The GlobalCapital Sustainable & Responsible Capital Markets Forum

Key takeaways from the conference

Climate change is not proceeding in a linear fashion, but unevenly. Scientific models underestimate the problem, because they necessarily have to be conservative and simple. Real life includes more feedback loops and nasty surprises.

· Non-linearity can be good too – like the Berlin Wall, which fell when no one had expected it, environmental progress can make leaps forward.

· The public and private sectors must work together if progress is to be made. A little action by the public sector can unleash huge activity by private actors — as with the Netherlands’ move to set energy efficiency standards for buildings — but the government often has to make that first step. Sometimes, as with fossil fuel subsidies, the government just needs to get out of the way.

· A live audience poll asked ‘Should investors and banks now be thinking about reducing their exposure to the oil and gas sectors?’ - 85% said yes. When asked ‘Do you expect bond investors to suffer material losses as a result of environmental or climate risks in the next 10 years?’ - 64% said yes.

· The internal benefits for an organisation of issuing a green or social bond – or, recently, a green loan – continue to be highly appreciated by issuers. Getting the finance and sustainability teams talking, often for the first time, is widely felt to bring benefits.

· Securitisation offers a powerful way for green or socially minded investors to make a difference. By buying a mezzanine or junior tranche they can influence a much larger total sum of investment – or free up capital for progressive lenders to do more.

· Social bonds have great potential to grow, in some people’s view even to exceed green bond issuance, because the range of potential uses for the money is so broad. But finding issuers will be difficult and developing any kind of harmonised impact metrics even harder.

· Green and social bonds are helping to increase investors’ interest in the underlying uses to which their money is put. Multilateral development banks have long published information about projects they have lent to, but for a long time investors were not interested. Now they are starting to be.

· Green-minded investors can consider short investment strategies as well as long ones – such as shorting the bonds of “brown” issuers. An example given was the Australian government, which is bankrolling the huge Carmichael coal mine.

· Slavery, colonialism, child labour and dumping toxic waste were all considered acceptable ways to run an economy within the last 200 years, and in some cases within living memory. It may well become the case that investing capital without regard to environmental and social consequences, such as in the oil and gas industries, could come to be regarded as unacceptable.

· The (approximately) 40 second opinion providers and reviewers of green bonds are widely felt to present a confusing variety, and their output to be of variable quality. But the market is sending “zero pricing signals” to issuers, because whatever investors think of the second opinion on a deal, they still buy it, and even if green investors don’t, normal investors will buy it as an ordinary bond.

Tue 05 Sep 2017