we wouldn't work with these issues already. And this
(18:42):
sort of would look at so what's Danske Bank's lending's
impact on the climate, but there's also the other perspective
to look at how climate change and climate policy will
affect our clients and hence our risk profile. And we're also
working on that analysis at the same time. So we're
(19:02):
doing sort of TCFD, a task force on climate- related
financial disclosure type of analysis of our entire corporate lending
book. And these two different metrics and types of analysis will
give us a good picture of both the impact that
we have on climate, but also the risks that climate
(19:23):
change poses on our lending. And we will be disclosing more
information on these shortly. Probably already this summer, we'll come
up with some information on the progress of these workflows.
Libby Potter (19:37):
You've touched on this already, Samu, but it seems that the Nordic countries are in, as
in so many fields, ahead of the game on this.
And would you say that they're early adopters when it
comes to ESG, environmental, social and governance issues?
Samu Slotte (19:51):
Yeah, I think... I mean, of course we are a reflection of
the societies we operate in as a bank. I mean,
it is our clients who are doing the decarbonization and
they are the ones who should be getting credit for
it. But of course, that's then reflected in our loan
book. And it is true that in some areas, for
(20:15):
instance, in decarbonization of the power system, the Nordic countries
are probably a bit ahead of many other jurisdictions. So
I think if we look at what's happening in the
Nordic society as a whole, there are quite ambitious decarbonization
targets. So Finland has set a decarbonization target or climate
(20:38):
neutrality target for 2035, Sweden, 2045. And that of course
helps also the financial markets. There's a lot going on
in this space because the companies need to take action.
And that's probably one of the reasons why the Nordic
countries are ahead in some areas. We need a combination
(20:59):
of policy and financial market action.
Sean Kidney (21:03):
I want to add there. Nordic countries kicked off the green bond market. Sweden is
the largest per capita issuer of green bonds in the world. Finland,
Denmark, Norway, they've all been drivers of green finance. There's
a lot to celebrate. Yes, we're having arguments about boundary
issues, such as forestry. This is inevitable. These are overdued arguments.
(21:27):
These are discussions we should have had five years ago
around the world. And for various reasons, we didn't. But
I just want to stress, we are talking about the
world's number one green bond and green finance market globally.
And we expect a lot more from the area. The real
point about all of this is that it's not just about environment. It's also
about risk. And fundamentally for financial markets, it's risk that
(21:52):
drives change. We're talking about significant forward risk of asset destruction,
of portfolio manage destruction, or collapse going forward if the
worst of climate change comes up. That's what the primary
driver for investors concerned around this is. They want to
improve their chances to be able to pay our pensions when we finally
(22:14):
retire in 2040. So how do we do that? Well,
one of the ways we do that is we make sure
the enabling economy that we're investigating in is sustainable and
delivering sustainable returns. Well, that requires us to head off
major risks to that sustainable economy. Climate change is a
major risk. Biodiversity destruction is a major risk. There are
(22:38):
other risks. Of course, there are, but these are existential,
humongous, elephant size risks that we have to address. So
it's all about what could you do as an investor?
The truth is you can't do a huge amount by
yourself. It's a bit like shifting the deck chairs on
the Titanic, but there is stuff you can do. Buying green
bonds is one. Greater engagement at shareholder meetings and with
(23:03):
your board of directors of the companies you're investing in
is another, and so on. And then finally, it's about
addressing what government's doing, what state actors are doing and
what corporation's doing to shift their economies to a more
sustainable level. And that's a mega push. And investors have
to band together to do this, which we've been seeing
(23:23):
with Scandinavian investors being a critical driver of this. We've
seen a whole range of investor alliances come together over
the last 10 years, most notably recently the Climate Action
100+, the Net- Zero Asset Owners Alliance and so on,
who are taking much more aggressive positions inspired in some
ways by NBIM in Norway, much aggressive positions about how
(23:47):
companies need to change to become more sustainable. And now governments
see the change. And that's really important, really critical because
it's going to reduce forward risk of asset depreciation.
Samu Slotte (24:01):
But there's also a big opportunity in that, I think, for
companies. I mean, we know that the entire world needs
to decarbonize. So if you as a company develop the techniques
and technologies for doing that, that's of course a great
asset when others are coming a bit behind and have
a need for that type of technology. So I think
(24:22):
the companies in the region, the Nordic region, have really
embraced this.
