After a particularly bad year for green investing, the founder of the world’s biggest hedge-fund firm has just set the record straight.
Ray Dalio, the billionaire founder of Bridgewater Associates, reminded delegates at the COP28 climate summit in Dubai that private capital can only realistically get involved in financing climate solutions if the returns make sense.
“You have to make it profitable,” he said in Dubai.
It’s a mantra that’s reverberating across the sprawling, sun-filled campus at which this year’s Conference of the Parties is being held, with representatives from Wall Street including JPMorgan Chase & Co. and Bank of America Corp. all underlining the point.
It’s part of a wider pivot in the messaging from the finance industry. Two years ago at the COP26 summit in Scotland, the Glasgow Financial Alliance for Net Zero unveiled commitments it said represented $130 trillion in financial assets. Hailed at the time as a “watershed” moment, bankers at this year’s COP have been at pains to attach conditions to such headline figures.
“You need availability of projects; there may be $130 trillion or more of capital, but it is return-seeking capital, so you need bankable investments that actually provide appropriate risk and return,” Ramaswamy Variankaval, JPMorgan’s global head of corporate advisory and sustainable solutions, said in an interview in Dubai. “That’s what we’re all looking for.”
As it becomes increasingly clear that private capital will need to be deployed in a big way to help fight the fallout of the climate crisis, bankers and investment managers are using the COP28 summit to draw some red lines.
Shriti Vadera, chair of Prudential Plc, said no one should expect private capital to fill a political or policy void without the right incentives.
“Let’s be clear,” she said during a COP28 panel. “The private sector only does things that are commercial and create a commercial return: they are to preserve the capital of their customers, savers, pensioners and depositors.”
Chuka Umunna, head of EMEA ESG and green economy investment banking at JPMorgan, said the feeling is that “some people in our industry have been guilty of overreach in relation to what the role of the banking sector is in all of this.”
And Jason Channell, head of sustainable finance at Citi Global Insights, said that climate pledges alone are “not necessarily what moves the dial. What moves the dial is being able to deploy the capital,” and the concern now is that “there aren’t enough bankable projects,” he said.
In its latest report, GFANZ said some progress has been made as financial institutions have started to take action. The alliance said it’s focused on ensuring that capital flows to where it needs to go around the world.
Given an annual global need of somewhere between $5 trillion and $10 trillion to address the challenges posed by climate change, it’s obvious private capital will need to provide the lion’s share, Dalio said. But there has to be “a return on the money,” he added.
The reality check follows a period of painful losses for green investors. The S&P Global Clean Energy Index is down almost 30% this year, compared with an almost 20% gain in the S&P 500 Index.