March 9, 2022

Ep79: Rhian-Mari Thomas 'A Greener Future Made Possible by Finance'

Rhian-Mari Thomas is Chief Executive of the Green Finance Institute. The Institute sits at the nexus of the public and private sectors, the Green Finance Institute convenes and leads sectoral coalitions of global experts, that identify and unlock barriers to investment towards impactful, real-economy outcomes. The Green Finance Institute is backed by the UK Government and City of London Corporation.
Rhian spent 20 years in investment banking and corporate finance and was awarded an OBE for services to green banking. She is an Emeritus Member of TCFD and co-chaired the launch of the TNFD to which she is a senior advisor.
Rhian sits on numerous advisory groups across UK Government including the Net Zero Expert Group, Centre for Greening Finance and Investment, Global Resources Initiative, Department for Transport Expert Panel, Her Majesty’s Treasury Green Technical Advisory Group and the UK Voluntary Carbon Markets Forum. Rhian was also a commissioner on the Zero Carbon Commission and a member of the Climate Change Committee’s Net Zero Finance Advisory Group. Rhian sits on the advisory board for UCL Bartlett School of Environment, Energy and Resources and co-chairs the advisory board for Snowball Impact Management.
A fluent Welsh speaker, Rhian holds a PhD in Physics from Trinity College, Dublin, Ireland.

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Green Finance Institute



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Michael Liebreich: Before we start, if you're enjoying these conversations, please make sure that you like or subscribe to Cleaning Up, it really helps other people to find us. Cleaning Up is brought to you by the Liebreich Foundation and the Gilardini Foundation. Hello, I'm Michael Liebreich, and this is Cleaning Up. My guest today is Rhian-Mari Thomas. She's the Chief Executive of the Green Finance Institute in the UK, formerly a banker with Barclays. Without further ado, let's bring Rhian-Mari into the conversation. So, Rhian-Mari, welcome to Cleaning Up.


Rhian-Mari Thomas: Thank you very much for having me. I'm delighted to be here, Michael.


ML: It's a great pleasure to have you, you are actually our second actually, I don't know if you're a native Welsh speaker, but I know that you're fluent.


RMT: I am a native Welsh speaker, first language. And actually my whole schooling was in Welsh, which caused quite a challenge when I moved to England and started studying maths and physics and English for the first time and needed to actually translate some of the terms.


ML: So we had Gareth Wyn Jones, Episode 39, who's an upland hill farmer from the north of Wales. And actually, I got him in conversation with Ben Goldsmith, who thinks that we should rewild and not do any of the above. So that was causing kind of a lot of fireworks in that episode. I don't know whether we'll manage quite to match that today. I hope so. And so where are you recording from? Where are you at the moment


RMT: I'm based in North London, sunny Hampstead,


ML: Sunny Hampstead, I'm just trying to make the kind of suffragette connection with Hampstead. I'm here in West London, where the bank has actually we're in a nurse pines hospital just around the corner from here where this will go out one day after International Women's Day, and I've got my Sylvia Pankhurst book behind me there,


RMT: I was going to comment I can see your Silvia Pankhurst book behind and if we're going to talk about that without wishing to embarrass you, I'm absolutely delighted to be on this podcast where you've chosen to give so many women a voice. Since you've started Cleaning Up and on behalf of all of us, I'd like to say thank you.


ML: So that's very kind of you. Thank you for noticing.


RMT: It's important. I think there was some work that was done last year, the fabulous Emma Howard Boyd was telling me about it, that looked at people's Twitter feeds and who they choose to follow. And unsurprisingly, what you see is a reflection of, you know, the sort of social groups that people have back in the real world, which unfortunately means that lots of powerful male voices when it comes to climate are supporting and retweet and follow other powerful male voices in their circles. So it's incumbent on all of us to highlight the women that are working hard on this agenda of which there are a number doing some fantastic work.


ML: Actually on Cleaning Up we have had quite a few of the it's very noticeable that a lot of climate leaders are women. And one of the things we've done is we've been we've had a lot of the leaders of the Paris Agreement. And it's so striking. I mean, it's Christiana Figueres. It's Laurence Tubiana, it's Amber Rudd, there's Rachel Kyte, who was not an official negotiator, but was very involved behind the scenes. We've come at the Paris Agreement from all sorts of different angles during these conversations. And Catherine McKenna, and then there's also been Claire O'Neill, Claire Perry, as was then who was very involved in getting COP26 to actually come to Glasgow, and they refer to themselves at various points in these conversations as the Climate Sisterhood so I don't know whether that whether you are officially part of it but if you're not then maybe I'll invite you to be part of it.


RMT: There's a number of fearless women out there and fantastic leaders and it's one of the real privileges of being involved in this agenda, isn't it that we get access to all these fantastic thinkers and leaders be them male or female, but it's a real joy.


ML: So in fact, the episode before you so you will be episode 79, 78 is Inger Anderson, who's the head of the United Nations Environment Programme and the episode after you will be Emma Pinchbeck who is the head of Energy UK so we are a bit of a women leader role. One interesting stat though, which you might find shocking. Normally we talk about this we normally do it sort of at the end of the conversations since we're here, one fascinating stat is that the women that I've had on Cleaning Up who are every bit as capable, competent, and leaders as the men get about 25% fewer views and listens in the stats. I don't know whether that I suspect that's my fault for having a male, you know, audience, but I don't know, maybe not.