Sean Kidney (24:27):
And we have some real leaders, like Danfoss in Denmark,
in energy efficiency. You know, we had this really curious point in history.
This year, unlike two years ago, before the pandemic, the
shape of the future is now very clear. You do
not get arguments about this. It will be clean, it will be
green, it will be climate resilient. The question now is
(24:48):
about speed, how quickly we can get there. And that's
very material to heading off catastrophe, by the way. We've
got to get there in 10 years, not in 30 years.
That of course provides extraordinary opportunity for companies who can
take advantage of the change, which we're now certain is
coming and can get there first. And that's the Danfosses of
the world. All the SSABs of the world in Sweden who's
(25:10):
now rolling out zero carbon steel. These are the companies
that will prosper going forward because they can surf the
wave. And that's the change I think that this year
brings to markets.
Libby Potter (25:23):
So it's kind of a green rush rather than a gold rush,
potentially. So finally, just to wrap things up, is there
one takeaway that you can tell our listeners to bear
in mind when it comes to green finance? Samu, you
try first.
Samu Slotte (25:41):
Yeah. I think green financial instruments are, of course, a
very good thing for the market. They create transparency, they
create awareness. And now with the taxonomy, we also get
really standardization of the criteria. So that's an good side
(26:03):
of greens finance. But at the same time again, I
think it's important that we don't only focus on the
green part. We need to ensure that all finance takes
into account sustainability, and that we'll get those capital follows shifted.
Libby Potter (26:18):
And Sean?
Sean Kidney (26:18):
We're in the middle of a revolution. The revolution has begun.
We've already got there with the rapid growth of green
bonds and the daughters of green bonds, sustainable, social, resilience,
blue, et cetera, all using the same format. This is
a market that will hit a trillion years. There's a
trillion dollars of issuance this year. That's substantial. That's material.
(26:42):
It's now leaching into other sectors, other instruments. We now see Goldman Sachs
announcing this week they're going to issue a green equity, for goodness' sake. It's spreading
everywhere. It's a single universe of green stuff, which when
you understand the change is now certain. The shape of
the future represents lower risk, represents opportunity to get it.
(27:04):
Of course, we do have to now drive the change,
and that driving of the change to make it rapid
enough to head off the catastrophes we're looking at will
require strong state action and strong collaboration between the holders
of capital, institution investors and governments, and it'll require banks to
be the brokers, the intermediaries, the oil and the wheels
(27:28):
of the financial sector, but have a green focus. I mean, I
want Danske to be a hundred percent green bank. If we
start looking at the range of things that has to be
done to make the economy green and resilient, which covers
everything in the economy, we can do that. We will do
that. Come back in ten years' time, Samu, we'll be able to have
a glass of champagne about the incredible changes at Danske
(27:51):
and your peer banks in Scandinavia.
Samu Slotte (27:54):
Absolutely. Well, I will do that. I think we should
do that before 10 years from now.
Sean Kidney (27:58):
I hope you're right.
Libby Potter (27:58):
I was going to say. So before we leave, what's the best way for
listeners that are interested to keep up to speed on
some of these topics, Sean?
Sean Kidney (28:07):
You have a ton of information at our website, wwwclientbonds.net, and you
can subscribe to news, but honestly just go online and
search for green bonds or climate bonds. You will be
swamped of stuff. But the most important thing I would
say is get your pension fund, your insurance fund active
in this. They need to be aware of the risks. They need to be aware of
the opportunities, and they have the capital. If they shift, well,
(28:30):
it's like getting a herd of elephants (inaudible) across the
planes. Everything will shift.
Libby Potter (28:35):
Same to you, Samu, how can listeners keep abreast of
what's happening at Danske Bank in terms of green initiatives?
Samu Slotte (28:42):
Yeah. So for Danske Bank's own green bond issuance, our
investor relations website would be a good place to start.
So danskebank. com and then investor relations somewhere there. And
then, we of course do a lot also for our
clients in green finance space. And a good place to follow
the activities that we're doing would be the LinkedIn page
(29:05):
for Danske Bank, large corporates and institutions.
