“We'll get to the day one day when the word green won't be there because every single aspect of finance will be green”: William Russell on the City of London’s role in tackling climate change.
In this episode of Cleaning Up, Michael Liebreich talks to William Russell, 692nd Lord Mayor of London.
Michael and William begin by discussing William’s role as the Lord Mayor of London.
They move on to talk about green finance and Extinction Rebellion’s recent protests against financial companies in the City of London.
The conversation ends with a discussion about how accounting rules can help companies to focus on the impacts of climate change.
This is an abridged transcript of the conversation, edited for clarity.
Michael Liebreich: Could you briefly describe the role of the Lord Mayor of London?
William Russell: My role is very much an ambassador for the financial professional services in the UK which employ 2.3 million people and are 8% of our GDP and 11% of our tax take. Normally, I travel for 100 days a year around the world, probably to 30 different countries promoting this very important sector. There is a difference between myself and Sadiq Khan, The Mayor of London. Firstly, my mayoralty dates back to 1189. Secondly, he's elected every four years and looks after the whole of London, including my territory but we work very closely together in the Square Mile [City of London]. The closest comparison to the Square Mile, I think, is probably the Vatican. We aren't as powerful as what they have in the Vatican. But that's the way I see it. We have our own police force. And we're probably one of the wealthiest local authorities in the world.
ML: You have been a huge champion for green finance, do you want to talk through some of the things that you've done in that space?
WR: The City has always been able to innovate over the centuries. We've always been a trading city and we've always adapted to what's going on in the world. COVID has enhanced our status as the fintech centre of the world, in my opinion. The delay to COP26 has helped us get our act together even further. A key event in November 2020 was the Green Horizon Summit, where we had over 90 countries represented. I co-hosted it here at Mansion House with Mark Carney. He was way ahead of all of us when it came to the green agenda. His speech was a game changing moment for financial services, because he was pointing out that there's a disaster waiting to happen. We need to look at risk and resilience because they affect all of us.
The last event we had before COVID was in March 2020, which was the bushfires fundraiser. You could also see the opportunities that were there for the City, whether it's around carbon markets, green finance or green bonds. My theory is very simple: we have this ecosystem: rule of law, asset management, insurance, maritime, everything's here. What's going to happen is that the ecosystem is going to turn green, because this is the biggest opportunity for a generation. The first question every corporation is asking now is, “what do I do about sustainability and green finance?”, because this is going to be a much bigger event than anything we've seen around COVID-19.
ML: What are your thoughts on the recent Extinction Rebellion protests which targeted financial firms in the City of London?
WR: Outside of my window, there was an Extinction Rebellion protest all last week. There was a side of me that wanted to get on my microphone and to go and talk to them and say “have you heard of this word “transition”? You can't get us to just dump all these oil stocks, all these assets, we need to help them transition to the right position.” Because if we did that BP and Royal Dutch Shell etc. would be in dire straits, because no one would own their shares.
It's a transition. And I've had a 40 minute call with Bernard Looney, the CEO of BP and he is genuinely making this transition. Not everyone's going to agree with it, but you can already see that the profit that he's generating from fossil fuel is being reinvested into renewables. What Extinction Rebellion has done is highlight and make people more aware of climate change, even if we don't necessarily agree with the way they go about it. We've got COP coming up and there are a couple of big financial institutions who haven't joined yet, and one of them was targeted by Extinction Rebellion, and there's this pressure on them although I don't, in any way, condone the way they've gone about it. However, they got a lot of publicity. It's highlighted a lot of the issues that you and I talk about. The phrase which I have been using, since I gave a lecture back in February 2020 is “greening finance, financing green”, and we'll get to the day one day when the word green won't be there because every single aspect of finance will be green, and it has to be, because that's the only way we're going to get the trillions of dollars that we've got to spend to get to where we need to get to by 2050.
ML: Is green finance a separate asset class or will green finance eventually just be called ‘finance’?
WR: It's already happening. everyone is thinking about it, and they're thinking about it in every part of the world. Today, I had a fascinating call with the Indonesian Investment Authority. They've set up a sovereign wealth fund, it's literally 137 days old. What's fascinating about that, is they're getting some money from the Indonesian government and their first investment is going to be sustainable infrastructure in Indonesia. Think about the amount of money that we could put in the Indonesian Investment Authority and get a return on it, but all that money is going to make Indonesia a greener, more sustainable country. This is how it's going to happen. I think we're moving very quickly, down that route, we can always move quicker, but I don't know when the day will be when we can turn around and just say all finance is sustainable. We're getting quite close, it's not a separate asset class anymore, and every fund is going to have to look at themselves and say “we just can no longer invest in companies that aren't doing what they should be doing around sustainability”.
ML: Are financial firms clamouring to be regulated or are they more in favour of self-regulation or no regulation whatsoever?
WR: I think they're clamouring to be regulated, because if you don't have that, you're going to have people going off in different directions. I think regulators have a big part to play in this, because if we can have that regulation, and that rulebook, then they've got to follow it. If you don't regulate financial services you've got rogues and that's the problem. We're going to have the rogue ones greenwashing. If regulators aren't there watching it, they'll take advantage of it.
ML: How important is acknowledging climate risks for accountants? Could accounting rules like GAAP in America and IFRS elsewhere help to encourage firms away from fossil fuel investments?
WR: We've already started to see that with the fossil fuel companies, BP has already written off some stranded assets, knowing that that's the way that things are headed. I think that's going to happen more and more with companies. They've got to look at those assets at risk from climate change. If that means doing things on the balance sheet to make that call, that's great. This is even more reason for a global rule book.