Financial muscles in the fight against climate change
Published: Stavanger, 09. July 2020
Norway weighs in as a featherweight, but punches like the boxer Mike Tyson. We have 0.07 percent of the world’s population and the world’s second-highest GDP per capita. And this wealth is managed well: the Norwegian Sovereign Wealth Fund – popularly termed the Oil Fund – alone represents 1/100 of the total capital required to decarbonize global energy systems before 2050.
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This wealth provides enormous potential and influence. At this moment we are experiencing the effects of a safety net few other countries have the luxury of. Strong state finances are also a springboard for Norwegian businesses in the green transition. Vaclav Smil – one of the world’s foremost energy scientists – has commented that only Norway with its 5 million inhabitants and many billions of kroner could dream of establishing infrastructure for both hydrogen and electric shipping!
This capital can also be a springboard – or even a hammer – in the global green transition.
Usually, stock market investments get the most attention: you have the star portfolio managers beating the market, heated annual general meetings, divestment movements, and engaged public debate. Bond managers on the other hand have a more steadfast, even staid image, only raising their heads when the companies are really in trouble.
New research paints a different picture. Share prices obviously have an impact on a company’s attractiveness, but the scaling of businesses and larger projects are financed in the bond market. That’s why large bond investors have influence way beyond their traditional creditor role. Dr. Ellen Quigley at the Centre for the Study of Existential Risk at Cambridge University studies universal ownership – a broad portfolio that largely reflects the market. Her research shows that capital managers who set the same requirements in their bond portfolio as they do in their stock portfolio have a larger and more effective influence on which direction companies move and how quickly. Capital managers who wish to promote a more sustainable direction can tie loan conditions to achieved CO2 reductions, require that the company implements climate risk scenarios in its strategy, or use the same exclusion lists in the bond portfolio as the stock portfolio.
The increased offering of sustainable funds in the last few years shows that capital managers want to contribute to the green transition – and that they react quickly to investor demand. Let us use the full scope of investor power to score a knockout on climate change.
Frances Eaton, Chief Legal and Compliance Offer – Nysnø Climate Investments
Published in E24.no