Libby Potter (29:09):
Sean Kidney, CEO and Co- founder of the Climate Bonds Initiative
and Samu Slotte, Global Head of Sustainable Finance at Danske Bank,
thank you both. Please rate, review and follow One Step
Ahead, wherever you get your podcasts. I'm Libby Potter. Thanks
for listening.
Speaker 1 (29:27):
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(29:49):
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Welcome to One Step Ahead. Technological innovation and the need
to live more sustainably are profoundly reshaping how we travel,
work and play. In this podcast, business leaders and industry
disruptors break down how they're adapting to these trends, preparing
for what's next and helping to build a brighter future
for our planet. One Step Ahead is brought to you
(00:24):
by Lyxor ETF, a European pioneer of exchange traded funds.
To learn more about how you can keep your investments
ahead of change, visit lyxoretf. com. This podcast is for
informational purposes only, and should not be taken as investment
advice and/ or an offer to buy financial products.
Libby Potter (00:45):
Hello, I'm Libby Potter. In this episode of One Step
Ahead, we're looking at green bonds. A green bond is
a very simple and impactful way to invest for climate
action, as we're about to find out. We'll be exploring
how this booming market has grown and we'll dig into
some real life examples of eco- friendly projects funded by
(01:05):
green bonds. We'll also look at the difference between green
bonds and green loans. I'm joined by two guests who
know a lot about this subject, Sean Kidney, CEO and Co-
founder of the Climate Bonds Initiative and Samu Slotte, Global Head
of Sustainable Finance at Danske Bank. So hello and welcome
to you both. First of all, I'd like to ask
(01:28):
why sustainable issues are so important to you. Sean, would
you like to go first?
Sean Kidney (01:33):
Well, it's pretty straightforward, in a way. We have an
existential crisis. We are looking down the track at a
freight train coming towards us and the freight train by
this, I mean climate change. If you speak to a
climate scientist, good luck finding one that's willing to speak
(01:54):
to you because they're so annoyed that we've been ignoring them for
the last 30 years. They will tell you that we
have an extraordinary challenge, that we are looking at the
moment of effectively wholesale destruction of the way we run our world,
of our society and economy, because we have been traveling at the
worst possible trajectory of climate change for the last 30 years. Some
(02:15):
of the senior scientists I speak to are depressed, very
depressed because they tell me, in the words of one
retired professor, he doesn't see a future for his grandchildren.
He does not see a future for his grandchildren.
Libby Potter (02:29):
Wow.
Sean Kidney (02:30):
Because he thinks things are so grim. Now, I can
give you some details, like the fact that we've currently
got the highest GHG concentration in the atmosphere ever in
human history, since humans have been alive on the planet.
And we are heading to more than double that by the end of
the century.
Libby Potter (02:46):
Sean, can you explain what that is? You used an abbreviation
and I just want the-
Sean Kidney (02:49):
There's about 420 grams of parts per million of greenhouse gases
in the atmosphere, CO2 equivalent. It was 250 in the mid 1800s.
And we're heading to a thousand PPM, four times the
level of the mid 1800s. What does that mean? Well,
put it this way. If you've been in a meeting
room for three hours with the air conditioning not working,
(03:10):
talking about some arcane topic in finance and the atmosphere
is getting groggy and you are getting sleepy because the
air conditioning hasn't been working, that is a thousand PPM.
Our brains slow down. We become stupider. Now imagine the
whole atmosphere is like that at 2100, which is currently
what we're expected to. The great irony about this is
(03:32):
just the time we need our faculties to fix an
existential problem, humans will become stupider if we don't act
very quickly, putting aside the other effects. Now, I'm looking
at a situation where I think there is a reasonable risk
now. It's all about risk. We're risk people. There is
a reasonable risk of species extinction in the next century.
(03:53):
What the hell? We wouldn't get in a plane if we had
a 2% chance of a crash. We are heading out
to world with pacific chances of disaster for humans being
above 50% and species extinction still probably in the single digits, but
starting to appear. This is just like crazy. And you
know, it's easy. It's simple. The crazy thing about it is
(04:14):
to do this, to fix this is very simple. Okay. We've got to
switch to clean energy. We've got to switch to clean transport. We've got
to change the way we manage the panels in terms
of our land use, but we know what to do. There's
no rocket science. We've got to implement technologies that are already
out there. Yes, we're going to have to look at how to
make them financially viable, like the rate they capture, but
(04:34):
actually the technologies are out there. Now we just got
to scale them up. You know what's more? It's going
to take a lot of capital, like a lot of
capital, somewhere between 30 and 90, probably closer to 90
trillion by 2050. But we have the capital. We are
swamped by capital and we know where to put it
to work, which is shifting the planet to clean and green. And
(04:54):
if we do it, it's an investment boom. It's 90 years of
extraordinary levels of investment in infrastructure, which pays money as well.
