Historic levels of support in the form of packages such as the US Inflation Reduction Act haven’t been enough to offset the fallout on capital-intensive green projects of much higher interest rates.
The investment case in emerging markets is further complicated by the need to compensate private capital for the additional risk of venturing outside the developed world.
Brian Moynihan, chief executive officer of Bank of America, said on a panel in Dubai that climate and energy transition deals in the developing world are “harder to finance,” citing a $500 million debt-for-nature swap his bank arranged for Gabon that took two years to complete.
Moynihan is also among bankers to have warned that US plans to impose stricter capital requirements will make it harder for them to set aside capital for the green transition.
Daniel Pinto, chief operating officer of JPMorgan, said in Dubai that such requirements would leave the bank facing a 25% increase in capital, and “reduce our ability to finance every sector of the economy, and for sure, the ability to finance the green economy.”
No COP since the annual talks began in the 1990s has hosted as many financial professionals as this year’s summit in Dubai. COP28, which is being presided over by the head of the Abu Dhabi National Oil Company, also has faced more criticism than usual from climate activists who are concerned the event will end up being a venue for deal-making between oil majors and big financial firms.
Swedish climate activist Greta Thunberg has called the setup “ridiculous.” Prominent financiers, meanwhile, are embracing the moment.
Jeffrey Ubben, the hedge fund veteran who just closed his sustainable investing firm, said climate summitry has tended to be little more than a green “echo chamber” and that it’s time to bring big oil to the talks. Ubben, an Exxon Mobil Corp. board member, is on the COP28 advisory committee along with BlackRock CEO Larry Fink.
Umunna at JPMorgan said the change in tone around climate finance at this year’s COP is opening doors to strategies that floundered just a few years ago.
“We were involved in the discussions around the establishment and evolution of a transition bond label in the debt capital market and it didn’t really take off,” he said. The worry at the time was “that the exercise would be the target of claims of greenwash.”
But now, “I think there is much more of an appetite for discussion around that,” he said.
Another talking point at this year’s COP summit has been the need for financial innovation as a way to lure private capital to the table. Bloomberg News reported earlier that Goldman Sachs Group Inc. is now among banks working on debt-for-nature swaps, which are designed to allow nations to refinance existing debt in exchange for commitments to use the savings on nature conservation.
When it comes to addressing the climate crisis in the emerging markets, there’s no viable solution that doesn’t include private finance, said John Greenwood, co-head of Americas structured finance at Goldman in New York. But that will require experimenting with new financing structures to make it appealing, he said.
“The focus has got to be on innovation,” Greenwood said.
GFANZ is co-chaired by Mark Carney, who is the chair of Bloomberg Inc.’s board and a former Bank of England governor, and Michael R. Bloomberg, the founder of Bloomberg News parent Bloomberg LP.
This article was provided by Bloomberg News.