Breakingviews - Markets short-termism keeps climate fight boxed in

United Nations Secretary General Antonio Guterres speaks during the opening of the 2019 United Nations Climate Action Summit at U.N. headquarters in New York City, New York, U.S., September 23, 2019. REUTERS/Carlo Allegri

NEW YORK (Reuters Breakingviews) - If only those who talk about mitigating climate change put their money where their mouths are. This week’s United Nations Climate Action Summit in New York brought forth pledges and proposals, but the financial resources being committed to the problem are puny.

Take green bonds, where companies raise money that they promise to spend on environmentally sound projects. The amount of these securities issued may rise by almost 50% this year and hit a record, the Climate Bonds Initiative estimates. But at $250 billion, this year’s total sold would represent just 2.5% of all debt capital markets. Related funding tools like bonds linked to one or more of the U.N.’s 17 sustainable development goals barely nudge that figure above 3%.

All in, about $1 trillion a year is being spent on financing ways to mitigate or prepare for climate change, according to HSBC estimates. Still, it falls far short of the $6 trillion to $8 trillion a year that the U.N. and other institutions reckon needs to be invested each year over the next decade.

Why is the gap so large? Investors may worry about putting money into emerging markets, whose currency and political risks they see as too high. But there are more pedestrian reasons. Oil producers may be dirty but investors have had decades to understand how to value them. Putting money into, say, a wind farm instead may not seem such a sure thing. Subsidies make renewables more attractive, but could disappear if government changes.

There’s a financial problem too. Company finance chiefs often aren’t keen on having to devote the money they borrow to specific purposes, which is what green bonds generally demand. And there’s often no price benefit in issuing green bonds rather than the regular kind. Investors tend not to accept a lower return just because a project is good for the planet.

If they paid attention to future risks, investors would think otherwise. A decision to impose a carbon price or tax would have huge implications for company operations and the value of assets in portfolios. Investors should be thinking not just about what they gain from environmentally sustainable investments, but what they stand to lose from the rest.


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