RMT: Oh, yeah, no, well, good for you for tracking and for obviously, trying to address it, I thought we were going to go somewhere else with those stats. I mean, we've started off on this gender topic. And I think most of your listeners will know that women are disproportionately impacted by climate, I think something like 80% of people who are displaced by extreme weather events are female. And yet, when we look at the International Monetary Fund and the World Bank, less than 19% board members are women. So, we've still got a fair bit of work to do. And obviously, we can say that from some position of strength in the UK, where, you know, thanks to the work of 30% club and others, we've now got 40% of footsie board directors are female. So, I think we're, we're in a good position to talk about that and make sure that we do have diverse representation.


ML: Absolutely, completely endorsed that. And actually I must try and get Helena Morrissey to come on to Cleaning Up absolutely percent club, and quite a force of nature there. Let's do this. We have, we've talked about one of the topics I very much wanted to cover, actually, which is gender. And it's very opposite to do it at the beginning, given that it's just the day after International Women's Day. But we do need to back up. And I think you need to perhaps explain to the audience, what is the Green Finance Institute, the audience are very smart, very switched on. Some of them are incredibly knowledgeable more than you, well me. But most of them may not know the ins and outs of the Green Finance Institute. So why don't you start off with talking about what is it and what do you do?


RMT: Well, I'd be delighted to do that. Thank you, Michael. So, we are two and a half years old, we were initially set out in response to a recommendation made to government by the Green Finance task force that was actually first commissioned by Claire Perry O'Neill, whom you mentioned, and John Glenn, the Economic Secretary of the Treasury here in the UK. And there were 30 recommendations that were put to government back in March 2018, of which one was to issue a green belt, which obviously has been done very successfully. And another was to set up the Green Finance Institute, an organisation that would sit between the policymakers and mainstream financial institutions, and looked at how to look at how we would accelerate the mainstreaming of green finance, which all sounds rather quaint. Now, two and a half years later, given how fast this agenda has been moving. So I was absolutely delighted to be made the first Chief Exec of the GFSI back in July 2019. Previously, I was at Barclays, where I'd spent 20 years in finance. And we interpreted myself in our late chair, Sir Roger Gifford interpreted this fantastic blank sheet of paper and impactful platform, by choosing not to focus so much on greening finance. So looking at disclosures and risk frameworks, and a number of things that I think are increasingly the purview of the regulators, we've explored voluntary frameworks. Instead, I thought there was a real gap in the market to work with the people who are already starting to understand this agenda and say, how do we finance green? How do we look at different real economy transitions that need to happen, and not only look at a sort of top down, commitment based or framework based approach, but really get people in the room that have made money move, they know how to do deals, and sit there and work through with central policymakers, with industry, increasingly, with local authorities, and also with finance providers and go Well, what are the barriers here? Why isn't the money moving where we need it to go? Even though at this point, there's a fair bit of signalling that this needs to happen. And you and I both know that the reason is there a genuine barriers in the way a lot of it's got to do with risk adjusted returns, but some of it's also just got to do with the complexity of what we're dealing with. And that, you know, some of the main finance organisations, they're just not structured in a way that people are able to spend quite considerable amounts of time working from first principles with such a eclectic group of characters to come up with structures that enable the money to move. So that's what we decided to do. I think it was quite a bold strategy back when we announced it in 2019. But we've primarily be focused on decarbonisation of residential buildings, decarbonisation of road transport, we're increasingly looking at nature based solutions. And or most of that says domestic agenda, I'll happily talk to you about how we're starting to expand some of that work into Europe. But on top of that, very focused on the need to look at developing and emerging markets. And using the UK is position, strong in so many ways, but particularly in finance, to see how we can help with that. So we do have a member of the team that sits in Cape Town, and in the run up to the first African Court, we're pretty excited about some of the solutions and some of the work that we've been doing in Africa and be delighted to expand a bit on that. But anyway, I've counted through that, Michael, I'm sure that there's a whole bunch of stuff you wouldn't mind, if I elaborate on?


ML: Absolutely, I think you've pretty much set the agenda for our conversation for the next however long, we’ve got 40 minutes or so. But I want to start because this is very important that you, you said that you chose the strategy to work on removing the barriers to the flows of money. And I think this is really important. I've just caused a bit of a storm on Twitter this morning, as we record this, by pointing out that most of what has happened amongst most activist and also most sustainable finance professionals have really been focusing on stopping fossil from being built. And of course, you know, we've done that, in a sense so successfully, that we've got a price spike. And we've handed an enormous amount of power to people like Mr. Putin. And we've also got now the sort of societal pushback of high energy prices. Whereas what you've done is taken the other tack, and I really, you know, I really appreciate and I really, I really want to, you know, sort of explore that a bit more of saying, how do we actually not just stop money going to the bad stuff, but get money going to the good stuff. And I'm paraphrasing your your statement about the strategy. So unless you unless you tell me, I've got the wrong end of the stick, I'd like to start by diving into the home heating work that you've done, and use that as an example for how do you debug the flows of capital and get much larger amounts of risk adjusted sort of good investments flowing into that sector?


