Green Energy Finance discussion with Ayla Majid and Joseph Owolabi

Today we're talking about green energy finance. To help me unpack it, I'm joined by two very special guests, colleagues of mine from ACCA Global Council, Ayla Majid and Joseph Olabi. Ayla runs a leading financial advisory practice based in Pakistan and sits on many local and global boards across energy, pharmaceutical, and not-for-profit sectors. She works extensively in the sustainability area implementing projects across energy, infrastructure, and digital domains. Ayla is a Young Global Leader of the World Economic Forum and a member of their Global Future Council on Energy. Joseph is the CEO at Ruby Cola Consulting Pty Limited. He's had senior management roles as Director at Deloitte's Asia Pacific, Senior Manager at PwC Australia, and leader of E-wise West Africa climate change and sustainability services. He's passionate about promoting sustainability and integrated reporting and mobilizing investments required to actualize the UN's Sustainable Development Goals and address climate change. His pioneer works include advising federal governments in Africa in the development of green finance frameworks and development of training curriculum for corporate organizations in international financial and non-financial reporting for companies in Australia and Africa. Welcome to you both.

Thanks Brendan, thank you. Great to have joined this conversation.

All right, so let's get straight into it. I'll maybe if I turn to you first, could you give the listeners a bit of an overview on sustainable finance? What is it and why should we care?

Yeah, and energy is obviously a key part of the emissions that are causing climate change. The need for green energy financing is an important part of the solution. Joseph, maybe you could give a bit of an overview on that specific market and where's the opportunity?

Thanks, Brendan. I'll just pick it up from where Ayla stopped. There's a huge gap that needs to be fixed, but more importantly, about 60% of current issuances go towards renewable energy. Bloomberg estimated last year about 350 billion dollars raised from social loans to green bonds. The Climate Bonds Initiative helped raise about 260 billion dollars last year and are looking at 350 billion this year. Their core purpose is to mobilize over a hundred trillion dollars to help finance the gap. That's huge. You'll also see Airbus come out to say by 2035 they would produce their first zero-emissions aircraft, and they hope to cut the industry's emissions by half by 2050. This comes from the global goals set by world leaders, private sector, public sector, entrepreneurs, and SMEs. Some estimates say we need between one to two percent of global GDP to fix this issue. But the challenges are real. In places like India, China, and across Africa, fast-growing economies are being powered by coal. Even agriculture contributes huge greenhouse gas emissions. So the market is big.

Yeah, right. So if emerging businesses are making money and the big players are coming in to look for those dollars too, I had a bit of a worry that this sort of thing would go off the boil a little bit. Back in the GFC times, there was a lot of talk about climate change and the Copenhagen Agreement, but as soon as the GFC hit, it fell by the wayside. There were more important things to look after. I had that fear that maybe that would happen through this pandemic and the economic situation we're about to run into. So it's good to hear that those big organizations are looking to really play in that market. Is there any sense that this might go off the boil from governments, that they won't be interested in promoting green energy and green infrastructure?

I think I'm looking at it from a Western developed economy perspective, not thinking about the Middle East when they're sitting on massive oil reserves and that's the mainstay of their economy, and the other emerging economies that are looking at cheap fossil fuels to drive their economic growth. So different pockets are going to have to deal with it in different ways. Joseph, did you want to jump in on that?

Yes, and I think there are so many ramifications and perspectives to this. There's a political lens. Look at countries like the US with Trump coming out of that, there's still negation of the existence of climate change. Where you have fires in California engulfing hundreds of thousands of acres, people dying, and the President doesn't want to buy the evidence. Also countries like Australia, a lot of people get it, but depending on which side of the divide you are, it depends on how you look at it. The political will definitely plays a big deal. China came forward to say they plan to address climate change by 2060, but many say that's too far, the planet won't exist by then if we continue this way. But it's not all gloom and doom. Major players like the World Bank and regional banking organizations are very keen. Investor groups, banks, different organizations are coming up as issuers. In the Middle East, the likes of Aramco – what are they going to do with those assets if they are capitalized based on expected economic benefits? Some have come up with the idea of transitioning investments rather than shifting abruptly from fossil fuels to renewable. We need a 10 to 25 year gap to stabilize the move. Some say should we use gas as a cleaner transition fuel while we get to the point of fully renewable. These are the conversations happening. A critical part is civil society. Over a year ago before COVID, young people took to the streets in major cities around the world making the case that you can't keep doing things the same way. For their generation, there might be no future. Young people are very vocal and assertive, they want to sit at the table. They choose which brands, which governments they associate with. That will be the deciding factor. Investors will listen because most economies have a huge youth population. 60% of Africa is young people. If those people demand change, it will move us closer to the promised land.

Yeah, we all have altruistic and high hopes when we're young, but then you get into the cycle of having to work, have kids, buy a house, pay mortgage. That sort of thing dilutes your value system a bit. But I do think the driving force underneath this is that the technology behind renewables is becoming cheaper, so the price of renewable energy technology is now becoming competitive. Not to say that we couldn't take off all the subsidies of the fossil fuel industry and balance it out. I think the drive of the youth to want to work for organizations with sustainable value systems, and even beyond that, employees wanting to work for, suppliers wanting to supply to, customers wanting to buy from organizations – they're all looking for this green tick. And I think just pick up your point you made earlier, Joseph, you know we won't have a planet? Well, the planet will be fine, it's the humans that will have the problem. But let's go beyond the employees and young people associating themselves with brands. What about the shareholders and investors? What are they looking for? Are they representing the youth? Is that where their money is coming from?

