Green Finance : Wind blowing in the right direction
January 5th, 2020
The European Parliament and European Council have approved on 19th December the final text of the so-called Taxonomy, which establishes the criteria for determining whether an economic activity is environmentally sustainable, for the purposes of establishing the degree of environmental sustainability of an investment. In simpler words, to distinguish the “good from the bad” investments in terms of environment protection. This is a significant step forward in terms of “green finance”, yet again consolidating Europe as the leader in Climate Action. This followed other important European moves on the same direction, such as setting up a Networks for Greening the Financial System (NGFS) by several central banks and supervisors with a key founding declaration that climate change risks are part of their mandate. Also, in the same tone, the European Central Bank has warned central banks that it considers climate change as a key risk within the Eurozone. Three other interesting decisions took place recently around the globe:
Hizo Mizuno, chief investment officer of Japan’s $1.6tn government pension fund, decided to suspend stock lending. Decision which is "shaking" the financial world, representing a clear bet on long terms investments. He criticised the “short-termism” of short sellers, who borrow shares to sell, in the expectation that they can buy them back at a lower price. In an interview with the Financial Times, he confirmed that he had acted “from a desire to make his business more consistent with its stated philosophy of investing, and supporting companies, for the long term”.
David Solomon, chief executive of Goldman Sachs, announced that the company will target, over the next 10 years, $750bn of financing, investing and advisory activity to areas such as clean energy and sustainable food production. He added “Companies have traditionally treated sustainability as a peripheral issue, focusing narrowly on the way they manage their impact on the environment. There is not only an urgent need to act, but also a powerful business and investing case to do so”.
Coal power becoming ‘uninsurable’ as firms refuse cover, with the number of insurers withdrawing cover for coal projects more than doubling this year and, for the first time, US insurance companies have acted on the matter.
In other words, some of the most relevant political and financial institutions finally recognise that climate change will have a huge impact on any investing risk assessment decision and that it poses a serious threat to global financial stability. These are clear steps in the right direction and key enablers for "green investments" to grow – and, at the same time, , a strong warning signal of the difficulties facing less "Responsible Businesses" searching for capital for "grey” investments. Have a great and impactful week! Nuno Moreira da Cruz Director of the Center for Responsible Business and Leadership Católica Lisbon School of Business & Economics