Insight archive for Daniel Hanna | Standard Chartered

Is blue the new green?

Daniel Hanna — Tue, 05 Mar 2019 15:35:07 +0000

“Be part of the solution, not pollution” read one of the banners of the 15,000 British students that walked out of schools in February to call on governments globally to declare a climate emergency. They joined the #Fridays4Future protest that has involved students from more than nine countries as far apart as Australia, Germany, Thailand and Uganda.

Can finance meet this challenge to be part of the solution and not pollution? I believe it can.

The International Energy Agency estimates that USD53 trillion is needed to achieve the Paris Agreement and keep global warming below 2 degrees. A separate analysis suggests that USD5-7 trillion is required to meet the United Nations Sustainable Development Goals by 2030 and while advanced economies are close to meeting these requirements, there is a funding gap of around USD2.5 trillion in emerging and developing countries, with USD1.3 trillion of that in Africa alone.

Impact investing is on the up – but more is needed

There are encouraging signs that private finance is responding. Already one in four of every dollar invested globally takes into consideration some form of environmental, social or governance filter. This ’responsible’ kind of investment is growing at 12 per cent per annum in Europe, according to Global Sustainable Investment Alliance, far outstripping the 3 per cent annual growth of conventional investment.

We have also seen the development of new products like green bonds or green loans channelling capital into climate related projects. From the very first climate bond just over 10 years ago, green bond issuances reached a record USD167 billion in 2018, according to Climate Bond Initiative.

Finance can be part of the blue economy solution, helping protect the world's oceans.

"While we can point to some progress around ‘green’ finance issues on land much less progress has been made on other climate related issues. Take the ocean. "

However, much more needs to be done. While we can point to some progress around ‘green’ finance issues on land much less progress has been made on other climate related issues. Take the ocean. It absorbs 25 per cent of all CO2 emissions and it generates 50 per cent of the world’s oxygen. Yet the Ocean and coastal areas face a worrying set of environmental threats, whether from climate change, rising sea levels, or over-exploitation and pollution.

The global cost of rising sea levels is estimated to be USD14 trillion per year by 2100, according to the UK National Oceanographic Centre, and many of the threats are concentrated in Asia, Africa and the Middle East. China is likely to face costs running into the hundreds of billions of dollars while higher sea levels present an existential threat to small island nations in the Pacific and Indian oceans. For countries like Kuwait and the UAE, the threat could impact up to 24 per cent and 9 per cent of their GDP respectively.

Africa is also vulnerable with at least 19 coastal cities, with a population of more than 1 million at risk. Some coastal communities in Sub-Saharan Africa are already being washed away, with some locations losing up to 30 metres of land each year.

Blue bonds for a blue economy

To combat these threats to the oceans and communities, we must learn from the success of green finance and capitalise on the growing awareness among the public and investors to catalyse ‘blue’ and other sustainable financing. I believe a collective effort is needed around three ‘Ps’ – partnerships, platforms and products.

Creating a sustainable blue economy requires collaboration across the public and private sector. Both sides have key roles to play in creating sustainable finance solutions. The public sector is best placed to ensure a good regulatory and business environment and to help tackle risks that are difficult to quantify or forecast; while the private sector can often bring additional financing capacity, technology and implementation expertise. Solutions such as blended finance – when public money is used to spur private investment into sustainable projects – can and must play an important role.

The blue bond market could follow the success of green bonds

Private investors also prefer platforms to help channel financing in a scalable manner. Standalone projects can help deal with specific challenges but to turn millions of dollars of investment into billions, credible defined platforms become important.

A number of frameworks have successfully emerged in green financing – for example the Climate Bond Initiative or Green Bond and Loan Principles – and we are beginning to see the emergence of frameworks in other sustainable areas such as the European Commission’s Sustainable Blue Economy Finance Principles and the WWF’s Blue Finance Principles. The next step is to turn these into investable platforms, such as the World Bank’s scaling solar programme, whose aim is to create viable markets for solar power.

Lastly, investors require standardised, comparable, liquid products to be able to buy and sell, as they already do in green bonds. The first blue bond issue took place last year when The Republic of Seychelles, supported by the World Bank and Standard Chartered, raised USD15 million from impact investors to finance the expansion and transition of its marine protected areas, improve governance of priority fisheries and develop its blue economy. It was a small issue, but its success has attracted widespread interest from international investors and regulators.

