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Financial Institutions Hijack The Green Agenda

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We've landed in an era that environmentalists 40 years ago could only dream about. It ain't science fiction but these days the game's all about timing. As companies embark on going green, there's a need for guidance on what makes production processes green. Banks and credit institutions appear to be taking over from governments in setting benchmarks.

For a long time the onus has been on government institutions to stimulate businesses to 'green up'. But the agenda appears to have been hijacked by credit institutions. So if you're interested in environment matters and are not so familiar with the boys in the pin-striped suits, you might soon be. Even though the world is largely ruled by official policy makers, politicians have a knack for being too slow when it comes to the environment.

There are complaints that environmentalism might have been declared dead by Michael Shellenberger and Ted Nordhaus (authors of <i>The Breakthrough</i>), but let's not drop the donkey just yet.

True,  Wallstreet is putting much-needed momentum into the efforts to reduce greenhouse gas emissions, all the more so because the Yanks will want to outcompete European efforts. But a nasty side effect of competition is that it's too ruthless for balanced judgements on what is fair. The European financial markets have been involved in environment based products for much longer and have developed a competitive edge that will be difficult to beat.

Last week, the Green Exchange, started trading. The new exchange, part of the New York Mercantile Exchange (NYMEX) will have a hard time competing with the European climate exchange. Last year, $62 billion (E40 billion) worth of carbon credits were traded in Europe, which was a massive hike of 80% compared to the year before.

In the absence of practical regulations aimed at reducing corporations' carbon emissions, trading carbons might be one way of getting the rule structures in place. But this is where the business gets tricky. The funds that invest in these carbons are imposing their own requirements of what makes a carbon neutral business.

It's the Wild West all over; invent a common sense bunch of rules and shout loud in the industry and to shareholders and you won't even have to market your fund. Now that sensible humans no longer risk their personal reputations if they take global warming threats seriously, the free for all is really taking off. Everybody involved knows that there is no such thing as a non-ulterior motive in the investment business. And many awkward situations arise.

The run on everything green is massively driven by oil prices. At the moment there are some 75 environmental funds compared to only a few three years ago. These are mostly hedge funds (derivatives contracts funds).

Skepticism voiced from within the world of finance itself underline that these funds are merely investment opportunities which are cleverly marketed. But they don't necessarily resolve any of the world's problems. The same banks that run the environmental hedge funds have dual policies in place; on the one hand their fund management department will invest in 'ethical' companies that have been subjected to rigorous research at the same time that their corporate finance departments will finance the very companies that are responsible for heavy handed pollution, often without any ethical issue questions asked.

True, the ratings agencies are going to provide new ratings on how green a company is and link their credit risk to global environmental issues. All that is great, but who mandates the rules? Who assures that these assessments are implemented in a fair way? When regulation is left up to the finance industry itself, conflicts of interest easily arise.

One high profile official of Duke Energy, the US power company, recently complained to The Economist that the same banks that stipulate new rules on funding of (polluting) power-plants are failing to tighten loan terms for the power plants' parent companies.

One finance expert and climate change skeptic, Steve Milloy of the Free Enterprise Action Fund, claims the banks' environmental initiatives are “at best greenwashing, and at worst value-destroying”.

Theoretically it is  up to the government legislators to eke out the rules. But, as so often, reality bypasses politics. Climate change is increasingly seen as a major risk and due to the European finance sectors' longer track record, the Americans are jumping on the bandwagon now with reckless abandon.

"Corporate boards have a 'fiduciary duty to analyze risk', according to Mindy Lubber a fund manager responsible for $5 trillion worth of ethical funds who recently spoke at the Wall Street Journal's ECO:nomics conference. She argued that the way forward is by getting the market to put a price on carbon so that companies can take the lead to limit emissions. Lubber bets on the prospect that a technological revolution will result from this type of herding, something that's very much alive in the Green IT sector itself, judging from the address by a Sun Microsoft Systems official at a Vancouver conference yesterday.

Steve Milloy, who shared the stage with Lubber, said that this ain't nothing but hot air. He believes that so-called social activists are simply bypassing the government and going directly to the corporate sector with a bunch of false claims. The result, he said, is that companies are failing to really execute change. He also has little time for the few initiatives in Capitol Hill and slagged off the Lieberman-Warner Bill as 'an economy killer' on a par with 'Don Quixote technology' wind turbines.

The need for proper guidelines was underscored last month, when a group of the 40 top institutional investment houses (with combined funds of $1.5 trillion) officially requested that the US Congress introduce a mandatory national policy to reduce greenhouse gas emissions by up to 90% below 1990 levels by 2050.

