Maurice:

Good afternoon, everyone. Welcome back to another edition of C&F Talks. This afternoon, it's my great pleasure to have with me Dr Tony Rooke, who's an Executive Director, Climate Risk and Resilience at Howden. Tony's going to be speaking at our Net Zero Finance Innovation Summit, which is being held on the 30th of June as part of City Week at the Royal Garden Hotel in London. Tony, welcome.

Thank you, Maurice. It's a pleasure to be here.

Great to have you with us.

Tony, what do you see as the most significant opportunities for scaling up the global market for transition finance? How is Howden helping to unlock these opportunities through innovative risk and insurance solutions?

So, at the moment, the greatest opportunity and where transition finance is being deployed is definitely in the renewables, battery and electric vehicles market. I think the greatest opportunity that hasn't been unlocked is in the industrial decarbonisation that relies upon renewable energy.

And in all of this, actually, if you look at the sort of mechanisms, I think insurance is actually the area where there has been most or there is most opportunity going forward to be able to release the capital, whether that's using innovative insurance products around sureties, de-risking the finance through tech performance, unlocking revenues and credit risk, that can then allow banks and equity debt providers to refinance and reallocate their capital to more projects. And that's probably the area that insurance can help the most. And that's certainly where we've been using some of our insurance products.

Yeah. So, just, you touched on some of those areas, you know, tech risk, credit risk. Can you just drill down a bit further into those? I think there are four or five you mentioned there, and how that works and how they help to unlock equity investment.

So, let's take the first one. Credit risk can help banks recycle their cash and their capital quicker because then they take some of the risk off their balance sheet. It can also help them de-risk and therefore lower the cost of capital to the people they're providing their credit to.

Tech performance can help in earlier stage developments or where you're seeing a company providing a warranty for a technology where the company itself has not been going that long and therefore may not have the credit history to back up those warranties.

So, it provides both a mechanism to pay back the insured party if the technology doesn't perform at what it's been rated at. But also, it provides a backup if the company that's providing the technology warranty can't service that warranty because it's either gone out of business or it just doesn't have the capital on its balance sheet.

Mm. 

And I suppose a lot of transition projects going to be in countries where there may be a fair degree of political risk. Is that something you insure against as well?

So, there are certain aspects of political risk you can't insure on everything, and I should say that Howden is a broker rather than insurer. So, we act as the intermediary to try and innovate those new products with insurers to the demands of our clients. So, on the political risk side, we are innovating more products there.

One of the biggest risks that's attached to that is foreign exchange risk. So, that's an area that we're exploring as well. But yeah, it's not an easy area to provide insurance for. It's very contextual.

Yeah, absolutely. And particularly, perhaps, in current times.

So, what do you see, Tony, as being the biggest challenges to the growth of transition finance? And how can, I mean, obviously, you've mentioned how insurance providers can help, but how can other stakeholders perhaps collaborate together to address these barriers?

So, I think there's a common misconception that transition finance isn't off the ground yet. It's already happening. It's more about how can we scale it and accelerate it, not necessarily, is there enough there?

You only have to look at IEA predictions of clean energy to high carbon energy investment. Two years ago, it was about parity. It's now about double that on clean to traditional energy. So, it's really how do we accelerate that and go into other areas, and as you said, different geographies. And the key barriers there, we did a survey a couple of weeks ago, and all of the risk managers in the room were saying political leadership, political leadership, political leadership. That is a key barrier. Having that certainty of policy in the future. That said, the economics are already baked in. So, particularly on renewable energy.

So, I think really right now, it's how do we optimise the financial markets? How do we give that industrial and policy certainty in an increasingly, sort of, volatile world? And at the same time, how do we ensure new technologies that are coming to the market where the transition in those sectors or in those geographies is not as advanced?

Maurice:

And obviously, there are lots of concerns nowadays around sort of greenwashing and similar concepts. And I guess that there's also one about transition washing and inconsistent reporting. What steps do you think could be taken to build trust and transparency in order to enable the capital to support meaningful climate action to invest?

So, one of the key areas that's been developed in the last few years is the concept of publishing a transition plan. The work that was done at my former employer, the Glasgow Financial Alliance for Net Zero or GFANZ, but also then taken on, well, in parallel, the Transition Planning Taskforce set up initially in the UK. So, that's a key area that allows a company to say what it's doing.

Crucially within that, it says, what are your dependencies and what are your assumptions? I don't think any organisation can transition on its own. So, therefore, it's more likely that the more transparent you are on assumptions, dependencies, if this goes right, then we can go faster. If this goes another way, then we may have to slow down. It's critical to showing whether you are showing credibility in your transition plan, amongst other things as well. But that's definitely an area, I think, that will help.

Maurice:

And looking ahead, are there any policy or market innovations that you think would help accelerate the development of transition finance globally? And what role, perhaps, should public-private partnerships take in this evolution?

So, we've already seen in developing markets, there's private-public partnership working and looking at specific countries and how to innovate there. I actually think the one area that hasn't really been unlocked yet is blended insurance, so that you actually see governments and private companies, insurance companies, collaborating to provide insurance where there is a higher risk, to help get through that valley of not just the innovation valley of death, but also the finance valley of death as well. So, that's a good area that could be explored more.

And I think probably the other area is sharing a lot more data on these new innovative technologies that are coming to market, and best practice on how to understand what the risk is, and set the standards for the most insurable way, or the most optimised insurable way, as well as the most bankable way of putting projects together.

Yeah, clearly such an important area and key to the fight against climate change.

For our viewers, if you'd like to hear more on this and related issues, do have a look at the website, www.cityweekuk.com, where you'll find lots more information about the programme for the day, the speakers and the topics that we'll be addressing.

And it just remains for me to say, Tony, thank you very much indeed for joining us today.
Look forward to seeing you at the conference on the 30th of June, Royal Garden Hotel London. Thanks, Tony.

Thank you. Thank you very much, Maurice.