We can design it to pay money. So it's kind
of like easy when you look at what we've got
to do. It's just that we've only just got started
because we've been fiddling for the last 30 years and not actually taking
(05:17):
serious action on this. We've put ourselves in a tricky
spot, but it's doable. When I spoke to a climate
scientist only a couple of weeks ago about just how grim things
are, he said the good news is all the emissions
that we have to address are human, are manmade. We
can fix it. We have not yet got feedback loops
coming in where we lose control of the climate because of
(05:40):
the Amazon collapsing, whatever. It's all about human emissions. So, hey it's possible.
Libby Potter (05:47):
Samu, it seems ridiculous to ask you after that impassioned and
undeniable exposition, but what is your reasoning for wanting to
become involved in this agenda?
Samu Slotte (06:00):
Well, I think Sean very well explained what this is all about. I
mean, we are facing existential threats, both from climate and
biodiversity. And I think there are a number of ways
we can address this. I mean, consumer behavior needs to
change. Policy needs to change, but clearly also the financial
markets have a huge role to play here. I mean,
we need to redirect capital. Capital allocations are really important for the transition
(06:25):
to more sustainable societies. I think I agree with Sean that we
know what needs to be done, and we need to act
on all of these three fronts, both as consumers, in
policy, and in the financial markets.
Libby Potter (06:38):
Also, Samu, Danske Bank actually partnered with the CBI a
few years ago, didn't it? Can you tell us why
you decided to issue a green bond when you did?
Samu Slotte (06:48):
Yeah. So Danske Bank issued a first green bond in
2019. And issuance of green bonds really fits into our
overall sustainability strategy. I mean, we want to redirect capital
flows and green finances is one of the ways of
doing that. And in order to give out green loans,
we should be issuing first green bonds. And that's what
(07:09):
we did then in 2019. I think important drivers for
why we did it is that green finance of course
creates transparency, and it creates rules around what we classify
as green. It also creates awareness amongst both our staff,
our other stakeholders, clients, investors, which is important. And finally,
(07:33):
I think also issuing a green bond helps us to
reach out to investors that we perhaps wouldn't otherwise reach
out to.
Libby Potter (07:40):
So you've pretty much answered my next question, which was
about how the CBI helped you in this. But maybe
Sean can answer. Can you explain briefly what the difference is
between a green loan and a green bond?
Sean Kidney (07:52):
Well, the answer is there's between a loan and a bond. The word green
is just a characteristic of any instrument. Goldman Sachs announced
last week, it's issuing green equity for, goodness' sakes. Same
principle. All it is, is the proceeds are allocated towards
something called green, and therein lies this interesting discussion, as
Samu alluded to. But any financing of any kind can
(08:19):
be allocated towards green, whether it be bonds, debt, different
kinds of debt, like (inaudible) , or covered bonds, fund brief
or equity or direct investment of various sorts. The issue
is how's the money being used. And is it consistent with
the growing understanding of where we need to allocate that money
(08:40):
to be able to make a difference to the planet?
Samu Slotte (08:42):
Yeah. And of course for a bank, I mean, when we issue a
green bond, what we commit to is to give out green loads
on the other side of the balance sheet, which then
matched those terms that we've set in the bond. So
as Sean put it, any instrument can be green, but
for a bank, a green loan would be matched by
issuing then in the capital markets a green bond.
Libby Potter (09:04):
Samu, can you tell us what sort of projects were
made possible, what green initiatives were made possible from the
proceeds of the green bonds that you issued?