If anything is clear from the viewpoints of these two people who both make investment decisions every day that affect the world in ways we have yet to discover, it is that there's a huge dichotomy between opinions and investment styles. The strange thing is that both are supported and can carry the day even in a total absence of regulations. But both the experts know that the winner is no longer automatically the one that makes the most money. This is where real values take on a new kind of meaning.

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About Angeliqueve

  • http://cqpinion.blogspot.com Krutic A

    Sorry but I had a hard time figuring out what the article was about or even keeping track of where it was headed (I figured no where)..
    It felt like illogical ranting by the author who had had too much to drink (smoke?).

  • Doug Hunter

    This is a topic I have had some interest in for a few years. Looking at the data and projections I still see no reason to believe that CO2 poses any sort of catastrophic threat. Global food and water supplies, overpopulation, diseases, aging populations, and so on are much more threatening in any time range than the limited warming we’ve seen that may or may not be primarily driven by humans.

    That being said I find it interesting to try and determine the motivations behind those pushing the GW agenda. Some have pure motives and really are concerned that the doomsday scenario put out by the media will come true. That doesn’t near explain the support this cause has garnered. I have spent some time thinking about the polticians, industry insiders, and others who support these green activities and I think you may have part of the right idea.

    Here’s what I think motivates these people:

    1) Lawsuit protection. The next great profit boom for trial lawyers will be in the environmental sector. We are just starting to see the run up to this as every government, organization, and business is suing every other government, organization, and business regarding their environmental impact. Business leaders seeing the trend are heading it off by greenwashing their business, unfortunately this only lends greater credibility to the GW nonsense.

    2) Competitive advantage. The answer to GW is always in the form of regulation and taxation. It is commonly, and often wrongly, assumed that business hates regulation. Not true. Most regulations emanate from industry insiders working through politicians. The big players grandfather themselves in and erect massive red tape barriers to any future competition. Take power plants for instance, you think big energy gives a crap that they can’t build new power plants? Hell no, that just means they can charge more and that new competitors have no way of getting their foot in the door. Carbon credits will be the same way. In order for the regulations to pass they will have to give enough bonuses and credits to existing industry. New players will have to buy credits from these existing organizations. When you control your competitors expenses you’ve already won.

  • http://amplifiedgreen.wordpress.com ave

    Krutic: What’s so illogical?

    Just because you are a biased Obama freak depending on very immediate lines of ‘inspiration’ doesn’t mean that people who take the world for what it is are illogical.

  • JustOneMan

    Ironically the author fails to mention the worlds biggest PIG who is behind the creation of these “investment opportunities which are cleverly marketed. But they don’t necessarily resolve any of the world’s problems” – AL GWHORE…the high priest of these “smoke and mirror” tax and investment schemes designed to make him and his buddies billionares while forceing the middle class and poor to pay for it!

    Nothing more than a master plan for the redistribution of wealth and way to AL GWHORE to feed his bloated ego…

    JOM

  • http://cqpinion.blogspot.com Krutic A

    Wait – I am a biased Obama freak? As in biased toward Obama? ha! You’ve got to be kidding. Have you read my articles or comments on that subject?

    It seems the effects of whatever you took while writing the above ‘article’ haven’t worn off yet.

  • bliffle

    At last! Someone who’s been awake for the past 30 years of corporate life. Doug Hunter, of all people:

    “It is commonly, and often wrongly, assumed that business hates regulation. Not true. Most regulations emanate from industry insiders working through politicians. The big players grandfather themselves in and erect massive red tape barriers to any future competition. Take power plants for instance, you think big energy gives a crap that they can’t build new power plants? Hell no, that just means they can charge more and that new competitors have no way of getting their foot in the door. Carbon credits will be the same way. In order for the regulations to pass they will have to give enough bonuses and credits to existing industry. New players will have to buy credits from these existing organizations. When you control your competitors expenses you’ve already won.”

  • http://www.investingforthesoul.com Ron Robins

    Interesting post. I’ve been following green investing for many, many years, well before the term became popular. For interested readers, I have a site that covers the latest global green and socially responsible investing news and research.

    Best wishes, Ron Robins

  • Dan Miller

    I tend to agree with Doug Hunter, but would offer the following thoughts.

    It is interesting article, but one with unarticulated major premises. First, that global warming is happening and second, that man’s propensity to generate carbon dioxide is a principal cause. Like it or not, neither premise is universally accepted. There is no need here to pontificate on why this is the case. Most have read the statistics and commentary, and most have formed opinions – some of them more ideological than rational.

