Ladies and Gentlemen, I am sorry for interrupting your deliberations; you're probably getting on far better without me here! Looking around, looking at the list of people who are here today, I see that in fact quite a lot of you have had the misfortune of coming to one or two dinners at Clarence House over the last few years and more of these A4S gatherings. I feel rather dreadful about inflicting yet further pontification on you, but you're getting used to it by now! Above all, I really wanted to welcome you to St. James’s Palace and to thank you, again, for taking the time out of what I know are your astonishingly busy diaries to be here. From what I hear about everything, you have been made to work rather hard already today, but I am afraid to say that I am just going to take up a few more minutes of your time, if I may...
Before I go any further, I just want to stress – if it isn’t already blindingly obvious to most of you by now! – that I am not, repeat not, a financial expert, particularly regarding capital markets and sustainable flows of investment. However, I am reliably informed that in this room we have an impressive list of leading figures from across the investment chain. I am therefore convinced that we can agree some hugely effective and concrete actions to take away from today’s sessions.
Now as I am sure you are all only too aware, we are facing – as some of you have heard me say, over and over again, a truly terrifying combination of risks. Man-made climate change and global warming appear to be having a growing impact on extreme weather events, such as the devastating hurricanes, the cyclones, storms, droughts and floods we have seen in all corners of the world, many of which I have found myself visiting afterwards, in the aftermath of these terrible events. I was in the Pacific back in April, visiting Vanuatu - again, they had a horrendous cyclone there and the same in all sorts of different parts of the world. In November last year I was in the Caribbean visiting those very devastated islands, and of course the real worry about all these things, as you probably know better than I, is that the moment the sea temperature gets above 30 degrees centigrade, then it starts to engender this terrifying build-up of these ever more extreme and deadly hurricanes. So all over the world, we’re facing these huge, huge threats. Will it be possible for people to go on living in the Caribbean or the Pacific, and on these islands soon, if we don't actually expedite the necessary action? Which is why, Ladies and Gentlemen, you are all of such enormous importance - if all these disasters are causing appalling human suffering, and of course ever-increasing economic damage.
Which is another reason why, quite some years ago, I asked if it would be possible to have some of the insurance sector to lunch – they didn't really like it at the time! We had an interesting conversation and everybody sat furiously, with their arms folded, which I've got used to over the last 40 years, but the great thing was they went away and thought about it. And by thinking about it and engaging with each other, we gradually developed what became known as Climatewise. It seemed to me anyway at the time, and I hope you feel more and more so, that the insurance sector plays a vital role in all this, in dealing with the huge challenges we face.
Of course, on top of the economic damage, you end up with the severe risk of increasing conflict and mass migration caused by all these disasters. So as we sit here - I was going to say sweltering, but it still is pretty hot - in St James's Palace – yesterday would have been horrendous - we are all now, I hope, more aware of the current unseasonably high temperatures affecting not only Britain, but also many other areas of the World. You can't go on having record extremes of weather every year, without wondering, perhaps that we're destroying the entire equilibrium of the natural systems. We are also, on top of all this, responsible for a devastating plague of plastics in our Oceans, the mass extinction of both aquatic and terrestrial flora and fauna on which we depend, as well as unsustainable population growth and increasing inequality.
However, in spite of these persistent and ever-growing risks, it can be all too easy to forget the basic truth that no economy, at the end of the day, can thrive indefinitely without a stable society and a healthy, natural base to sustain it. All financial capital, when you think about it, ultimately relies entirely on the natural and of course social capital assets that underpin its existence and enable it to grow. We seem to have forgotten this somewhat "inconvenient truth" and will pay dearly for it unless we change our ways…
Indeed, according to the World Economic Forum, in 2018 eight out of the top 10 risks facing the global economy are environmental or social in nature, with a changing climate acting as a key driver linked to many of these risks. And, as I have tried to say so often over the years, the economic consequences of not achieving a sustainable future, and for that matter, a circular economy, rather than a linear one, are vast. A 2015 Economist Intelligence Unit study found a future scenario of 6 degrees warming represents present value losses worth 43 trillion of U.S. dollars, or 30 per cent of the entire stock of manageable assets, and that is without even taking into account the fact that it is increasingly doubtful such a rise is endurable. Perhaps this is why central bankers and asset-managers are now amongst the most trenchant voices asking for more action on climate change. On the other hand, however, it has been estimated that achieving the U.N. Sustainable Development Goals will open up 12 trillion U.S. dollars of market opportunities by 2030. That's not a figure to be ignored!