RMT: So absolutely. How do we do more of the good stuff would be a fantastic strapline for the organization. And that was born from my experience of actually working in one of the largest financial organizations in the country and desperately wanting to do more on this agenda. But realizing that, actually it was really quite difficult to create the space to actually develop these solutions. But it was clear to me that as long as channeling capital towards high carbon industries perfectly legal way for the banking industry to make money, as long as that was still the case, it was going to be very difficult for them to turn off those taps. And I just thought, as well as the work that so many have been doing over the years, to actually, you know, to turn people away from that those sectors, surely, there's a carrot and stick approach that was needed. And the carrot would be demonstrating that you could make money from some of these sectors. So specifically on how we finance the decarbonization of homes, which is a big focus for the UK Government. So we're independent of government, I should have made that point earlier. We're an independent company limited by guarantee. But our two guarantors are the City of London Corporation, and the UK Government. So, we always make sure that what we're focused on is hugely aligned with supporting UK Government ambition when it comes to net zero and nature positive. And homes is an obvious place to start, partly because the technology is well known. And you know, it's not it's not a moving feast in terms of technology. But when we first started looking at the energy efficiency of buildings, and we set up a coalition in the Madrid cop, there were only two green mortgages that were offered in the UK market. One of them I'd helped develop while I was at Barclays, and we can talk about that. Now there are over 31 and nearly all those organizations that have brought those those mortgages to market, our members of our coalition recover 74% of the UK mortgage market now. And one of the first things that we heard from, you know, the finance institutions when they when we started asking them so how come you're not doing this? How come this is proving so difficult? Was one of them was very real concern about greenwashing. And that, you know, there were very tenacious and visionary individuals and a number of these organizations, but they were rightly a bit afraid of really progressing on this, if you know, others will then turn around and see what they were doing, didn't meet the right criteria. So that seemed quite an easy initial barrier to get over, we got hold of the loan Market Association, and we got 30 organizations across the across the finance industry, and we came up with a set of principles. And so, of those 31 green mortgages, 20 of them are aligned with our principles. And we're still keen for others to sign up to. But you know, that's a facile example is there's a, there are lots of other complexities here. And you know, some of them are one, green mortgages, and not the solution to the entire residential housing sector. Right, we need very, very different approaches when you're looking at private rented social housing, owner occupier. And these are conversations that you need to have with different individuals across the finance ecosystem as well. So I'll give you one example of something that we're about to launch in the next couple of weeks, I think, which is on green rental agreements. One of the split incentive challenges for private landlords has long been touted as you know, the landlord has to pay up front the capital expenditure for renovating a building, but it's the tenant that gets the benefit of lower utility bills. And so any, it was actually illegal, or it breaks regulation to act for the landlords to actually charge their tenant for anything other than the rent. So you couldn't just say, Oh, actually, I'm just going to, I'm just going to depreciate this cost and charge my tenants for it. But we've worked with a number of lawyers and we're very fortunate that we have a lot of pro bono support from a number of legal organizations to figure out how you could put a rider into regular rental agreements that would enable there to be a benefit share between the landlord and the tenant in a way that's done in New York, for example. And we're working with a financial organization that when we actually we've brought we've got some people are going to pilot this for us, and hopefully it will become a market norm. So you're getting over that, which is really important within the energy efficiency standards that are being brought in that are, you know, going to put this onus on landlords, but let's make it easier for them to do that. So there are lots of other examples of things that we brought to market on this, our lenders handbook, that's available on our website, which actually got such a strong and favorable response from lenders. It explains to them all the different technologies for retrofitting homes as well as the carbon benefits, the likely payback period, all the different types of financing instruments that are out there to support. And we've just been approached to see if we'd do something similar for consumers, which we'll consider doing with the right partners. And another thing we did was digital passports, which we've seen what retrofit passports for homes, which we saw work very well in certain German states, which again, provides a chronology to the homeowner, a sequencing, if you like, of what they should be doing to retrofit their home. And again, linking it through to the finance that's available. But on top of all of this, and it's all on our website, and as you could see, Michael, I could really go for Britain on this because I'm very excited about the work that we've been doing on energy efficiency of homes. But a lot of the work it's led us to realise that a huge Counterparty and big agent in all of this are the local authorities. So, we've been working now for a while since last summer, with abundance on local climate bonds. So obviously, as you know, we don't have a municipal bond market in the UK, and most local authorities raised their finance directly from the public loan Works Board. But what we wanted was to provide them with alternative financing options and also help capacity build and support as to how public finance can be used wherever possible, as a guarantee, or another mechanism to try and crowd in private finance. Because, you know, I've said this publicly a few times. You know what we saw a cop when 450 financial organizations all signed up for the GE funds and said, you know, we're getting to net zero is what we see is this opportunity that we've never had before to engage private finance and make the money move, but you and I both know that money isn't going to move unless it makes money. And so finding ways of de risking, or of getting some of these barriers out the way, using government or central government, central government or local government balance sheet in a way to crowd in private capital, wherever we can, makes complete sense when we look at how stretched public sector balance sheets are. So we're on a bit of a mission, our local climate bonds campaign that we launched last summer, is an opportunity for local authorities to raise finance from their local community through a regulated security, it's kind of like a crowdfunding, option. Three of them have been done successfully already. We've got another Fung note, another seven signed up and another 18 in the pipeline, University of Leeds did some work for us suggesting that if all the local authorities across England or Wales were to pursue this, we could be looking at up to a 3 billion pound of financing opportunity. And so, and one of the things we've done, which I know you and I've spoken about previously, is we've structured this in such a way that actually it could come under as an ISA product. So, people could even have been talking about that for years, Michael. But there's an opportunity for this, you know, as to really tap into that 650 billion pound, UK market. So, we're really excited about this. And I've got to say the engagement and the reception that we've had from the local authorities has really led us to want to explore this further and with support from the Sainsbury's Foundation, we're going to be looking at demand aggregation finance options, the where, again, local authorities perfectly positioned to help, you know, figure out how much demand there is within a certain catchment for heat pumps or installation, etc. And then using that to really drive economies of scale purchasing, using purchasing power. And, and exploring what more we could be doing to support Greater Manchester, London, others that are signed up to work with us on how we can deploy their capital as efficiently as possible towards mitigation, adaptation. And increasingly, we're getting requests for looking at rewilding biodiversity, net gain, etc.


