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The world has been mesmerised for the past decade by the UN’s Kyoto process on dealing with climate change. At successive gatherings, UN diplomats meet to thrash out yet another declaration, another commitment – and then depart to leave the world on its ‘business as usual’ trajectory.
The latest such initiative is the Global Climate Fund – but while member countries squabble over how to raise the $200m that was agreed, the International Energy Agency is on record as stating that more than $10tr per decade has to be invested in new, green energy systems if any kind of solution to climate change is to be found. This would constitute an order of magnitude leap in the role of private finance in seeking climate solutions. Where are such funds to come from?
Here, then, is the ultimate mismatch that business and business schools should be expected to address. We see a vast challenge and entrepreneurial opportunity opening up – with completely inadequate public funding being discussed to meet it. Private finance will have to step in to the breach and take control of a process that is floundering.
A perfect moment for business schools to prove their worth. Yet where do we find serious discussion of these issues and financing opportunities?
The MBA still clings to a past era when energy and resources were not important. A few ‘green MBAs’ are now offered, but this means in practice they are concerned with corporate and social responsibility. But the workings of capitalism and genuine green finance are topics that are still well off the agenda. In fact, finance is still taught at business schools as if the only decision that matters is how to tweak a portfolio of investments – depending on equilibrium assumptions that are never met in the real world.
Why business schools have not seized this opportunity says more about the schools than about the real world. Where will we find the first business school to offer a real course in green finance – one that details the core institutions of the bond markets and discusses how financial instruments can be crafted to attract and aggregate investments in real entrepreneurial green projects – at scale?
In the real world, where ‘business as usual’ holds sway, institutional investors have been amassing vast funds that are looking for safe investments. At the last count, the OECD estimated the total as $71tr in pension and superannuation funds, insurance funds, hedge funds and sovereign wealth funds. If properly marshalled, these funds would transform the energy world and do something serious to dent prospects of global climate change.
Yet the institutional investors look in vain for the finance industry to offer investment-grade vehicles to attract their funds. The World Bank and IFC have put a toe in the water with their successive issues of green bonds – and found the uptake to be wholly positive.
But the big banks and finance houses have yet to offer a green investment package that would be able to aggregate numerous cleantech projects and set them on their entrepreneurial way. The MBAs that staff these bodies have never encountered any notion that finance and institutional investors could play a role in cleaning up the carbon emissions from industry.
Until now, that is. In February, the Korean Export-Import Bank went out on a limb and offered a $500m green bond directed at institutional investors, with the proceeds targeted at cleantech investments that would be certified as green by a reputable third party. The Kexim is the world’s first national bank to offer such a security, backed by government commitments. It was overwhelmingly taken up. This initiative marks a serious step for the Korean government, because if the funds fail to find their green targets, the bond will lose value and other sovereign bonds and treasury certificates will lose value.
So this is real green finance – not the phoney finance associated with carbon markets and their promised asset bubbles.
The greening of capitalism is the biggest change to the world of business since the second industrial revolution – and it is time for business schools to catch up.
The author is professor of strategy at the Macquarie Graduate School of Management, Sydney and a member of the Climate Bonds Initiative in London
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