A new green finance paradigm

In a year dominated by Covid-19, the climate crisis took no breathers, despite fewer headlines.

Tied for hottest year on record, 2020 also saw record high atmospheric CO2 levels, the strongest recorded landfalling tropical cyclone, and near record-low Arctic sea ice.

Saving the planet is a race against time. According to the Intergovernmental Panel on Climate Change, CO2 emissions must fall by more than 50 per cent by 2030 and reach net zero by 2050 to stay within the budget of limiting global warming to 1.5°C.

Yet 2020 may also be remembered as a turning point in global consciousness on sustainability, spurred by Covid dislocations and climate disasters. Consensus is building over a new capitalism that serves stakeholders – society and the planet – not just shareholders.

“Covid has provided people with the opportunity to reassess what's really important. There’s been a philosophical reset,” says Steve Ashley, Head of Wholesale Division, Nomura. “But for a reboot, coordinated policy action among all stakeholders – government, corporates, citizens, and capital markets – has to take place.”

Already in 2020, the world saw concrete action to underpin the new green paradigm. China, South Korea and Japan made net-zero carbon commitments. The EU launched a European Green Deal for carbon neutrality by 2050. Under a new administration, the United States re-joined the Paris Treaty.

Key to driving the vision will be a Climate Finance Market Structure that evaluates risk and payoff in green allocation; matches supply and demand of climate capital; and fosters coordinated action among public-private stakeholders. Nomura is committed to fostering the vision – through its range of financing solutions, and notably Nomura Greentech, a recently acquired global leader in sustainable technology and infrastructure banking.

“I think people now understand that climate change is the biggest issue facing humankind,” says Ashley, who is also chairman of the Global Financial Markets Association (GFMA), “and how financial services can support a transformation in development dynamics.”

Climate financing’s new paradigm

The numbers tell a stark story. According to GFMA, the investment needed to meet Paris Agreement targets amounts to at least $3 trillion to $5 trillion per annum over the next three decades. The current climate finance market is estimated at $600 billion – meaning a five- to eight-fold baseline deficit that needs urgent attention.

The only way forward, says a GFMA report, is “a holistic, complementary set of actions taken by the public sector, the social sector, the real economy, and the broader financial sector.” The market structure around climate finance – which includes financial market participants, products, policies, regulations, and infrastructure – must grow at unprecedented scale and speed to meet the low-carbon economy’s investment needs.

Key to success, says Ashley, is an inclusive approach that does not cut out polluters: “We need to find a path to support and provide transition financing to these companies – as long as they demonstrate a firm inclination and commitment to creating a greener company.”

Carbon pricing will be a catalyst in the transition, he adds. Today’s absence of financial pain for CO2 emissions makes many low-carbon business models uncompetitive. “Levelling the playing field will unblock investment pipelines for transition strategies,” Ashley says.

East-West synergies

Such transition mechanisms will only take flight with investment of human will driving the funding. A new report by the United Nations Environment Programme (UNEP), Making Peace with Nature, calls for a world where “human ambitions for a good life (will) no longer be centred around high levels of material consumption, but around rich relationships involving people and nature.”

It’s a vision that Japanese society – including its business community – has been practicing for centuries. The ethos of Sanpo Yoshi (“three-way satisfaction”) comes from the merchants of Japan’s Omi region, and captures something of the essence of Japanese business.

For the Omi traders, success resided in satisfying all stakeholders: buyer, seller, and society. Success itself was defined by community well-being that went beyond the bottom line, yet nurtured the long-term growth Japan’s corporations enjoy today.

It’s an ethos that dug fertile roots in Japanese society as a whole – nourishing the entire social organism – and may inspire broader global corporate and social responsibilities.

“Nomura is committed – as part of its raison d'être – to support structural change in society for the benefit of all,” says Ashley. “That’s the essence of Sanpo Yoshi.”

There are of course areas in which East learns from West. Japan is on a journey to embrace more Western-style “G” – governance – in ESG. That means more transparency, shareholder activism, and diversity in board membership. More broadly, Asia’s emerging nations are studying advanced economy playbooks as they address wealth gaps and sustainability priorities on the path to prosperity.

GFMA estimates Asia will need 55 per cent of the climate financing to meet Paris Agreement targets. Making that happen entails a sea-change in Asian thinking on green development, an area where Europe currently leads both in financing and thought leadership.

Nomura’s global footprint, notably driving European green financing projects – and its decades of business and relationship building in Asia – puts it in a strong position to foster positive change in Asia’s development narrative.

“Nomura has built these deep relationships in Asia. That’s not something you can replicate overnight,” says Ashley. “We feel we have a fundamental role to play in supporting green financing in Asia, especially through our structured solutions business and green advisory business.”

A global vision for saving the planet

Ultimately, says Ashley, the green mindset shift must transcend East-West dichotomies: “When you see recent climate change impacts – Australian bushfires, typhoons in Japan, hurricanes in the US – they're borderless. We need to act in a coordinated manner.”

Nomura is helping to build this global infrastructure. Nomura Greentech’s clout in the US and Europe is the perfect complement to Nomura’s Asian business and relation-building expertise.

Nomura is seizing the opportunities through key roles. They include joint lead in the first tranche of the EU SURE bond, the EU’s inaugural social bond for Covid, and green bonds including private Japan placement of European green project funding.

“Nomura is a very international Japanese organisation,” says Ashley. “We therefore have a unique opportunity to bring the best of Eastern culture and Western insight into the sustainable financing solutions the world needs today.”