Samu Slotte (09:14):
If we look at the green pool that we have,
pool of green loans that are financed with the green
bond nations, it's roughly split in... or 50% of that
is buildings, green and energy efficient buildings. A large part
is renewable energy. And then we have clean transportation. And
I think it's quite interesting to look at what the
(09:38):
projects that we financed are and where they are geographically
placed. I mean, Danske Bank, we are mostly active in
the Nordics. Much of our lending is in the Nordic
countries. And if we look at which type of projects
take place in Denmark, which type of projects takes place
in Sweden, Norway and Finland, it's very representative of what
actually needs to happen in the real economy in those
(10:00):
countries. If buildings, that's across the entire region. So buildings
consumes a lot of energy, particularly in our part of
the world where heating is so important, and that all
needs to be decarbonized, but we also need to bring
down the energy consumption of buildings. Buildings consume a lot
(10:21):
of energy, and the less they consume, the less there
is need to produce that with fossil fuel produced heat
and power. So we're seeing green loans to real estate
across the region. But then here's where the country specific
differences kick in. We've seen in Norway, for instance, projects
(10:42):
to green transportation, so electrified transportation. One example would be
financing to a company called (Dhorkhaten) for electrified ferries.
And these are big ferries, I mean really large ferries.
So that would be one type of a project. Then
in terms of renewable energy, one for instance, interesting project
(11:04):
would be an offshore wind park, Dogger Bank in the
North Sea. A really large project. I actually think it's
going to be the world's largest offshore wind park, 3.
6 gigabytes, so when completed, fully completed. And I think
that's the equivalent of... we're able to provide power to
six million households. So a really big project. And that's
(11:26):
one of the projects we've been involved in in the last year.
Libby Potter (11:29):
Can we talk a bit more, Sean, though, about the
measurement and classification of these green financial instruments? It's been
touched upon already, but it's something that you know a
lot about because of your work with the EU and
obviously the CBI. Could you talk to me about how
the CBI's taxonomy that you've developed set standards for what
constitutes a true green project?
Sean Kidney (11:52):
Well, it's simple in a way. Read the scientist reports
and avoid reading the government reports that are mediated by
politics. It's as crude as that. And when we've developed
criteria in our taxonomy, we'd gone to the domain experts in
an area like transport, say, and said, " What have we
(12:12):
got to do here to meet our climate commitments as exemplified
by the Paris Agreement? What does it look like?" You
know that the government paddle on climate change, the science reports are
superb, but they all go to a member state committee.
And then by the time it gets to a national climate change
plan, they're saying, " Well, the IPC says this, but that looks really tough,
(12:35):
right? What about we just do this, which is..." And
then you've got a national climate change plan, which in
most cases is way too weak compared to what we
actually have to do globally. And so you've got this
continual watering down through political process, unfortunately, because of the
lack of ambition on the part of most governments to act
commensurate with what the scientists are saying, the unmediated scientists.
(12:58):
So we go to the scientists and we say, " Tell
us what the issues are, what we got do?" And we translate
that into criteria. So when an investor or a bank
uses current bond certification criteria, it is what the science
are saying translated into a binary tool that can be
used in financial markets. So of course there's a translation exercise
there. And as a result, you can have confidence that
(13:20):
if you're investing in that kind of area, yes, there is
a solid argument as to why it's consistent with meeting
our targets, really, which then you could look at, well
as if (inaudible) the national climate change plan's a
slightly separate issue. So that's how we've done it. And we've managed
to convince the European Union. And I've been in various (inaudible)
committees for years now that they should do one
(13:42):
and they should keep it science- based and full credits
to the European Commission for their willingness to entertain tough
approaches to climate change as exemplified by their commitment to
the 2015 net zero target. And now the 2030, 55% cap
emissions targets, critically important targets reflected in the IPC 2018 report and what
(14:04):
the scientists say. And that's now represented in the taxonomy. Now
we're still having bunt fights at the edges. The truth
is that national climate change plans in Europe have not
caught up with either science or the European Commission's new
2030 commitment. And in that space between national climate change
(14:26):
plans and the new commitments we have is an argument.
Hang on. Really? I've got to do... Hang on. No. And
that's exactly what we're experiencing in Europe now, as we
have debates about what should be in the taxonomy necessary and
overview debates and discussion.
Libby Potter (14:42):
In The Economist last week, there was a comment on
the EU taxonomy, and they seem to suggest that it
couldn't work without better disclosure. I don't know if that's
something, Samu, you can talk about, about the fact that
corporate disclosure is everything, and without it, the taxonomy will fail.