ML: Okay, so I did crack a smile when you talked about ISA, because that was indeed the first time you and I spoke, me pointing out that it's crazy that I could, I could put my money into an ISA. For those listening around the world, an ISA is a tax efficient investment vehicle, it's a way of essentially, you earn your money, you pay your tax, but then you put it into a vehicle, which then pays no capital gains tax, and no income tax for the rest of time, as long as you keep it in there. So, it's a very popular savings mechanism in the UK. And I was complaining that I could invest in a product that invested in other people's houses, making them efficient, but I couldn't put it into my own house. But what you're saying is you figured out the way which is by I could do on these in my own local authority. So, if the local authority would raise that money, and then that would in some way, come back and help my help me to decarbonize my house, the creative solution?


RMT: Well, early days, but let's see where it takes us. That's the exciting thing about, you know, this green Finance Institute as a vehicle, we're still you know, startup to scale up, we can go where our solutions lead us, and they very much lead us towards the local authorities on this agenda. And others, too, when we're looking at charging infrastructure and transport. I think I might get this number wrong, but I think it was the government's Net Zero. Paper last year said that local authorities have within their scope of influence 80% of UK emissions,


ML: Right, exactly our full group. And I wanted to I wanted to go there, because some of the work that I've done, or the interactions that I've had, is driving towards these kind of place based solutions. And, you know, the way I've put this is, you know, if you get a, you know, a council or a borough in London, and if you reduce the carbon emissions from heating by 20%, and transport by 30%, and industry by 30%, and electricity by 20, but he doesn't add to 100. That won't get you to net zero, that's just a bunch of things that will average a 20% or 25% reduction and we can't afford that. And no way to get to the real net zero, or even gross zero is to take transport and heating and electricity. So, supply and your commercial property and whatever industry you've got, and trans solve for net zero. At the same time, the only people who can really do that is not central government. And it's not individuals and it's not businesses, it is actually local governments, isn't it?


RMT: I think it's all of the above. But there's definitely a massive role for local government. And that's why one of the things that we've often said at the institute is the challenge here is about how you channel global capital to local solutions, exactly your point about play space. So, you've got all these large multinational finance organizations increasingly focused on net zero, but also not protected, the economics of small transactions doesn't make sense for them. So you need aggregator mechanisms, you need a Counterparty that can actually aggregate and pull large transactions together so that we can actually channel all that institutional money. And we've seen that done very successfully. If we go back to homes. In the US, the Property Assessed Clean Energy programme, I'm sure you're familiar with, or at least some of your listeners will be, it's been very successful in channeling over $10 billion of institutional capital into retrofits. And the way it does that is that the municipalities uses the municipalities to make effectively to make loans that sit with a property and not the property owner. So you get over that issue of payback period and the fact this might not be your forever house, etc. And it sits above it has a first lien that sits above the mortgage or any other indebtedness on the property, and it gets passed on to the next property owner. And then what that means from the municipalities perspective is they get all these cash flows that come in, you know, guaranteed cash flows, that they can then securitize, so bundle up together, and then issue bonds on the back of it that attracts the institutional capital. Now, we've been working on a similar mechanism in the UK swing, going back to the point I was making earlier about, you know, the barriers that you encounter when you actually sit there and say, Well, look, that's sick, that works. Why don't we do it here, and that's when you start running into issues about fiscal empowerment that the local authorities have their inability to take security, all sorts of really legitimate issues, none of which are insurmountable.


ML: Right. But I think that the property assessed… what was it called?


RMT: Property Assessed Clean Energy programme. Yeah,


ML: You remind me that I must reach out to Dan Kammen, faster, Cameron, I think it's Berkeley who was behind that pushing us. But that was also a big inspiration behind the Green Deal, if you remember, back in the day when it would have been sort of 20 1314 Greg Barker, as Minister. And of course, the problem there was that the Green Deal was linked to 7% finance, marketed to people who are all sitting on money in their building societies in their savings account that was earning 1%. So of course, no take up.


RMT: And if I got a penny, for every time someone has raised that Green Deal fiasco with me, honestly, I could personally pay the 65 billion that we need to get to minimally energy standards across 29 million homes by the middle of this decade. It keeps being raised. And it obviously was a very high profile, unfortunate incident. But that's not to say we can't learn from others other types of structures and solutions. And the important thing is make sure that we've got the finances and the bankers in the room right at the beginning to help structure this in a way that makes operational sense for the organisations that are going to be deploying the capital. And on pace, for example, it's been exported very successfully to Australia. They've done it simple, and I think they're trying to do a pilot in Spain. So it does travel. But as I say, there are some genuine regulatory and legislative and maybe not legislative, but definitely regulatory barriers that in the way that we're working through.


