Friday, February 08, 2008

Cabon and finance

At a lecture yesterday, Nick Robins, now at HSBC, sketched a programme for finance with regard to climate change:
* Make climate change a standard part of accounting, disclosure and listing rules;
* Modernise fiduciary duty to reflect the reality of climate change;
* Design financial products whose risk profiles make climate change imperatives clear; and
* Match corporate disclosure with reporting on investment funds.
He described this a fairly modest reform package. And, sure, there are several schemes which appear to attempt to speak to parts of this agenda. The Carbon Disclosure Project, for example, now "mobilises $57 trillion in asset data for 3,000 companies" (note the phrasing). Just this week Citigroup, JP Morgan Chase and Morgan Stanley announced their Carbon Principles. (Nick has of course done pioneering work himself, including The Carbon 100).

But among the key points, at least as it seemed to me, were: 1) how great the distance still appears to be before a set of provisions such as these is made comprehensive and mandatory; and 2) how little progress is being made on investment in energy efficiency, CCS and deforestation (the three areas where largest emissions reductions are thought be achievable in the next two decades or so), and how difficult progress in these areas appears to be. Am I unduly pessimistic?

1 comment:

Clive Bates said...

The case for pessimism is very strong. Not only are these accounting disciplines far from realisation, it's not clear that they'd make that much difference anyway. Even a £20 carbon price only adds about $14 to a barrel of oil, so the carbon price effect is drowned by the strong oil price signal to go fossil - and similar applies to coal, which is now sharply rising in price.

If you want to change what financiers put their money, I think it has to come from regulating what is put on the market and having clear fiscal instruments. More than that, it is important to be clear and credible about the direction this policy will take.

We should not design a system that requires altruism, CSR, reputation management, goodwill etc as the basis for climate protection. The only good system will be one in which acting on their basic money-making incentives take them down a low carbon route.