Short-Term Greed vs. Green Investment: Who's Winning?

Last Updated Oct 2, 2008 3:30 PM EDT

The financial crisis demonstrates the perils of putting short-term gain before longer term sustainable business practice, says Ceres's Mindy Lubber. It also shows how easy it is to ignore a fundamental problem.

Just as financial services ignored the sub-prime elephant in the room, so too are they in danger of ignoring the threat of global warming.

Putting money into carbon-intensive assets demonstrates poor investment, argues Lubber. But a Ceres report on 'climate governance' among the world's largest banks found that only 14 had systematic policies and risk-management measures for climate change, six banks formally calculated the carbon risks of their lending portfolios. And not one was willing to avoid carbon-intensive investments, although Ceres's report prompted Morgan Stanley, Citi and JP Morgan Chase to start looking more closely at such investments before backing them.

In Europe, the EU's Emissions Trading Scheme is a cap-and-trade scheme. That is, it caps the amount of carbon dioxide each industry can emit, so allows companies the option to reduce emissions or to buy allowances, but it needs de-bugging to iron out inequalities in allowances and in the regulatory demands of different countries.

Even so, the market itself is doing well -- and on the buying side, London is the carbon finance hub of the world, according to the World Bank.

While the problems at investment and commercial banks stemmed partly from over-valued assets, the City is currently under-valuing carbon. As the ETS comes up for revision in 2012 and companies rush to top up their allowances, there could be a surge in carbon's price -- from today's valuation of around 40 euros to 100, in one estimate.

Short-termists could end up losing out and paying more. But the current economic slowdown also threatens to dilute climate change policies as industries vie for more generous permits. Two European steel industry bodies have lobbied the EU, claiming the ETS fails to reward early action and could impede competitiveness while costing the steel industry billions.

The EU is considering whether to allow steel and other energy-intensive industries to get permits for free until international regulations level the playing field worldwide. But this could take too long. There's a danger of pandering to the "worst of human instincts -- greed", as Lubber puts it.

Until strong national and international climate limits are enacted, capital will flow too easily to the lowest common denominator -- quick speculative projects that ignore long-term consequences.
And we all know where that leads.

(Photo by thewritingzone, CC.20)