Interview: CEO of Triodos Bank on COP26, net zero and divestment

Newstart reporter, Chloe Coules, caught up with CEO of Triodos Bank UK, Bevis Watts, on Finance Day at COP26 to reflect on the role of the financial sector in tackling the climate emergency.

Finance Day in Glasgow brought some of the largest announcements of the conference so far. Most notably, nearly 500 global financial services firms agreed to align $130 trillion in assets – making up 40% of the world’s financial assets – with the climate goals set out in the Paris Agreement including limiting global warming to 1.5 degrees.

The day also saw big announcements for the UK’s business and financial sectors, with the government announcing that it is developing a science-based ‘gold standard’ verification scheme for plans announced last month to require large firms in high-emitting sectors to publish net zero transition roadmaps by 2023.

Bevis Watts, CEO of Triodos Bank UK, welcomes the news: ‘What we have said as a bank for a considerable period of time now is if we want a net zero society and a net zero economy, we need to have a net zero financial sector. We have been calling for mandatory net zero targets, mandatory transition plans, and then lots of the supporting glue for that, things like standard methodologies for accounting carbon in financials and reporting on things like that.

‘So the good news today is the financial institutions and large businesses will have to produce transition plans. That means everybody by default is going to sign up to a 2050 target because it aligns with the government’s target and then they will have to engage with it in a much more serious way. The 2023 deadline brings some speed and urgency to it which is good, but this could still go further as well.’

However, he explains that reaching these targets will be a huge challenge for large financial institutions and high-emitting sectors: ‘What we did yesterday was announce our own net zero target for 2035. If we as a financial institution that already has a very low carbon intensive portfolio and has never done fossil fuels, never done a lot of the high emitting and polluting sectors, can only get there by 2035, it shows you that this 2050 target for an institution that will have enormous fossil fuels, arms and tobacco and all sorts of very high emitting sectors is a massive challenge.’

Are net zero plans just greenwash?

With many large, high-emitting businesses aiming for seemingly unattainable net zero targets, it begs the question of whether organisations are setting themselves up for failure, or even worse, making empty promises.

Bevis Watts agrees that it is right that some pledges are met with scepticism: ‘I think that many people would be sceptical about a lot of the pledges made to date, because a lot of financial institutions do not yet credibly know or publish their baseline, and so it’s a very hollow pledge that does not have a very solid pathway and transition plan. There is naturally a lot of scepticism around that.

‘That said, there are some institutions genuinely really trying to get their head around the problem, but what we need is complete transparency and disclosure. Targets should only be accepted if they are science-based, and framework aligned – if they are linked to 1.5 degrees Celsius. At the minute, you hear people making pledges but then you discover it is only scope one and two emissions and doesn’t include scope three – which is their portfolios – or they are not one and a half degrees aligned, they are two degrees aligned. We need to have the ability to compare apples with apples.’

With a vast amount of disparity between carbon reduction plans and a lack of clarity for consumers, how can we ensure that the companies that we save and spend our money with are making realistic plans and actual progress towards net zero?

Bevis Watts says that a grounding in science is a crucial indicator that a plan is not just greenwash: ‘If you want to know the target isn’t greenwashed, ask if it’s a science-based target.

‘Is it then verified by Science Based Targets (SBTi)? Because they might use a framework but not get it verified independently by them. Do they plan to make it part of their annual audit so the auditors will give an opinion on their progress towards the target? And ultimately, is it one and a half degree aligned?

‘Those are the kinds of things that people really need to scrutinise and check. And then ultimately, what year is it aiming for, and is there then a publicly available plan that shows what are the actions they are taking to reach it?’

Does consumer pressure still work?

When faced with the scale of the systemic change needed to uproot the banking system and prepare it for a green future, it is easy to feel like your voice as a consumer has no power.

Bevis Watts agrees that it can be daunting to try and drive change, but he argues that consumer pressure is ‘everything’.

He says: ‘Changing banking and finances – big systemic changes – can often be quite overwhelming, and so you think, how on earth will I do that?

‘I was in a session here this morning and someone on the panel brilliantly said that consumer pressure is everything. Consumer pressure changes culture, it changes demand, it changes institutions and how they view their customers and what they need to be doing, but it also changes regulators because politicians follow those trends.

‘If the culture and public opinion is that banks should not be about profit maximisation but they should be using people’s money for their long-term interest – if people are reacting to that, demanding it – then we will get regulatory change off the back of it.’

He believes that financial institutions also have a role to play in putting pressure on organizations and businesses to prioritise sustainability and should have much tighter standards about who they lend to and divest from.

‘In the asset management world, the argument that you are a stakeholder, and therefore you have got more power to vote as a shareholder and try to change direction, kind of stands. It doesn’t really stand for banking in the sense that, if you are a lender, divestment from certain loans and everything else is a lot more possible.

‘What I think is the most important thing is that we are setting much tighter red lines. If the international energy authority come out and say we should be having no new natural gas or coal fired power stations, the banking regulators should be putting red lines in to say you shouldn’t be investing in it and it’s too high risk for the planet, and it’s too high risk for you because nobody is going to be using these assets in years to come anyway.

‘I think divestment for me does have a role and it shouldn’t be dismissed. If you don’t get engagement as an asset manager or a pension fund with that company, and they are not making progress, you should divest, so it has to be on the table. But I do understand the argument that you don’t just divest tomorrow from fossil fuel companies, because you might be divesting from ones who are really trying to be part of the solution. On the lending side, banks should be setting much higher minimum standards for who they will lend to and looking at those who don’t meet the minimum standards and encouraging them to refinance elsewhere.’

Photos by Tran Mau Tri Tam and Pickawood