ML: How do you deal with the sort of human behavior side of it as well, because, you know, one of the issues with pace, the pace bonds approach was that when you know, the problem that we're supposed to solve is that you may not be in house for long enough to pay back the 10 years, 12 years, 15 years or whatever that the investment takes to pay back. And so the those costs will be met by the next owner or in some way by the next renter. But of course if you're the next if I'm buying a house and somebody says oh by the way, you know that solar on the roof or that insulation or that efficient, whatever, you're going to have to keep paying for it once I move out my response to that is forget it you pay that off, you installed it, you pay it off, to have you get round the human behavior side of all this as well. Or even just you know, I don't want to bother upgrading my house because the loft is full of stuff. And I haven't, you know, life is too short to fix that.


RMT: So I think there are two key points in response to that. We've done a fair bit of consumer behavior analysis, actually. And a lot of people would actually gladly just pay a monthly amount for having somebody else do all the hard work of having retrofitted their home. And I know, you've been through that pain very publicly on retrofitting your London home. And I'm in the process of doing it at the moment. And personally, I would just happily write the check rather than some of the things I'm having to go through at the moment. So, there is that aspect. And the second aspect is more of a financial and an economics argument, which is, as the minimum energy standards tighten, as net zero becomes ever closer. And you know, in, in the, in the owner occupiers space, people take out mortgages that are sort of 2030 years. So, 2050 is not such a long way away when you're thinking about the valuation of your home. And what we don't see at the moment is a clear correlation between energy efficiency of a property and its valuation. And there are lots of reasons to why that's the case, including how valuations are drawn up, there are regulations in this country to make sure that your property will always be valued, in relation to the properties in the vicinity. So you don't actually get an additional premium or an additional valuation from the fact that your house is energy efficient. And it doesn't have this huge contingent liability that you're going to have to pay over the next decade or so, to get it retrofitted. So that's a piece of work that we have been working on to, and I'm sure you'll point out sooner, you're very knowledgeable on this, Michael, you know, one of the quickest ways of forcing that valuation mechanism to getting that correlation between the valuation and its energy efficiency would be through stamp duty. There's a mound of research that's been done on this. And that's a conversation a very live conversation that we have we've had with government departments. And again, this isn't just the green Finance Institute, coming up with this, we went in with seven banks, to have the conversation and to say, if you were, if you were to consider doing something with the stamp duty rebate, so that it would actually force this correlation between energy efficiency evaluation, this is how it would impact the finance industry, this is how people that provide green credit, green mortgages would think about it. So again, using our role as a conduit for having a more sophisticated conversation about some of these challenges.


ML: I think the stamp duty one is really fascinating. It often gets raised. And I'm delighted to hear those work. And I just I do slightly worry about the human behavior, which is, you know, if you make it the sellers responsibility to upgrade the energy efficiency, they will do the bare minimum. And frankly, I hate to say it, but they'll find some certification or some builder who will certify it as being x and y, when it probably isn't, we actually have a lot of non-compliance in the building industry. And I think, again, is to make it the incoming persons, no, give them the rebate, if they improve the efficiency within a couple of years, because those are the people who are going to really care about the bills, and the comfort and all those good things anyway. But I think that, but there's a broader question, which is, how do we make it so that people regard upgrading their energy systems in their house, an improvement to the capital value, because they'll invest, you know, 30,000 pounds on a new kitchen and say, well, we've improved the value of the house. But you know, 30, or even frankly, you know, 10, or 15,000 pounds on a heat pump, and a bit more insulation, and whatever, they'll regard that as cutting into their budget for holidays for the next five years. And that has to change whatever you can do, there we go. It's your job.


RMT: And that's one of the challenges that we have at Green Finance Institute is, you know, we, we would love to stray into other areas, but I'm very, you know, my I have a team of former bankers and institutional investors, and we just say, you know, what, let's just make sure finance isn't the block here. Clearly, all these, all these challenges require, you know, a triage between the industry but in government and between finance and stick to your swim lane. You know, let's get the building industry to solve some of those issues about building standards. Not don't ask a bunch of finances, how you do it?


ML: But the question of whether you regard an energy investment and efficiency investment as an asset or an expenditure comes down to cost of capital expenditure, then frankly, you want it to pay back within one two, maximum three years. So that's a cost of capital of 30% or more, and if it's an investment in the fabric of the house, which you will eventually get back then you can find out that at the price of a mortgage It suddenly becomes a much, much more affordable intervention. So it kind of I think the culture hacking does actually interact with cost of capital, as you know. And that's really the challenge of it.


RMT: And that's a challenge across all of these areas where there is a consumer aspect, which is, let's make it cost efficient. Let's make it the the upfront costs need to be comparable, if not cheaper, so that we can make the green choices as consumers without it having to be such a conscious choice. And that's obviously particularly to when it comes to cars and the sticker price of cars.


