According to the International Energy Agency, clean-energy investment in emerging markets has to reach at least $1 trillion a year by 2030, up from $150 million a year today, for the world to reach a mid-century target of net-zero emissions.
Both the World Bank and the IMF were founded in 1944 at the so-called Bretton Woods Conference that created the postwar monetary system. Banks, once a major source of funding for sovereign borrowers in emerging markets, have cut risky lending since the 2008 financial crisis. Much of that credit capacity now lies in the hands of asset managers such as BlackRock and Pacific Investment Management Co.
While Fink has shared his first-loss concept with G-20 leaders including French President Emmanuel Macron and Italian Prime Minister Mario Draghi, according to people familiar with those discussions, some stakeholders may be less receptive. World Bank President David Malpass has lambasted the private sector for not doing its “fair share” in providing debt relief to poor countries and curtailed the use of PBGs since taking his position in 2019.
Often, the interests of public financiers and private creditors are at odds. One group has a mandate to assist nations in need, the other a fiduciary duty to get repaid.
BlackRock is among creditors that felt burned when Argentina, operating under an IMF bailout program, defaulted on its foreign debt in early 2020 and eventually restructured its obligations at 55 cents on the dollar. Fink, speaking last November, said it would take a “lot of time” for the private sector to be comfortable investing in Argentina again.
In his Venice speech, Fink also told leaders investors need a more consistent set of rules on climate-related disclosures and warned that the regulatory focus on publicly traded companies may have unintended consequences.
“One negative effect it’s having is creating a massive incentive for public companies to divest dirty assets,” he said. “Divesting, whether done independently or mandated by a court, might move an individual company closer to net zero, but it does nothing to move the world closer to net zero.”
Royal Dutch Shell Plc, the oil and gas giant, was ordered by a Dutch court in May to slash its carbon emissions harder and faster than planned. The company, which was already selling assets, is now considering more dispositions.
At the same time, there’s been little progress on reducing fossil-fuel consumption beyond electric vehicles. In most industries, the “green premium,” or cost of a sustainable alternative to hydrocarbons, remains too high. Fink raised the possibility that rising demand and shrinking supply may drive oil prices to $100 or even $120 a barrel.
“While some see higher prices as a way to constrain demand, rising costs in the energy sector will only sow greater economic inequality and a world of ‘haves and have-nots,’” he said.
—With assistance from Eric Martin.
This article was provided by Bloomberg News.