Pricing risk: The accelerant to clean energy shift?
Notes: Your wood is damp and you can't start a fire? Reach for the petrol, kerosine or vodka!
International moves towards a low carbon economy have been spluttering along for two decades and hope has died a few times along the way, especially now that the Kyoto Agreement is due to expire. Maybe we shouldn't worry too much because the financial industry is about to throw an accelerant on the spluttering fire in the form of pricing for climate risk.
When investment banks price climate risk into fossil fuel projects, they recognise the risk that they will become stranded assets and may never repay their debts. This will constrain lending for new coal, oil and gas projects, and encourage lending for clean energy projects.
The actuarial firm Mercer found that climate could account for 10 per cent of typical portfolio risk and that funds should invest 40 per cent of their portfolio into so-called ''climate-sensitive assets''. A follow up survey a year later found that half the pension funds had adopted measures to account for climate risk in their investments.
As they say, money talks loud. This could be the accelerant towards clean energy that markets need.
Source: Gillian King (www.thisnessofathat.blogspot.com)
May 22, 2012