ML: Let's jump to electrification of transport, I'm just conscious of time, I want you to be able to kind of just give us a thumbnail of the work you've done on EVs, whether it's cars, whether it's charging, I want to touch on nature, and then I want to get back to cop and the developing world. So that's our little agenda for the next 10 or 15 minutes.


RMT: We’re going to have to speed up. Quickly on cars... We started focusing on decarbonization of cars as opposed to broader buses or trucks. And even within just looking at decarbonization of road vehicles and cars, there is a lot of interrelated chicken and egg challenges when it comes to the finance. So, we've ended up after a fair, fair bit of analysis, we ended up focusing on charging infrastructure and consumer lending products, which those were the two areas, we're also starting to look at battery recycling and opportunity for financing that value chain. But our initial focus has been and we've got about 200 people now involved in our coalition on decarbonization of road transport, and I have to say, very generously supported by quadrature Climate Foundation. And again, we've done the same work, which is look at the barriers, and then come up with we've come up with 18 potential finance solutions, but we're taking five of them forward at the moment, and they involve a number of them. And we've published all of this. And I'm delighted to say that the finance and leasing Association described the publication as the best publication on this topic. So shout out to Lauren and her team for doing that. And, but it's some of the solutions that the market have helped us co design things like utilisation, linked loans for charges. So similar to the way student loans work that, you know, we've identified that, in order for us to have a charging infrastructure network right across the country, and not just in affluent areas, which is what we're currently seeing. Unfortunately, there is an obvious nervousness for investors when they're not sure what the utilisation will be in some of these sites. So, again, using public balance sheet in a smart way, there is a way of us doing a sort of student loan type solution. That means you don't need to be repaying your financing as a charging operator if you hit a certain utilisation. Similarly, the stuff I was saying earlier about demand aggregation finance huge opportunity around both charging and electrical vehicle purchasing. Also, we've worked very closely with Shawn Kingsbury. I've noticed good friend of yours who pulled together a coalition to look at what a transport infrastructure fund could look like, again, blended finance solution, how do you put concessionary finance in in order to then crowd in private finance that can then be used by charging companies and operators to roll out their charging points? I'll leave it there because it's all on our website, Michael, if people would like to look at in more detail, because obviously everything we do is, is intended as a public good. What we're trying to do is catalyze the market. So, all our solutions are openly shared. We publish everything.


ML: I had a crazy idea to finance charging by floating a coin, a distributed ledger coin, to deal with this question of when does the demand come? So you could buy a coin, use it as you switch to electric cars, or if you're an OEM as you sell electric cars and use that to finance but of course, you know, now that the stock markets are crashing, nobody's interested in coins anymore, and I never did anything with the idea.


RMT: Well, any more crazy ideas, do bring them forward to us, we'd be delighted to try and explore the view and I know actually at the beginning of us looking at decarbonisation of road transport you were very helpful in helping us think about that. And we'd love to get onto buses at some point, although we felt that there was more immediate need when it came to road transport and things. Just some of the challenges again, go into the barriers of resist have this conversation just about the challenges, not the solutions, isn't it but one of the things that we discovered was just a lack of data about residual values of Secondary market, you know that what? Leasing organisations and banks, they've got models that go back decades that show them exactly how a What's the value of an internal combustion engine vehicle at the end of a three year lease period. You just don't have that for electric vehicles. And so that, I mean, obviously, that data is being built. But that is leading to huge amount of volatility in the risk models. And that gets reflected in upfront pricing. So things like that.


Yeah, that that one, I think is an interesting one, because it goes away over time. And yes, you know, because you can do one of two things, either, because the leasing companies can only their model only works, if they can essentially buy a vehicle, own it for three years and sell it for the same price because they buy in bulk. And so if they don't know what the sale price is, then that's kind of a showstopper for them. So you could do one or two things, you can either somebody else can step in and guarantee the price of the vehicle, which is dodgy, because it's either a manufacturer who doesn't have the balance sheet to do that, or the government who's got no business doing that, or you just wait. And over time, these things are stamped. And I think that's essentially what is happening. But over time, we've now got much better data on cars, and it's coming through for buses, that bus conversation, I think will fold back into that local place based one because the big challenge is how do you get charging into the bus garages, once you've got that the vehicles be a bit more expensive, we'll know the resale value, the electricity will be cheaper than the diesel or the or the or the fuel and the whole, the whole thing will start to go. So I think it's to do with municipal, those municipal bonds potentially. And that point about making sure that depots have enough charging capacity. Definitely one for you to discuss with our good friend Emma Pinchbeck when she's on your podcast in a few weeks. So


ML: Because there are some people say oh, you know, that'll never work. You couldn't possibly get electricity into depots, and therefore, we must go to hydrogen and lock ourselves into a foolish and stupid and expensive and maintenance costly solution forever. Well, of course, I have given away the fact that I don't believe that. Really, really. Okay, so now, nature, though, is very different, isn't it that funding nature based solutions? And you've talked about rewilding, you've mentioned biodiversity. You mentioned, I think you mentioned certainly rewilding, how on earth, do you get investor funds into those things? When there's no cash flow? It's not like there's a stream of either, you know, savings off heating or vehicle miles driven, or something that you can then use to pay back an investment. So how do you do it and great.