Of course. We've seen that in places like Australia in the last two weeks. Brands like Rio Tinto, BHP, and Westpac – investors usually are laid back when you deliver earnings and yield. But we've seen investors become very vocal, changing the entire management of organizations based on things like transactions involving child trafficking or destroying heritage sites on aboriginal land. Investors are now careful about reputational damage that can come from being associated with not caring for the environment. Activist groups like Greenpeace will go and shut down a coal plant, and the media follows. We've seen share prices tank from Volkswagen in the US to MTN in South Africa. Shell knows this already. Even if they don't believe it, they know bad publicity can fire the CEO, CFO. They know how it plays out. Capital moves freely and easily. Even false rumors can tank share price. That plays to the advantage of civil society and NGOs.

So it's the reputational risk of not going down this path. But there's got to be financial returns to it, right? There's got to be a financial return on investment.

Yeah, I've had some conversations recently with treasurers who are raising money on international debt markets, and they're saying it's no question that you've got to have a green agenda, sustainable driven organization. Otherwise you're competing for funds that are looking for that, and it's very hard to get them if you're not on that page. I have to save power – my timer switch is going to go off in the middle of this recording, but we'll bear with it. I suppose what I'd like to do is take this idea of return on investment and bring it into the accountant's world. So talk to me about the role of accountants in this changing dynamic from fossil fuel energy systems to green energy and financing. Joseph, maybe you could talk to that point.

Thanks, Brendan. There are a lot of opportunities for accountants. Rightly said, from policy formulation, helping various stakeholders from government to corporate organizations to think through the framework. Having a policy set at high level needs to be cascaded down to federal governments, states, provinces, local governments. What does it mean for different layers of government and within the organization? What does it mean for the board and the audit committee? How does it impact audit risk, corporate risk? Do we need to revisit our risk register? What are the climate-related risks that need to be part of financial disclosures? Accountants have a role to play. I tell people that when you study accounting, there are two main conceptual bases: going concern and accrual. Those concepts, especially considering materiality, help you think about what really matters. When you think about sustainability, you find many people in media relations and investor relations are not necessarily accountants. They understand the narrative, but sometimes investors complain it's too much information. But if we bring our knowledge of materiality, we can say of all this information, which is actually material? If I'm ExxonMobil, is water a major issue? No, it's not material. If I'm Coca-Cola, I should worry about water. Accountants have a critical role because we also understand how to measure things from financial reporting to management reporting. What is not measured cannot be accounted for. Accountants have a role from governance structures to reporting to strategy, helping organizations and countries come up with plans for climate-smart cities, buildings, infrastructure. But there is also a knowledge gap. Many people don't want to get into green finance because it's not typical debit and credit. That's where professional organizations need to support members. We're seeing that in the UK with the Green Finance Climate Education Charter, which the UK government is pushing with professional associations like ACCA, CIMA, ICW, and CFA. That will be critical to move the entire finance profession along that journey, as part of the curriculum and CPD for members, so it becomes less of a gray area.

Yeah, I think one of the things you're touching off there is developing the skills around storytelling, not just to present numbers but to actually tell the story behind those numbers, using numbers as backup. And to bring those things about materiality and sustainability into common language. Ayla, is there a danger that accountants will fall back into bean counting compliance? I think reporting disclosures are an important part of this. Is there a danger they become stuck in that, or can they become leaders in this area?

Yeah, no, that's great. I'm very passionate about it. I've read a lot about things like the hero's journey and what it means as human beings to transform. I think as a society we're going through one of those major transformation periods right now. It often builds fear and uncertainty, nobody knows what the future holds. So it's about pulling together and telling stories like we did around the campfires years ago. So I like the storytelling narrative. I think we're probably up on time. What I'd ask maybe is if you guys could give a takeaway for the listeners. If there's something you'd like to leave them with that they can take away and help them move forward in their careers as accountants or whatever their role is in organizations. Joseph, can I throw to you?

Thanks, Brendan. I've enjoyed the conversation listening to you and Ayla. I think as parting notes, green finance, sustainable finance is going nowhere. For fundraisers and financiers, they understand it's a new tool in the mix, and it's going to be here forever. In 50 years we might not call it green finance, but it will be here. Social bonds, COVID bonds – whatever you call it, it's still bonds focused on addressing environmental and social issues. Professionals need to be abreast of this, upskill, show interest, and see how it affects your field. Whether you're an engineer, accountant, doctor, you want to know what kind of funds are available to make an impact in the community. It's a multi-disciplinary point of view and a set of skills required to drive the agenda for green finance.

I love it. Take responsibility and have an impact. Okay, thank you Ayla and Joseph for everything on that podcast tonight. Your contribution and insight was incredibly valuable. I'm relatively naive in this area in terms of my knowledge of green energy finance. I have a green heart, but I don't have enough understanding of the area, so you've really enlightened me. Thank you very much. If you want to find out more, you can follow Ayla and Joseph on LinkedIn, have a look at the work of the World Economic Forum on green energy, and the UN Sustainable Development Goals. Finally, I'd also suggest downloading some of ACCA's professional insights on this topic at www.accaglobal.com. Thank you and see you next time.