Green Finance’s Postponed Pollination
As world leaders gathered at the UN General Assembly to debate potential climate change agreement renewal before next year’s Paris conference, the World Bank and specialist groups have estimated a 50 percent annual funding shortfall. Of the $350 billion total, two-thirds comes from the private and one-third from the public sector. Project developers, development banks and government aid agencies are the main sponsors. Clean energy solar and wind facilities are the primary focus along with low-carbon buildings and infrastructure. The current amount available often bypasses vulnerable low-income economies and is far from the $700 billion to $1 trillion projected global modernization need. Bond fund investors controlling $80 trillion have been part of the investor base committing $250 billion in 2013 but seek innovative structures and risk guarantees typically lacking, according to the Bank, which has responded with special loan and insurance backing. Countries can improve their policies through carbon pricing mechanisms, fossil fuel subsidy elimination, and clear and enforceable pollution standards even as 150 UN members support renewable alternatives in principle. The dedicated green bonds market has grown to $20 billion after a decade of preparation with European public pension funds screening for “clean” allocation and the Rockefeller family office in New York dropping its traditional oil company portfolio over time. Retail interest has entered and could be further tapped if plans are realized for a $100 billion annual Green Climate Fund as outlined at the last global summit, the organization believes.
The UN body may also further debate sovereign debt restructuring after overwhelmingly adopting a resolution at the instigation of Argentina and Bolivia to negotiate a multilateral treaty. This statutory formula had been rejected a decade ago when the IMF proposed amending its charter to create a resolution forum. The prevailing contractual emphasis since has been on incorporating and strengthening collective action clauses in bond covenants, and the Eurobond trade association ICMA has drafted new language on aggregating instruments which would prevent minority holders from blocking restructurings. The UN move won praise from prominent academics who have criticized US court overreach allegedly prompting Argentina’s latest default but immediate action has again centered on the Fund where guidelines to automatically extend private debt maturities in unsustainable cases may be approved at the October annual meeting. In New York Judge Griesa must soon decide again whether exchange payments can go to non-US investors after granting permission in the original freeze as Citibank tried to get a ruling from another tribunal. Buenos Aires has formally passed legislation to shift the existing swap’s legal jurisdiction there or to a “friendly” location like France, but the reputational and technical impediments to acceptance will exclude mainstream funds. Both confrontation and the recession are hardening, with a 2 percent contraction forecast on 35-40 percent inflation especially as the informal peso premium is near double the official 8/dollar rate. Capital controls have tightened further as a law was just added to direct private company pricing and profits which may first be applied to soybean exporters with stunted stockpiles.
