At the tail end of last week, I attended the excellent Amundi Global Investment Forum, a star-studded extravaganza of Nobel winning economists, central bankers and ex-top flight politicians. The quality of speakers is always excellent and who can say no Paris in early Summer.
Anyway, what rapidly became immediately obvious is that ESG investing and especially combatting climate change (or climate emergency !!) was at the front of most speakers minds. The 2018 winner of the Nobel prize in Economics, William Nordhaus – who kicked off the event – underlined what I think was the big takeaway which is that without putting a price on carbon emissions, we won’t be able to build a sustainable framework for changing our economies. In effect, one can provide all the research subsidies you want and build investment plans to go Green, but until CO2 is priced accordingly – it won’t work. But he also introduced an idea which I thought was really revolutionary.
That central banks might react to government pressure and start to direct businesses to attention to carbon stress tests. In effect, we might start to see central banks scrutinize more carefully the green credentials of bond issuers. This was echoed by Francois Villeroy de Galhau, the governor of the Banque de France who introduced the idea that collateral provided to the bank might be assed for its climate risk. This I think introduces a really revolutionary idea – you’ll get a credit rating downgrade if a) you haven’t stress tested your climate policies and b) you have excessive carbon emissions. This strikes at a key part of the energy financing ecosystem. At the moment most hydrocarbon outfits can easily access the debt markets to fund infrastructure. That might change if the central bankers start to interfere in credit issuance markets.
One other striking comment, in an after-event press Q&A – Nordhaus argued that the costs of the decarbonization process are “relatively low…maybe a few basis points a year for the next 30 to 50 years” in terms of GDP growth. If that is the case, then a barnstorming speech by former US Secretary of State John Kerry may prove illuminating. It was vintage Kennedy Lite Democrat stuff but what was striking was that he believed that government wouldn’t really solve the climate change crisis, only the private sector had the power to provide a solution. Governments could send signals, but it was investors who were going to have to provide a new “utility function of capital allocation”.
Sticking with John Kerry, a more revealing encounter came when he was asked about the current administration’s views on China. Kerry admitted that he didn’t have “issue with the technical items” in the current standoff, reinforcing the central point that there’s really no great difference between the GOP and the Democrats. Crucially Kerry didn’t see the current face-off “developing into a hot confrontation”. Phew, I suppose there’s some good news there. And talking of good news, Carmen Reinhart from Harvard Kennedy was also in attendance. Looking at the macro situation, her view was that “ a slowdown in H2/H1 2020 was in the making” and that the global economy was probably entering a “new steady state of growth below 2.5% with even slower trade expansion” to come. But overall, her sense was that “global fears were overdone” and that the current slower growth would “not turn into a recession”.
More about the event at https://forum.amundi.com/