Finance, whether green or otherwise labeled, will not come to the rescue of the planet

‘Le Monde’ journalist Eric Albert explains how the global head of responsible investing at HSBC bank dared to voice what most financiers are thinking: that climate change does not affect finance.

Green finance will not save the planet

Stuart Kirk jolted everyone in the room awake. At a May 20 conference hosted by the Financial Times, he dared to say out loud what people have been whispering for a while: “Investors need not worry about climate change.”

Mr. Kirk is the head of responsible investment at HSBC, the leading European bank. Obviously, he was not trying to deny the reality of climate change, nor the risks it entails for the environment. He was saying that, however serious these disruptions may be, they will leave finance practically unaffected. He painted a picture of an ever-rising stock market, banks suffering almost no losses from global warming and central banks wasting their time dealing with something that is none of their business.

“What do people think the average loan term length is? It is six years. What happens to the planet in year seven is actually irrelevant to our loan book.” If climate change has a catastrophic impact 10, 20 or 50 years from now, what does it matter? It is obviously a huge problem for humanity, but it is utterly insignificant for the vast majority of the financial world, who invest in the relatively short term. Simply put, financiers don’t care about the climate.

Willingly provocative, Mr. Kirk even dared to throw in, “Who cares if Miami is six metres underwater in 100 years? Amsterdam has been six metres underwater for ages, and that’s a really nice place. We will cope with it.”

Mr. Kirk presented a graph comparing two curves: the number of news articles talking about the “climate catastrophe” and the S&P 500 index of the US stock market. The two curves rise hand in hand. This is, of course, a correlation, not a cause-and-effect relationship (the stock market does not go up because of climate change awareness!). But it does prove one thing: All claims that climate change poses risks to a company’s financial equilibrium have, so far, been proven wrong.

The advantage of honesty

Discomfort was palpable in the bank’s reaction, as it promptly claimed that Mr. Kirk’s remarks “do not reflect the views of HSBC Asset Management nor HSBC Group in any way.” The bank even suspended the head of responsible investment from his position. But Mr. Kirk was simply reiterating a widely-held view, which is often heard in another, less cynical form: The vast majority of investors are well aware of and concerned about climate change, but they feel that their job, which is to maximize returns, doesn’t fit into the environmental fight. When faced with a choice, their professional obligation prevails – because it is their job, because they are legally obliged to maximize returns and because their bonus is at stake.

Mr. Kirk acknowledged that climate change will have winners (companies investing in renewables) and losers (steel companies), but that is simply what finance is all about. You must pick some sectors, reject others and make trade-offs.

The inevitable conclusion of his speech, which had the advantage of honesty, was that “green finance” will not come to the rescue of the planet. Of course, banks and investment funds will go for wind turbines and “green” hydrogen, if those are profitable. But for an energy transition to take place, action must come from governments and public authorities. Only they can implement carbon pricing, promote the use of electric vehicles by setting standards and boost renewable energy production while guaranteeing stable prices. The money will follow, wherever the profit is.

Finance is far from being useless. Private money is absolutely necessary to fuel the climate transition. But it is not finance, either “green” or otherwise labeled, that will bring about salvation.

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