RMT: It’s completely a different challenge. And that point about there not being cash flows, is one that a lot of the IP in the nature space, sits with ecologists, and actually spending time with them explaining this and how investors look at these challenges. And we actually worked with Defra and other government agencies to come up with an investment readiness fund last year. And, you know, a big point of that is not only to deploy financing as grants to help get some of these entrepreneurial ideas off the ground, but to do it in a way that means investors are there from the beginning, advising and explaining how it is they look at investment. And now also we've been working with government to bring their new homes get this wrong big nature Investment Fund, it's called BNF, which always makes me think of BNF. But anyways, it is different. It's got nine, and it's looking at that, you know, it's part of the challenge here is yes, there are lots of situations where you there is no cash flow that you can't get, there's no direct cash flow, the counterparty cannot repay you. So I remember in my previous role, some really smart people coming in, and I still working the bank, and they put a value of a few billion pounds on the trees in the UK. And you know, and I had to look at them and say, You know what, I'm a banker, I can't a tree can't pay my interest payments, all my coupons are in that's why chopping it down and turning into a table tends to be how the market works. But then as we got talking, they said they've done a whole bunch of really interesting analysis about how if you plant trees outside a shopping centre, then it increases footfall and revenue. And I was like, No, that's a conversation we can have. And similarly, when Anglian Water used some of the proceeds of their green bond to get the rivers trust to do a wetlands project for them, which provided nature based purification of their water system. The savings that they made from using chemicals later on literally downstream meant that This actually was an effective, there was an effective return on investment.


ML: But the challenge in those situations is always collecting the money from the people who benefit and getting it to the people who have to invest. Because I've had the same conversations, we are all we all own unbelievable financial debt to the Brazilian rainforest. But it doesn't mean that it's easy to get, you know, everybody in the UK or in the US or wherever, to pay £2.50, $3, whatever it is a year to look after the Brazilian rainforest, or the Great Barrier Reef or the lungs of Africa, in the Congo and Gabon and wherever we just don't have the mechanisms to collect those monies do we?


RMT: Well, that's clearly where revenue paid back models don't work, which is what we've been discussing, but it is well as controversial as they are upset markets that can play a role. Right now, that's probably the most impactful way we have of channeling capital towards, as you say, a Congo or the Amazon and ensure that, you know, reforestation, and no more deforestation takes place. And that's why one of the projects that we work on under our nature banner is on the integrity Council for the voluntary carbon markets.


ML: When you say offsets, were you referring to the voluntary offsets market?


RMT: Indeed, yes. So, obviously, it wouldn't be our role to get involved in the compliance market, but it's working with the market looking at the role of voluntary carbon markets, which, you know, that whole area is obviously fraught with controversy and a need for high integrity frameworks, both on the supply side and the demand side. So, it's, you know, who should be eligible? And under what circumstances can they use offsets as part of their net zero plans, and equally, making sure that the projects themselves are aligning to core carbon principles as well.


ML: Let's come back to that, because that will bring us on to the conversation about COP 27, I suspect finish on nature within the UK. Yes, we're moving to public pay for public benefits, you are moving away from the EU's Common Agricultural Policy, which was broadly speaking, payments for the area that you had under productive agricultural or potentially productive management, which meant rip out your hedgerows and filling your ponds because it then all qualified for those payments. We're moving to a system of actually paying people for the hedgerows, the ponds, the trees, that etc, etc. Will those payments potentially be securitize at all? Have you looked at that, so that a farmer could say, well, if I do this thing today, that's going to cost me 100,000 pounds? I can earn 7000 pounds a year forever of these payments, and I can therefore finance a loan, is that something you'd looked at?


RMT: We haven't got that far and yet, so thank you happy to throw that in the hopper. Where we've got to so far in discussions with the market on this is that there is a there is a real need for us to define and standardize some of this like that the fact that nature positive doesn't have a definition is turning out to be quite a hindrance for mainstream financial providers to think about dividing, you know, innovating products and moving in this direction. So obviously, we spent, I spent personally spend quite a lot of time last year setting up the taskforce on nature related financial disclosure, which is obviously looking at the risk side of this, which, again, following in the footsteps of TCFD is, I think, an incredibly impactful way of getting nature up to the board level.


ML: We probably can't use these after I've got sort of, you know, you've got to explain that the Task Force on Climate Related Disclosures, which was set up by Mark Carney and my boss acquire Mike Bloomberg, and has done a great job on climate disclosure. So the nature one is the equivalent presumably.


RMT: It is. It's the sort of, you know, SR equivalent, taking its lead very much from the previous task force, which has just been a real Pathfinder in demonstrating how the market can come up with voluntary standards, iterate, and then provide that as a glide path to you know, what is now mandatory in a number of jurisdictions and so obviously would hope to do something similar with the new nature based financial disclosures. So again, we're hosting the Secretariat on that work and delighted to be working with David Craig and Elizabeth Marina, who were who were chairing that and actually we're working very closely with ingoing distance team at UNEP. They've been absolutely core so that our community does need to get bigger Michael, we are we're all working there. Same name has come up. But anyway,


ML: I'm trying to do what I can I mean, this is episode seventy-nine, I'm not about to stop. And at some point, I'm going to throw a huge party for all of the Cleaning Up guests and try and get as many of you as possible into one room, which I think will be an extraordinary thing. But I want to finish if I can, by talking about COP, you know, you were at COP 26. The last time we met was actually at the reception of green finance initiative at our reception in Glasgow. And then you are already preparing for 27, which will be in Sharm El Sheikh, Egypt, that's the African COP referred to and then presumably beyond that, to COP 28, which will be the in the GCC, it will be in Abu Dhabi. So what are you doing? How are you plugging all of the things that you're doing in the UK that focus into the global process?