The prize is substantial

We are now working with a number of stakeholders to develop Blue Bond Principles to help further catalyse the blue bond market leveraging the work on green bonds by ICMA, Climate Bond Initiative and others.

The vision of all of us active in sustainable finance is to bring together both the private and public sector to replicate the successes we have seen in areas such as green bonds to help tackle other areas such as blue finance. The prize is a substantial one: filling the finance gap where it is needed most, while also providing sustainable returns to investors, so that finance can be part of the solution to put the world’s economy on a more sustainable footing.

We can’t let the threat of terrorism halt the flow of aid money

Daniel Hanna — Tue, 14 Nov 2017 15:28:57 +0000

In a crisis, money matters: for water, food and shelter, for people fleeing war or famine, or for medical supplies in dealing with an epidemic. Yet getting money to the frontline when people are suffering is becoming harder.

The problem was highlighted when Ebola broke out in west Africa. At Standard Chartered, we handled cash transfers for many charities working in Sierra Leone as well as multilateral organisations like the UN. At the height of the crisis, Ebola infections were doubling every two weeks. Money needed to be moved quickly from central treasuries to aid workers on the ground.

We worked closely with development partners, regulators and local governments to ensure funding got through. But it wasn’t easy, and we wanted to move faster. Any kind of delay in these situations can be a matter of life and death.

Yet, as the world faces the most widespread humanitarian crisis since the Second World War, two-thirds of charities working internationally are experiencing difficulties sending money to where it is needed. This is not a new phenomenon. A 2015 report by the UK’s opens in a new window Charity Finance Group found that most charitable organisations encountered similar problems.

"A few rogue institutions are creating a perception that the charity sector is vulnerable to financial crime"

At the heart of this challenge are the unintended consequences of regulations designed to prevent terrorists and criminals from accessing the financial system.

Difficult decisions

While the vast majority of charities are well run and do legitimate and often life-saving work, a few rogue institutions are creating a perception that the sector is vulnerable to financial crime. The UK Charity Commission reported this year that the number of “allegations of abuse of charities for terrorist or extremist purposes” has trebled in just three years.

As a global institution that has banked charities and aid agencies for decades, we have faced extremely difficult decisions. In recent months, we have intervened to ensure a British charity could repair water pumping stations for clean water in Syria, and a non-profit could keep its educational operations going in Sudan.

Yet it is not always straightforward. Earlier this year, our compliance teams reviewed a request to transfer millions of dollars to a charity based in Iraq. The charity was not our client, but a customer of one of our correspondent banks making a payment through our network. The purpose was described as children’s clothing and medical supplies. On the face of it, the payments looked legitimate. The charity was not on any sanctions list. Yet further investigation suggested the organisation was probably supporting a terrorist group. We prevented the transfer, and alerted the authorities.

"Financial institutions must support clients who have the right intentions but not yet the right tools, knowledge or experience"

Faced with similar decisions, others in the financial industry have chosen to avoid risk by dropping charities as clients. This strategy, known as ‘de-risking’, may become necessary if clients or partners cannot comply with our standards or – for some institutions – if the hazards involved are deemed too great.

Preventing financial exclusion

After working in emerging markets for more than 150 years, we want to find a different way; we want to ensure the safety of the financial system and prevent financial exclusion.

Banks needs to continue investing and automating financial crime controls and compliance processes to make the financial system a hostile environment for criminals and terrorists. To prevent aid getting blocked, financial institutions also need to help the development community understand what regulators and banks expect when it comes to mitigating financial crime risks.

Education is vital: institutions must support clients who have the right intentions but not yet the right tools, knowledge or experience. Standard Chartered has actively supported this, partnering with the World Bank, InterAction and NGOs such as World Vision to launch the first financial crime risk management academy for charities, and making our internal compliance courses available to clients online for free.

"We are supporting efforts to create a database of compliance information to streamline banking requests"

In terms of practical solutions, the aid community is also doing its bit. World Vision has created an initiative that enables other charities to benefit from its risk management expertise. And we are supporting efforts to create a database of compliance information to streamline banking requests, and talking to regulators about how humanitarian aid can be disbursed to established charities more quickly during crises.

The Bank of England Governor, Mark Carney, recently warned the G20 that the number of banks de-risking was impacting developing economies. Fluctuating aid flows highlight the human cost of this trend, but we believe that when crisis strikes, banks, charities, and regulators are committed to finding new ways to get money where it is most needed.

This article first appeared on Guardian Global Development.