(Bloomberg) – As JPMorgan Chase & Co. head Jamie Dimon made clear this week, Paris continues to hack into London’s financial dominance. The next price at stake: becoming the global capital of green banking and the trillions of dollars in deal flow that will bring.
Paris and London are competing for supremacy in this emerging world of environmental, social and governance-tailored investment products that Bloomberg Intelligence estimates could grow to more than $ 53 trillion by 2025 – a sum greater than the global corporate bond market.
For the City of London, this struggle is “the key to its future,” says Ben Caldecott, director of the Oxford Sustainable Finance Program at the University of Oxford. Just as New York dominates stock trading and Chicago is home to options, the city that has established itself as the global center for green finance will benefit from a surge in sustainable trading and investing.
The stake was increased by Brexit, which drove international banks out of London. JPMorgan heightened London concerns on Tuesday when Dimon, the bank’s chief executive officer, announced that Paris would be the company’s “trading center” in the European Union after Brexit and confirmed a plan to move several hundred traders to the French capital . Also a number of JPMorgan’s largest U.S. competitors, including Bank of America Corp. and Goldman Sachs Group Inc., have thrown their weight behind Paris.
In terms of financial clout, the French city of London has in most cases not grown. The British capital employs more than twice as many people in the financial services sector, its asset managers manage more money than its competitors in France, Germany and Switzerland combined, and the city is the world’s leading center for trading currencies and Eurobonds.
Still, France was home to more than 140 billion euros ($ 167 billion) in sustainable funds at the end of March, nearly 40% more than the UK, according to data compiled by Morningstar Inc. France has also sold the greenest bonds in the world, with the UK still to come up with its first deal. In a survey of more than 6,000 CFA institute members published in May, 75% of respondents from France agreed that ESG-compliant products “will dominate the financial landscape for the next 10 years,” the highest of any country.
Green finance is not an exclusively European matter, even if large centers like New York and Hong Kong are currently lagging far behind. While western European cities made eight of the top 10 green financial centers in Z / Yen’s April ranking, the consultancy said some of them could be displaced by centers in North America and Asia in the next two years. The biggest change is taking place in the US, where the Biden administration is pushing the financial sector to rapidly improve climate disclosure and better support the energy transition.
Rhian-Mari Thomas, director of the UK government-funded Green Finance Institute to Promote Sustainable Investment, says Paris is often seen as their city’s biggest competitor. “Just because London has some of the deepest pools of capital and an enviable pedigree doesn’t mean it will go green through osmosis,” she says.
Winning the race for supremacy in the world of green finance is both a matter of pride and an essential pillar of Britain’s mission to remain a leading global financial center. After Margaret Thatcher’s liberalization of the financial system as part of the 1986 “Big Bang” revision, London was Europe’s unrivaled financial center for more than three decades. The city gave Wall Street and Asian financial firms access to European markets, and in return it powered the UK economy, with the financial sector paying 10% of taxes in 2020.
“A lot of people have said we can be nimble after Brexit and this is the first real opportunity to put that into practice,” said Nicky Morgan, a Tory peer and former chairman of Parliament’s finance committee, responsible for financial services is. “If London didn’t build a leading position in green finance, we’d have to look to what’s next, which might not be immediately obvious.”
One deficit the UK is trying to fix is the lack of a green government bond, which Thomas calls “the fly in the ointment” for London’s green credentials. The country’s plan to sell at least £ 15 billion ($ 21 billion) in green bonds beginning in September is “probably the most ambitious green government bond of any major country,” Chancellor of the Exchequer Rishi Sunak said in a Bloomberg television interview Thursday after giving a speech promising to strengthen the competitive advantage of the UK financial industry. READ MORE: Sunak Promises to Boost the City of London’s Competitive Advantage
For France, the 2015 UN talks were the turning point. Policy makers passed law earlier this year compelling fund managers in the country to disclose how they incorporate ESG issues into their investment decisions, along with the climate impact of these businesses. French insurers, asset managers, and lenders were the first to begin restricting some services, including lending and underwriting to coal companies. Today, the country’s financial sector leads the way in climate research, such as portfolio warming metrics, and efforts to mobilize financial markets to protect biodiversity.
Meanwhile, companies listed on the UK’s FTSE 100 have fallen far behind their French competitors when it comes to setting climate targets with the Science-Based Targets initiative, a group of experts that sets widely respected standards for what it is In order for a company to achieve success, it takes zero. The emissions reduction targets set by Britain’s benchmark companies are in line with global warming of 3.1 degrees Celsius from pre-industrial levels – a scenario in which large parts of the earth will be uninhabitable due to extreme heat.
“It’s no longer a niche,” says Anne-Claire Roux, who founded Finance For Tomorrow to support the French capital as a center of sustainability. The initiative, which was officially launched in 2017, urges French companies to embrace ESG while promoting their expertise, including through the One Planet Summit supported by President Emmanuel Macron. “Green finance is seen as a major business issue in London, but there is high competition between financial centers and Paris is superior to its competitors.”
As competition intensifies to dominate green financial flows, setting the rules becomes a battlefield. A big advantage of Paris is the EU’s development of a taxonomy that will define what is considered a green investment, starting with bonds. The detailed rules will make sustainable bond issuance easier, especially as taxonomy becomes a global standard and French banks are one step ahead of their competitors. (The US is also trying to develop a benchmark for Wall Street.)
While the EU has a clear lead over competing countries like the UK, the real test will be which standard is most widely used. The UK has announced that it will use metrics from the EU’s taxonomy as a basis for its own, but is aiming to align its rules with more ambitious emissions reduction targets. The right balance between financial interests and climate goals could determine which taxonomy is considered more credible.
Thomas, whose Green Finance Institute is advising the UK government on implementing a taxonomy, says the UK could stand out by developing a classification of transitional activities. The aim would be to clarify when activities in the most polluting sectors make a significant contribution to the environmental objectives. It’s tough terrain: climate experts have warned the EU not to include some natural gas projects in its taxonomy, while some finance managers argue that fossil fuel funding will be required before zero-emission alternatives are carbon-intensive activities are another sign against its green Ambitions. While the largest French and British banks prefer fossil fuels to green projects, British banks are funding more coal than their French counterparts, according to the environmental charities Reclaim Finance and Urgewald. Their figures showed that UK banks lent $ 131 billion to coal companies between January 2016 and October 2020, compared to $ 87 billion in funding from French lenders.
The upcoming COP26 talks, hosted by the UK in Glasgow, Scotland, will be an opportunity for the country to strengthen its green image and highlight the good that its bankers can do. Selling UK expertise to the world will be a driving part of UK strategy, including promoting London as a great city for green finance.
If you look at the Paris experience, the London conference could give London a boost. “It helped us in Paris to be the host country in 2015 and it will help the UK host COP26,” says Roux. “London recognizes that it is a very important opportunity to show what it is doing and to accelerate it.”
But the French officials are not loosening their charm offensive either. “I love the idea that you love France,” Macron joked with Dimon at the bank event in Paris this week. “You put your money and your people here. That is the best proof of love. “
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