RMT: So obviously, the work that we do has one common thread, which is looking at where the finance is stalled or missing, and trying to figure out what are the barriers, the city is absolutely full of financial markets full of incredibly smart people who with the right incentives, can come up with the right solutions all day. And we'll do those trades all day if they make money. And so one of the things that had been troubling me for a while was why blended finance wasn't working better this idea of using public balance sheet and private capital, especially as a solution to sort of emerging markets or developing markets, investment requirements. And so it started off the same way we brought practitioners together and asked what was going on. And we learned some really quite important stuff, especially in South Africa, which obviously, is the most advanced financial market in Africa with the deepest assets under management and the most active stock exchange. So, a very sophisticated financing ecosystem in place. And what we heard from financial practitioners on the ground in South Africa was like, Look, we, we see plenty of deal flow, we see plenty of infrastructure transactions, climate smart infrastructure transactions that we would love to invest in. So rather putting paid to that myth that there's no pipeline of projects, it's been a lot of investment in capacity building and technical assistance. So the pipeline's there. But unfortunately, in order to invest in infrastructure, and actually for the local banks to underwrite those transactions, and distribute the monies on shore to others, so that you get away get away from this foreign exchange issue of local transactions in local currency, global financial flows in hard currency. They said what we really need is a first loss guarantee that would make those infrastructure projects investment grade, because we've got deep pools of pension capital, in Nigeria, in Kenya, in South Africa, in Ghana, in Rwanda. But they don't invest in infrastructure, they primarily invest in government securities, including bills, because that meets their credit. That means investment grade criteria. And so if we could structure a first loss guarantee partial first loss guarantee, so the banks have still got skin in the game, they can underwrite these infrastructure projects that we know were there. And they can then distribute that money to onshore domestic pension and institutional investors. You're deepening the green finance market in country. And your if you structure that guarantee in such a way, that it's a fund that can be drawn down on, you can do leverage on leverage. So the way the fund would work is you would put government concessionary finance at the bottom, you could put some development bank finances, the middle tranche, and then that your model will work so that you can then go to the large institutional investors in the north, the black rocks that are legal in generals, etc. And they can make a return. So you've set up your fund, the banks in country can draw on that fund as a guarantee. And then they can distribute the paper locally, what's not to like,


ML: And this is actually very reminiscent, or if it's, if you're not in touch with Sebastian Kind, at Green Map, this is the former undersecretary of energy, renewable energy in Argentina, who brought in I think something like $9 billion into Argentina, it's the only performing debt that Argentina you know, pretty much has got. And he is now taking that global and creating something called I trust, which would be a pool of liquidity to provide that guarantee. It's exactly the same model. So if you're not in conversation with him That's something we need to organize because I'm an advisor. And so is Rachel Kyte, who was my guest on episode two of cleaning up. And I know that Rachel is somebody that you know very, very well.


RMT: Well, actually, and thank you for that offer. I did meet Sebastian and his incredible stats for what he's done in Argentina, actually at COP as part of our green horizons Summit. And as you can imagine, it was a real meeting of the minds because this really has applicability in Africa. It doesn't work in all, in all jurisdictions, you're in some of the most vulnerable states, this wouldn't work. But what it does do is it enables us to really leverage government overseas aid and development capital, so that where it has to go with grants, where you know, where there is no business case, then absolutely, that money needs to go there. But where there's any chance at all of us crowding in private capital, the wall of private capital signed up to GFANZ, then we should be doing everything we can. And so we've been working with a number of partners, and we're very keen to continue to work with the GFANZ and their capital mobilization work stream to come up with some really


ML: Acronym buzzer.


RMT: Glasgow Financial Alliance for Net Zero.


ML: $130 trillion, which is committed to some, some form of net zero pathway somewhat yet to be determined. But Rachel see on that one, but I do. I do love the what you're talking about the blending of public and private finance, where the public finance the government, the taxpayers money, the taxpayers balance sheet is really used in a minimalistic way. It is need good, but it doesn't crowd everything out. And so you get the best of competitive capital markets, and the best of what governments are actually able to do. And it reminds me I'm going to wrap up here with what your actual vision is, if I you know, the vision of green Finance Institute, which is do you do note off my heart shall i do this bit?


RMT: It's a greener future made possible through finance,


ML: A greener future made possible through finance. Fantastic. Couldn't endorse it more. Thank you so so much for coming and spending time with us.


RMT: Thank you so much, Michael. It was an absolute pleasure. And I very much look forward to the giant Cleaning Up podcast contributor party, which I think we're all going to hold you to.


ML: Well, that was I shouldn't have thrown the idea out there because it's going to gain momentum. I can sense it already.


RMT: Yeah, absolutely.


ML: A pleasure to see you there. Thanks very much. Bye, bye. That was Rhian-Mari Thomas, CEO of the Green Finance Institute here in the UK. My guest next week is Emma Pinchbeck, CEO of Energy UK, the Industry Association. Please join me this time next week for a conversation with Emma Pinchbeck. Cleaning Up is brought to you by the Liebreich Foundation and the Gilardini Foundation.