Samu Slotte (15:02):
Yeah, of course we need disclosure, but we shouldn't wait
for that to get going. I mean, I think everybody
needs to accept that the taxonomy is not complete and sort
of final form yet, but we still start using it. And
of course there will be data gaps. And I think
the important thing is just to, explain where the gaps
(15:22):
are and how we manage that and wait for disclosure
to improve. We can't sit around and just wait for
more disclosure. We can get going with what we have now.
Libby Potter (15:32):
Sean, can you actually talk about how the CBI plays
a role in auditing the green bond proceeds? What do you expect
in terms of reporting documentation?
Sean Kidney (15:43):
Well, it's important to note that we're not a government
regulator. We provide a voluntary opportunity for people to do
certification with some protocols, rules associated. Think of it as
a green bond principle turned into mandatory. Plus we attach
a taxonomy you can use. And separately, we track all
(16:03):
green bonds issued at the market for the purposes of
reporting to index providers and investors. So we do expect
people to get an independent review. It does not mean
we would exclude a bond if it has got any bit of review
from our green bond listings, we take a very open
approach. What counts is where the money's going, not necessarily
(16:23):
the formality of the paperwork. Got to be clear about that. But
a lot of investors like the formality of the paperwork,
most investors do in fact, and so we try and support them. We're
making it clear. We do expect people to do post
issued supporting. And in fact, just today, we've launched our
40,000 word post issuance reports, which is looking at who's
(16:46):
reporting and how it's going. And I'm going to tell you, everyone
is reporting. We're doing pretty well. There are a few people
like small US munies that aren't, for regulatory reasons. But generally
we're very good. We've done a very good job at
the European Commission level on translating the science into appropriate criteria.
Libby Potter (17:06):
So Samu, let's step back a bit and just talk
about the role of Danske Bank in the kind of
general decarbonization efforts of the climate change initiatives. What do
you believe about your role when it comes to achieving
that ultra ambitious, seemingly 1. 5 degree global warming goal,
(17:29):
which was outlined in the Paris Agreement? Should your investors
care about this?
Samu Slotte (17:34):
Well, absolutely, they should care about this. And I think
even if we're now talking mainly green finance here, you
are absolutely right that we need to look at this
at all finance, not just the green part of it.
So for us, for instance, as a bank, yes, we
do have green loans and that's an important part of
our overall sustainability strategy, but it's still just a small
(17:57):
piece of our total lending. We need also to look
at the total lending. That's what we're doing. We have
actually set a commitment a bit more than a year
ago that by 2023, we will have a Paris- aligned
metrics in place for the entire corporate lending book. We're
working on that. We will go through sector by sector,
(18:19):
our exposures, look at the carbon intensity of that, and
set targets on how we can bring down, how we can
reallocate capital within that sector so that we're aligned with
the goals of the Paris Agreement. And as said, by 2023, we
will have these metrics in place. But that doesn't mean
that we wouldn't work with these issues already. And this
(18:42):
sort of would look at so what's Danske Bank's lending's
impact on the climate, but there's also the other perspective
to look at how climate change and climate policy will
affect our clients and hence our risk profile. And we're also
working on that analysis at the same time. So we're
(19:02):
doing sort of TCFD, a task force on climate- related
financial disclosure type of analysis of our entire corporate lending
book. And these two different metrics and types of analysis will
give us a good picture of both the impact that
we have on climate, but also the risks that climate
(19:23):
change poses on our lending. And we will be disclosing more
information on these shortly. Probably already this summer, we'll come
up with some information on the progress of these workflows.
Libby Potter (19:37):
You've touched on this already, Samu, but it seems that the Nordic countries are in, as
in so many fields, ahead of the game on this.
And would you say that they're early adopters when it
comes to ESG, environmental, social and governance issues?
Samu Slotte (19:51):
Yeah, I think... I mean, of course we are a reflection of
the societies we operate in as a bank. I mean,
it is our clients who are doing the decarbonization and
they are the ones who should be getting credit for
it. But of course, that's then reflected in our loan
book. And it is true that in some areas, for
(20:15):
instance, in decarbonization of the power system, the Nordic countries
are probably a bit ahead of many other jurisdictions. So
I think if we look at what's happening in the
Nordic society as a whole, there are quite ambitious decarbonization
targets. So Finland has set a decarbonization target or climate
(20:38):
neutrality target for 2035, Sweden, 2045. And that of course
helps also the financial markets. There's a lot going on
in this space because the companies need to take action.
