Cooking the Books 2 – ‘Sustainable investment’
At COP26 in Glasgow last month Mark Carney, former Governor of the Bank of England and of the Bank of Canada, announced that the UN-sponsored Glasgow Financial Alliance for Net Zero (GFANZ), set up in April, had signed up around 450 financial institutions in 45 countries. With total funds of $130 trillion, they have pledged to lend or invest only to corporations and for projects that are net carbon zero (matching any CO2 the activities release into the atmosphere by taking an equivalent amount out).
All the financial institutions involved – banks, asset management companies, pension funds, insurance companies – are profit-seekers. The logic behind the initiative is impeccable. As capitalism is a system driven by the search for profits, private enterprises will not do anything to combat climate change unless there’s a profit in it for them.
Banks are in business to generate a profitable income, by sharing, as interest, in the profits made by the businesses or projects they lend money to. They may well set aside money to make loans on net-zero conditions but will only lend if the activity to be financed will bring in a high enough profit. The trouble is that not all projects that will help reduce CO2 emissions will be profitable enough, or, in the jargon, will be ‘bankable’.
As Xavier Sol, an economist for a coalition of NGOs, has pointed out:
‘The approach of turning projects into bankable ones ignores the fact that a majority of the needs for ecological transition will simply not be bankable and offer any return on investment’ (EU Observer, 20 October).
Nor does Carney’s initiative mean that non-zero projects will no longer be able to find funding. As long as they are profitable, they will find the money – and there are plenty of profit-seeking banks and hedge funds outside GFANZ. As Carney’s fellow Canadian, Tariq Fancy, has pointed out:
‘As long as it’s legal and makes money, the market will find someone to invest in it’ (tinyurl.com/p77cbkxz).
Fancy used to work at Blackrock, the world’s largest asset management corporation, as head of their department advising on which investments were and which were not ‘ethical’ on environmental, social and governance grounds. He became disillusioned and is now a critic of the whole idea. He thinks it’s just ‘greenwash’, done for public relations reasons, and won’t work to help bring about net zero carbon.
As he put it in an interview with the Guardian (30 March):
‘Moving money to green investments doesn’t mean polluters will no longer find backers. The argument is similar to that of divestment, another strategy Fancy says doesn’t work. “If you sell your stock in a company that has a high emissions footprint, it doesn’t matter. The company still exists, the only difference is that you don’t own them. The company is going to keep on going the way they were and there are 20 hedge funds who will buy that stock overnight. The market is the market.’” (tinyurl.com/47t3c8ky)
Asset management companies are even more committed to making a profit than banks because they have a fiduciary duty to their clients to maximise the returns on their money. They are, in Fancy’s words, ‘for-profit machines’. They invest other people’s and institutions’ money on the stock exchange and generate a profitable income from the fees they charge their clients. What we are talking about here is stock exchange speculation and gambling. $57 trillion of Carney’s $130 trillion is in the hands of these companies for this.
Green projects are becoming profitable, so the financial institutions concerned would be investing in them anyway, as will those which have not signed up to GFANZ. Capital always follows profit. That’s why Carney’s initiative probably won’t make much difference either way.