The financial and energy sectors must pull closely together to energise Scotland’s green economy, writes Andrew Collier.
The climate emergency means the world is going to have to change very quickly, and little can be achieved without money. Fortunately, the world of finance is enthusiastic about funding the opportunities that abound in the green economy.
Green funding may not yet quite be a mature part of the investment universe, but it is certainly well embedded. Onshore wind has been attracting institutional money for decades and despite the massive sums involved, Scottish offshore wind developers are finding no shortage of suitors.
The importance of funding these types of projects has been given extra urgency by the Scottish Government’s commitment to achieving net zero carbon by 2045.
Clare Foster, Head of Clean Energy at the UK legal firm Shepherd and Wedderburn, says this target is both positive and ambitious, presenting businesses and funders with a huge opportunity.
“We need to create an environment that is fair, sustainable and allows future generations to thrive,” she says. “Net zero is part of that future. It affects every person and sector and it has to be embraced by everyone.”
To achieve this, she adds, collaboration has never been more important. “Historically, different sectors worked to a large extent in silos. Now there is a commonality of purpose that means sectors are coming together in ways they never have before. This in itself creates opportunities, as it catalyses action to build the economy.”
Ms Foster has a 25-year background in energy and infrastructure project financing, and she says she has never seen the financial and energy sectors pull more closely together than they have in the last 18 months.
“They are working closely to identify solutions to address climate change and that’s encouraging to see. Scotland is rich in natural resources and that provides ample opportunity, both on land and around the coastline.
“But it’s not just about turbines on and offshore. If we are going to achieve net zero entire sectors need to be decarbonised. And that’s where working together becomes an imperative. I’d love to see us become a global hub for clean energy, decarbonisation and green financing.”
The amount of money needed to get to that net zero target runs into eye-watering numbers: individual projects can cost billions. Nevertheless, Ms Foster remains upbeat about the willingness of financial institutions to invest.
“There’s a huge financial appetite to be part of the solution – you have a large number of banks clambering to join the party. The concept of green financing is now well recognised within the funding sector. The notion of environmental, social and governance (ESG) is also firmly on the board agenda for debt, equity and institutional investors. It’s no longer just about returns.
“It’s about being able to demonstrate that you are doing something right and sustainable in terms of deployment of capital.”
However, there is still an investment gap, Ms Foster explains. “The challenge over the short to medium term is to accelerate the deployment of financial solutions and structures to facilitate some of the newer technologies.
“There are plenty of banks and pension funds willing to pile in for onshore and offshore wind, but those technologies are not the only solutions in getting to net zero.
“Newer technologies have a different risk profile and that understandably causes a degree of anxiety for the financial sector. We need to get to a position where, true, it will mean we’re deploying capital more quickly but the target of net zero by 2045 isn’t that far away and we need action now.”