And that's probably one of the reasons why the Nordic
countries are ahead in some areas. We need a combination
(20:59):
of policy and financial market action.
Sean Kidney (21:03):
I want to add there. Nordic countries kicked off the green bond market. Sweden is
the largest per capita issuer of green bonds in the world. Finland,
Denmark, Norway, they've all been drivers of green finance. There's
a lot to celebrate. Yes, we're having arguments about boundary
issues, such as forestry. This is inevitable. These are overdued arguments.
(21:27):
These are discussions we should have had five years ago
around the world. And for various reasons, we didn't. But
I just want to stress, we are talking about the
world's number one green bond and green finance market globally.
And we expect a lot more from the area. The real
point about all of this is that it's not just about environment. It's also
about risk. And fundamentally for financial markets, it's risk that
(21:52):
drives change. We're talking about significant forward risk of asset destruction,
of portfolio manage destruction, or collapse going forward if the
worst of climate change comes up. That's what the primary
driver for investors concerned around this is. They want to
improve their chances to be able to pay our pensions when we finally
(22:14):
retire in 2040. So how do we do that? Well,
one of the ways we do that is we make sure
the enabling economy that we're investigating in is sustainable and
delivering sustainable returns. Well, that requires us to head off
major risks to that sustainable economy. Climate change is a
major risk. Biodiversity destruction is a major risk. There are
(22:38):
other risks. Of course, there are, but these are existential,
humongous, elephant size risks that we have to address. So
it's all about what could you do as an investor?
The truth is you can't do a huge amount by
yourself. It's a bit like shifting the deck chairs on
the Titanic, but there is stuff you can do. Buying green
bonds is one. Greater engagement at shareholder meetings and with
(23:03):
your board of directors of the companies you're investing in
is another, and so on. And then finally, it's about
addressing what government's doing, what state actors are doing and
what corporation's doing to shift their economies to a more
sustainable level. And that's a mega push. And investors have
to band together to do this, which we've been seeing
(23:23):
with Scandinavian investors being a critical driver of this. We've
seen a whole range of investor alliances come together over
the last 10 years, most notably recently the Climate Action
100+, the Net- Zero Asset Owners Alliance and so on,
who are taking much more aggressive positions inspired in some
ways by NBIM in Norway, much aggressive positions about how
(23:47):
companies need to change to become more sustainable. And now governments
see the change. And that's really important, really critical because
it's going to reduce forward risk of asset depreciation.
Samu Slotte (24:01):
But there's also a big opportunity in that, I think, for
companies. I mean, we know that the entire world needs
to decarbonize. So if you as a company develop the techniques
and technologies for doing that, that's of course a great
asset when others are coming a bit behind and have
a need for that type of technology. So I think
(24:22):
the companies in the region, the Nordic region, have really
embraced this.
Sean Kidney (24:27):
And we have some real leaders, like Danfoss in Denmark,
in energy efficiency. You know, we had this really curious point in history.
This year, unlike two years ago, before the pandemic, the
shape of the future is now very clear. You do
not get arguments about this. It will be clean, it will be
green, it will be climate resilient. The question now is
(24:48):
about speed, how quickly we can get there. And that's
very material to heading off catastrophe, by the way. We've
got to get there in 10 years, not in 30 years.
That of course provides extraordinary opportunity for companies who can
take advantage of the change, which we're now certain is
coming and can get there first. And that's the Danfosses of
the world. All the SSABs of the world in Sweden who's
(25:10):
now rolling out zero carbon steel. These are the companies
that will prosper going forward because they can surf the
wave. And that's the change I think that this year
brings to markets.
Libby Potter (25:23):
So it's kind of a green rush rather than a gold rush,
potentially. So finally, just to wrap things up, is there
one takeaway that you can tell our listeners to bear
in mind when it comes to green finance? Samu, you
try first.
Samu Slotte (25:41):
Yeah. I think green financial instruments are, of course, a
very good thing for the market. They create transparency, they
create awareness. And now with the taxonomy, we also get
really standardization of the criteria. So that's an good side
(26:03):
of greens finance. But at the same time again, I
think it's important that we don't only focus on the
green part. We need to ensure that all finance takes
into account sustainability, and that we'll get those capital follows shifted.