The finance community – as I have often tried to indicate many times before – has much to gain, or indeed to lose, from these opportunities and risks, and so must be part of the response. Finding innovative ways of driving investments that will value and support the environment and society is an urgent necessity, with pension funds and other asset-owners key to directing capital towards genuinely sustainable outcomes. But it would seem that not enough of the finance community are prepared to take the first step and, as it were, "jump ship" in order to do the right thing… This is why, if I may say so, my A4S project, with the kind support of Aviva and H.S.B.C., has invited you all here today, and has produced a research report which contains recommendations for each link in the investment chain.
Now, I am heartened to learn from this report that some important actions have already been taken. For example, on the asset-owner side, H.S.B.C. has constructed a climate-tilted fund with Legal and General Investment Management as the default option for their defined contribution pension scheme, while Japan’s Government Pension Investment Fund, the world’s largest pension fund, will shift roughly 8.8 billion U.S. dollars into E.S.G. indices. On the asset-management side, Aviva Investors was the first to state it would vote against companies based on whether they disclosed against the T.C.F.D. recommendations.
And of course, Ladies and Gentlemen, companies are playing their part as well. For instance, I am delighted to hear that several members of my A4S C.F.O. Leadership Network have launched green bonds – from Anglian Water and S.S.E. in the U.K., to Manulife Financial Corporation and Brookfield Asset Management in Canada. And on top of that, there is growing interest in social and sustainable bonds. For example, H.S.B.C. recently issued a corporate S.D.G. bond to raise one billion U.S. dollars. It is this sort of innovation in products and services which will allow us to "shift the dial" and put our society and economy onto a sustainable trajectory. And of course, countries are also taking action. In this regard, I was most interested to learn last year about the launch of Malaysia's first green Islamic bond. But despite the increase in sustainable finance, a very great deal more is required. The World Investment Report highlighted that global investment of between five and seven trillion U.S. dollars per annum will be needed to support delivery of the S.D.G.s, the majority of it in developing countries, and much of it in infrastructure. So I can only hope that far more organizations will be inspired by the innovation of these and other leaders to make up the shortfall…
So, Ladies and Gentlemen, as you can see, there has been some reasonable progress made in delivering sustainable finance. However, as I have already said, there is much, much more that can, and clearly must, be done. We are far from a situation where everyone acts positively and at scale to address sustainability challenges. According to the most recent O.E.C.D. survey of large pension funds, for instance, most funds still allocate less than one per cent of their total investment towards green investments. This will get us nowhere – and as so many of you here in this room have demonstrated, aligning your investments towards sustainable outcomes does not have to come at a financial price. For this reason, I am most encouraged to see the research report developed by A4S and Aviva which builds on recent work by groups such as the Social Impact Task Force, the Green Finance Task Force, the High-Level Expert Group on Sustainable Finance, and, of course, the F.S.B. Task Force on Climate-related Financial Disclosures.
At the risk of sounding like a stuck vinyl record, which I'm glad to say may have come back! – or a scratched old C.D. - drive me mad! – I must urge you therefore to think about what more you might be able to do to accelerate progress. I hope that – with all of your intellectual firepower and influence – you might be able to identify solutions to overcome those barriers that are so frequently highlighted as a reason for inaction. And this is one of the, I think, important aspects of this gathering, if I may say so, is trying to find the best way – how on Earth do you overcome these barriers fast enough to make a real difference. So Ladies and Gentlemen, I do look forward to hearing the results of your discussions today, shortly, and of the real, tangible actions that you might personally commit to take, which I hope you will. And of course I will be speaking to many of you later, so you'd better beware!
Finally, Ladies and Gentlemen, if we are to bequeath our children and our grandchildren the kind of future we might wish for them – and we have just had the christening of my third grandchild yesterday. You look at small children now, and you wonder, what on Earth are we going to hand on to them? It's not frightfully encouraging. Unless people like yourselves, and many others actually see the point in making their lives endurable and ensuring that we re-balance what has happened, what we have done to Nature, during the course of the last some years now. So in that sense, I fear there really is no time to waste and Ladies and Gentlemen, I can't thank you enough for being here and showing interest and indeed, in many of your cases, doing something about it and setting an example. Thank you.