    I think that man contributes to whatever warming there might be: we tend to live and work in air-conditioned buildings which radiate heat into the atmosphere. We drive air conditioned cars (or ride in air conditioned buses) to and from work. We exhale more carbon dioxide that we inhale. We consume agricultural goods the production of which consumes energy and, in some cases, generates methane (beef and leather shoes from cows, for example), which I am told is more productive of warming than carbon dioxide. We consume non-agricultural goods, the production of which also creates noxious gases and generates heat. The more of us there are, the more we will contribute to the supposed problem. However, I have yet to hear anyone suggest that fertile parents should be required to buy offsetting carbon credits, or even that they might consider doing so voluntarily.

    Perhaps Planed Parenthood could be supported through the sale of carbon credits, and any guilt (hardly any, would be my guess) felt by those who oppose birth control and abortion could be assuaged by purchasing carbon credits, even from organizations not involved directly in trying to minimize population growth and thus the proliferation of carbon dioxide. Just a thought, absurd though it may be.

    The author states, “Even though the world is largely ruled by official policy makers, politicians have a knack for being too slow when it comes to the environment.”

    Sometimes this may be true; other times, the official policy makers act too quickly.

    One example is the ban on DDT, which allowed the proliferation of mosquitoes and the resurgence of nearly banished malaria and other vector-borne diseases, resulting in many thousands of deaths. Perhaps this did slightly diminish man made global warming, but that most likely was not an intended consequence.

    Another example might well be the ethanol fad, quite popular in some agricultural areas and encouraged by government officials interested in making those areas prosperous. Whatever the dubious benefits of ethanol production, an unintended consequence has been that corn, a major component of feed for cattle and other beasts, has become very expensive. So, for that matter, have corn tortillas, bread and other food products eaten by humans. Some people, in some parts of the world, don’t have the necessary resources to buy sufficient food. Like the ban on DDT, this may at least to some extent diminish the world’s “excess” population and thereby the proliferation of carbon dioxide. Again, law of unintended consequences has prevailed.

    The author continues, “a nasty side effect of competition is that it’s too ruthless for balanced judgments on what is fair.” This assumes that others not in business, probably government officials, have superior insights into “balanced judgments on what is fair.” Even leaving aside the problem that what is fair to A may well be unfair to B, and that any “balance” is likely to be contentious, the premise seems to be at best dubious. It is perhaps worth noting that many of us spend lots of time complaining about what the stupid Government does – how wrong headed, inefficient and corrupt it is. Yet we want Government to take the lead in solving what we perceive to be the world’s problems.

    Mr. Hunter opines that

    “It is commonly, and often wrongly, assumed that business hates regulation. Not true. Most regulations emanate from industry insiders working through politicians. The big players grandfather themselves in and erect massive red tape barriers to any future competition.”

    I agree, but this analysis is a bit too gentle. The players do not have to work through politicians (by which I assume that he means elected officials). Frequently, they don’t do that at all. They also work with and through the various governmental agencies which, by themselves, have possibly more clout than do the politicians who create them. The various “independent” alphabet agencies and the various agencies which are part of the Executive Branch have scads of power; often, those appointed to head them have their roots in the industries which they regulate. When they go beyond the very mandates which created them, the only recourse is to the courts which, by law, are required to give them every benefit of the doubt. A phrase often quoted in judicial decisions is “busy administrative agencies cannot be expected or required to dot every i or to cross every t.” I could go on an on, but won’t. Suffice it to say that administrative agencies and executive departments have tremendous power to do good or evil, with very little oversight, and that very little changes when one political party is exchanged for the other in power. The heads of agencies sometimes change, but the lesser officials are civil service employees and they don’t. They have tremendous power themselves. Years often pass before a staff decision on an issue is reviewed at bureau and then at division level and is presented for deliberation by politically appointed agency heads. Then more years pass awaiting judicial review.

    Dan Miller

  • bliffle

    Financial Institutions have Hijacked more than The Green Agenda, they are also hijacking the USA citizens Greenbacks.

    Apparently, the Federal Reserve, has decided to give retroactive coverage to Investment Bankers, tho they have not paid insurance premiums and have not been subject to regulation and oversight, so that the poor dears don’t suffer for the consequences of their risky gambles. Meanwhile, the ordinary citizen, a million of whom face loss of their very homes, can go eat tree bark for all the Fed cares about their troubles.

    The Fed is the most out-of-control agency in the land, and is responsible for creating this crisis in the first place by repeatedly bailing out Wall Street, i.e., The Stock Market, at the expense of all other financial entities in the nation.

    And yet, the malevolent new policies enunciated by simple-tool Paulson propose to put even more power in the hands of The Fed.

  • Maurice

    Every Church requires its due.

  • bliffle

    Well at least this should put an end to the delusional Freedmandian notions of “self correcting” unregulated Free Markets.

    They are not ‘free’ because the choices are restricted by those who write the contracts.

    In the end the poor taxpayers are blackmailed into coppering the risks of the most unprincipled characters in finance.