Libby Potter (26:18):
And Sean?
Sean Kidney (26:18):
We're in the middle of a revolution. The revolution has begun.
We've already got there with the rapid growth of green
bonds and the daughters of green bonds, sustainable, social, resilience,
blue, et cetera, all using the same format. This is
a market that will hit a trillion years. There's a
trillion dollars of issuance this year. That's substantial. That's material.
(26:42):
It's now leaching into other sectors, other instruments. We now see Goldman Sachs
announcing this week they're going to issue a green equity, for goodness' sake. It's spreading
everywhere. It's a single universe of green stuff, which when
you understand the change is now certain. The shape of
the future represents lower risk, represents opportunity to get it.
(27:04):
Of course, we do have to now drive the change,
and that driving of the change to make it rapid
enough to head off the catastrophes we're looking at will
require strong state action and strong collaboration between the holders
of capital, institution investors and governments, and it'll require banks to
be the brokers, the intermediaries, the oil and the wheels
(27:28):
of the financial sector, but have a green focus. I mean, I
want Danske to be a hundred percent green bank. If we
start looking at the range of things that has to be
done to make the economy green and resilient, which covers
everything in the economy, we can do that. We will do
that. Come back in ten years' time, Samu, we'll be able to have
a glass of champagne about the incredible changes at Danske
(27:51):
and your peer banks in Scandinavia.
Samu Slotte (27:54):
Absolutely. Well, I will do that. I think we should
do that before 10 years from now.
Sean Kidney (27:58):
I hope you're right.
Libby Potter (27:58):
I was going to say. So before we leave, what's the best way for
listeners that are interested to keep up to speed on
some of these topics, Sean?
Sean Kidney (28:07):
You have a ton of information at our website, wwwclientbonds.net, and you
can subscribe to news, but honestly just go online and
search for green bonds or climate bonds. You will be
swamped of stuff. But the most important thing I would
say is get your pension fund, your insurance fund active
in this. They need to be aware of the risks. They need to be aware of
the opportunities, and they have the capital. If they shift, well,
(28:30):
it's like getting a herd of elephants (inaudible) across the
planes. Everything will shift.
Libby Potter (28:35):
Same to you, Samu, how can listeners keep abreast of
what's happening at Danske Bank in terms of green initiatives?
Samu Slotte (28:42):
Yeah. So for Danske Bank's own green bond issuance, our
investor relations website would be a good place to start.
So danskebank. com and then investor relations somewhere there. And
then, we of course do a lot also for our
clients in green finance space. And a good place to follow
the activities that we're doing would be the LinkedIn page
(29:05):
for Danske Bank, large corporates and institutions.
Libby Potter (29:09):
Sean Kidney, CEO and Co- founder of the Climate Bonds Initiative
and Samu Slotte, Global Head of Sustainable Finance at Danske Bank,
thank you both. Please rate, review and follow One Step
Ahead, wherever you get your podcasts. I'm Libby Potter. Thanks
for listening.
Speaker 1 (29:27):
One Step Ahead is brought to you by Lyxor ETF,
the European pioneer of exchange traded funds. To learn more
about how you can keep your investments ahead of change,
visit lyxoretf. com. This podcast is for informational purposes only,
and should not be taken as investment advice and/ or
an offer to buy financial products. Lyxor International Asset Management,
(29:49):
holding the brand Lyxor ETF, does not in any way
endorse or promote any companies or securities mentioned in this
episode. The opinions expressed at the time of recording do
not necessarily reflect the views of Lyxor ETF or its parent
company, Societe Generale, and may vary from time to time.
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It’s 1996 in rural North Carolina, and an oddball crew makes history when they pull off America’s third largest cash heist. But it’s all downhill from there. Join host Johnny Knoxville as he unspools a wild and woolly tale about a group of regular ‘ol folks who risked it all for a chance at a better life. CrimeLess: Hillbilly Heist answers the question: what would you do with 17.3 million dollars? The answer includes diamond rings, mansions, velvet Elvis paintings, plus a run for the border, murder-for-hire-plots, and FBI busts.
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.