Banks are tracking money on climate change. This is a good thing



This year’s COP26 international climate change conference saw unprecedented participation from the financial industry, a development that has drawn criticism from those who believe bankers are not going far enough to help cut gas emissions. Greenhouse effect.

Greta Thunberg, the famous young Swedish environmental activist, even accused the industry of actively creating loopholes and frameworks that would continue to benefit their business without solving the climate crisis. “This is no longer a climate conference”, she lamented. “It’s now a global northern greenwashing festival, a two-week celebration of the status quo. “

Comments like those of Thunberg and others reflect distrust of the financial sector that has exploded since the Great Recession. While I don’t disagree that bankers will ultimately seek the end result, their leading role at COP26 is always a positive sign, especially for government decision makers who are committed to mitigating the climate change.

For decades, I believed that the economically feasible path and the path of moral good always overlap in the end. Take diversity, which was the subject of a recent Freakonomics podcast episode, who concluded that “the evidence from Nazi Germany and 1940s America … shows that discrimination is incredibly expensive – not just for the victims, of course, but also for the perpetrators.” At the end of the day, when businesses discriminate, they leave money on the table.

The financial industry’s growing interest in climate change reflects the fact that we have better data on the long-term impacts of certain investments and an ever-growing interest among activist investors to direct the money towards more sustainable projects. . Combine that with growing fossil fuel regulations and it’s no wonder more banks and insurance companies are aligning their assets with the terms of the Paris Agreement. It’s just where the future is headed.

This is a good thing. Instead of criticizing them, public leaders should work with the financial sector to promote common interests. A powerful tool that governments have at their disposal is what is called “Green bonds”, whose profits go to climate-friendly projects. The climate bonds initiative, which tracks sustainable investments, predicts green bond issuance in 2021 could reach $ 500 billion globally. There is significant activity on this front in the United States, including among issuers of municipal bonds: Green labeled municipal debt expected to reach an all-time high in 2021, representing 4.1% of total issues in the market, according to S&P Global Ratings.

Here’s another example where moral and financial interests align: With rising interest rates, investing in green projects can also be better business for governments. Greater accountability is expected from green bond issuers, but a study from the University of Oregon in 2015 found that more timely information in the municipal market can actually reduce transaction fees on transactions by up to 30%. More recently, a journal sponsored by Columbia University academic and practitioner literature have concluded that “the weight of evidence suggests the presence of a positive premium for green bonds”. Yes, issuing green bonds comes with increased reporting requirements, but a slew of finance companies and startups are lining up to sell government products that can help with this.

Finally, like the financial industry, local governments should consider their own costs if they do not adopt more climate-resilient policies. A recent report by the Federal Climate Market Risk Subcommittee warns that climate change and extreme weather events add additional cost, time, uncertainty and risk barriers to investments. He predicts that demand “is likely to increase for public and open access to climate data, including for primary data collected by government,” noting that the data and analysis “may introduce innovations that improve climate risk management.” . We are already seeing this shift in demand with the new federal infrastructure law, which calls for a number of data initiatives related to climate risk management.

Perhaps even more terrifying for leaders is this find by the BlackRock Investment Institute: Within a decade, if no meaningful climate action is taken, more than 15% of the current national S&P municipal bond index by market value will be issued by cities with probable annual economic losses from 0.5% to 1% per cent of their GDP.

In other words, it is no longer just a question of morals. Cities that do not take a data-driven approach to tackling climate change and investing in resilience do so at their financial peril. And you can be sure that COP26 bankers and insurers know this.

So let’s take this alignment of financial and moral values ​​and run with it. We cannot stop climate change. But the financial industry is a powerful lever to help us slow it down.



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