Yahoo – AFP, Jitendra JOSHI,February 9, 2020
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Analysts believe that green finance could help save the planet and make money for investors (AFP Photo/Philippe HUGUEN) |
London
(AFP) - Away from the toxic atmosphere at climate summit talks, in boardrooms,
banks and trading houses, a transformation in green finance is under way.
Its backers
hope it could profitably help save the planet.
Regardless
of the politics of climate change, there is real money to be made today in the
exploding market for bonds and other instruments invested in environmentally
sustainable projects.
But in the
final analysis, uniform regulation derived from collective political action
will be vital both for the markets and for the planet itself, observers
acknowledge.
Hard-nosed
US investors in fields such as solar panels are not necessarily driven by
anxiety about global warming, Climate Bonds Initiative chief executive Sean
Kidney said.
"Most
of them are Republicans for god's sake," he said at a conference on
climate finance organised by the European Bank of Reconstruction and
Development (EBRD) in London.
"They
care only about price," he added, predicting the transition to a
low-carbon future would generate $90 trillion investment by 2050 in areas
including low-energy cooling, urban farming and greener transport.
Kidney's
independent organisation certifies "green bonds" issued by
governments, municipalities and companies whose proceeds are devoted to
sustainable development.
Notable
issuers last month included the Metropolitan Transportation Authority in New
York, one of a slew of US cities unwilling to wait on President Donald Trump's
climate-sceptic administration as they vie to adapt their creaking
infrastructures to a low-carbon future.
Tipping
point
The
investment community more broadly is running ahead of climate politics, which
have been stymied by the refusal of the United States and other major economies
to chart a way forward on the 2015 Paris accord.
BlackRock,
the world's biggest asset management fund, shook the industry last month by
announcing it would transition out of coal-based investments.
"Climate
risk has become mainstream (for investors). It does feel we have reached a
tipping point," said Nick Anderson, board member of International
Financial Reporting Standards, which is crafting new climate guidance for
company accountants.
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Democratic presidential candidate and former New York Mayor Michael Bloomberg
set up a task force on climate-related financial disclosures in 2015 (AFP Photo/
JEFF KOWALSKY) |
In 2019,
the green bonds market worldwide expanded by more than half to about $258
billion, and further breakneck growth is expected this year, according to the
Climate Bonds Initiative.
Departments
at major banks in charge of environmental, social and governance (ESG) matters,
once a backwater in high finance, now have real teeth as banks get serious
about profitable alternative investments and their wider public image.
Environmental
finance is "absolutely real and tangible", said Alexandra Basirov,
global head of sustainable finance for financial institutions at French bank
BNP Paribas.
Banks such
as BNP and ING have pioneered lower-interest loans that give greener projects
an edge over more carbon-intensive ones.
But Basirov
also cautioned at last week's EBRD conference: "Ultimately markets don't
operate efficiently without adequate data."
Therein
lies the rub for many engaged in the ESG business: how to tally assets at risk
from climate change, and how to quantify the risk itself given the array of catastrophic
outcomes in store as temperatures rise.
Green for
greenbacks
Credit risk
agencies have been writing new models that seek to calculate corporate
exposure, such as the weight of assets that companies already hold in
potentially obsolete carbon investments.
Green
investments are already turning into greenbacks for firms, according to James
Leaton, vice president for climate risk at Moody's Investors Service.
Sustainable
projects show a "lower default rate" because investors see them as
more future-proof and creditworthy, he said.
The Task
Force on Climate-related Financial Disclosures, an initiative launched by
former New York mayor and now US presidential candidate Michael Bloomberg, aims
to rationalise what companies must report to investors on their climate
exposure.
In the
acronym-heavy field of climate finance, central banks are also getting in on
the act.
One
initiative derived from the Paris accord is the Network for Greening the
Financial System (NGFS), a platform for central bankers to examine the global
financial risks of climate change.
A notable
holdout has been the US Federal Reserve, hobbled by Trump's vocal objections to
climate action. Fed chief Jerome Powell hinted last month that it might soon
sign up.
Morgan
Despres, head of the NGFS secretariat and deputy chief of the financial
stability department at the Banque de France, told AFP that network staffers
were in contact with Fed counterparts "on a regular basis".
"Any
action does need to be global," he added, echoing environmentalists who
say that policymakers must in the end bury their differences and catch up with
financiers on climate change.
For
investors, the EBRD conference heard that the most meaningful policy action
would be for governments to agree a true market price for carbon that properly
reflects its climate impact.
"Without
carbon pricing, you can only go so far," Eric Usher, head of the UN
Environment Programme's finance initiative, said.