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Some of the finance world’s biggest climate champions may be undone by a relatively small part of their portfolios: emerging market debt.
A planetary problem surely requires a portfolio to match, but developing countries are considered a risky bet by Western investors
Some of the finance world’s biggest climate champions may be undone by a relatively small part of their portfolios: emerging market debt.
While many of the world’s poorest countries struggle with the economic devastation from COVID-19 and limited access to vaccines, some of the biggest asset managers and their clients continue to earn high returns on emerging market bonds. Those profits are partly why it’s so hard for developing nations to make fast progress on cutting emissions.
A new paper by researchers at University College London showed that Africa and other developing regions tend to pay a much higher cost of financing for green energy relative to fossil fuels. This creates a “climate investment trap”: Countries that must pay a higher price to green their economies might forego such investments, even if they’re the ones that will suffer the most as the planet warms.
Yet, as lead author Nadia Ameli notes, few of the sustainable finance measures in practice today, even in progressive places like the European Union, address how to get capital to poor countries. She argues that “radical changes” are needed to address this disparity.
The pandemic has made the problem more urgent as the high cost of borrowing for developing nations coincides with a plunge in state revenues. Last year, 62 countries spent more on debt servicing than healthcare, and at least 36 spent more on bond payments than education, according to Eurodad, a network of civil-society organizations that advocates for financial reforms.
The great irony is that the investment world is bursting with ESG and climate-oriented products and services hunting for assets. There is so much money chasing “green” assets, and so few opportunities, that many ESG funds are loaded with tech stocks rather than companies dedicated to the energy transition or climate adaptation.
A planetary problem surely requires a portfolio to match, but developing countries are considered a risky bet by Western investors. Hence “emerging market” assets tend to make up a very small slice of the investment universe. This aversion can be compounded by the burgeoning practice of climate financial risk analysis, Ameli notes. The fact that developing countries will be hit the hardest by global warming may mean investors actually penalize them the most.
Meanwhile, wealthier countries suffering from the same pandemic were able to provide emergency relief, and even stimulus, to their economies by issuing bonds at low or even negative rates — regardless of whether they are labelled “green” or not. The European Union’s latest NextGenerationEU issue could have been sold many times over. The U.S., Japan and others could fund a high-tech, green industrial revolution at rock-bottom rates, should they find the political will to do so. The International Monetary Fund, historically disposed to fret about debt-to-GDP ratios, laid out a scenario last year showing how effective such a path would be for jobs and growth through 2100.
This tension is set to come to a head at global climate talks to be held in Glasgow, Scotland in November. Rich nations haven’t delivered on the US$100 billion a year in climate finance for developing countries they promised to raise by 2020. That’s led to calls by some to boycott the summit altogether.
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An allocation later this year of Special Drawing Rights, the IMF currency, could give poor nations some breathing room. Yet this one-off arrangement won’t even cover the total damage done by Covid-19; the Organisation for Economic Co-operation and Development estimates developing countries lost US$700 billion in external private financing last year.
What can be done about this? Ameli and her co-authors suggest several possible levers, including that the sustainable finance frameworks being implemented in Europe, China and elsewhere could better address the location of investments to provide some incentive for greening developing economies. “These frameworks would need to evolve, to explicitly target developing economies in how they guide capital flows, if they are to play a significant global role,” she said, adding that the IMF and development banks could also use their financing capacity to reduce the cost of capital, such as underwriting perceived risks where necessary.
Avinash Persaud, an advisor to the Barbadian government, recently proposed that “hurricane clauses” be widely adopted in sovereign bonds, automatically suspending payments when disaster strikes.
Calls for systemic reforms to the global finance architecture — such as a global debt-restructuring mechanism, state-contingent clauses, transparency on sovereign debt, and improvements to IMF and World Bank analysis — date back years, if not decades. Most have been vetoed by a few G-7 governments, or struggled to gain traction among the board politics and bureaucracy of the Bretton Woods institutions.
Perhaps some change could also be effected by the big financial institutions themselves, which often help develop these sustainable finance regimes. Ownership of emerging market sovereign bonds is more concentrated than you would think. Lazard Ltd. executives wrote last year that “a more institutionalized group of the largest fund managers could be a decisive stakeholder in the near future — if fund managers wish to collectively engage in such a way.”
A review of available data by Eurodad showed that BlackRock Inc. is the single biggest holder of emerging market debt. The research also suggests that big investment banks potentially have vast influence: Citigroup, Deutsche Bank and JPMorgan were responsible for underwriting half of the sovereign debt from emerging countries for which contracts could be identified.
All these institutions, plus the IMF and the World Bank, loudly support the Paris Agreement goals, as do key governments such as the U.S., U.K., and Germany. They need to direct this enthusiasm to the places that need it most.
Kate Mackenzie writes the Stranded Assets column for Bloomberg Green. She advises organizations working to limit climate change to the Paris Agreement goals.
©2021 Bloomberg L.P.
TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.
The S&P/TSX composite index was up 254.62 points at 23,847.22.
In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.
The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.
The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.
The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
Losing a loved one is never easy, and the legal steps that follow can add even more stress to an already difficult time.
For years, families in Vancouver (and Canada in general) have struggled with a complex probate process—filled with paperwork and legal challenges.
Thankfully, recent changes to Canada’s probate laws aim to make this process simpler and easier to navigate.
Let’s unearth how these updates can simplify the process for you and your family.
Probate might sound complicated, but it’s simply the legal process of settling someone’s estate after death.
Here’s how it works.
Probate ensures everything is done by the book, giving you peace of mind during a difficult time.
Several updates to probate law in the country are making the process smoother for you and your family.
Here’s a closer look at the fundamental changes that are making a real difference.
Now permanent in many provinces, including British Columbia, wills can be signed and witnessed remotely through video calls.
Such a change makes estate planning more accessible, especially for those in remote areas or with limited mobility.
Smaller estates, like those under 25,000 CAD in BC, now have a faster, simplified probate process.
Fewer forms and legal steps mean less hassle for families handling modest estates.
Courts can now approve wills with minor errors if they reflect the person’s true intentions.
This update prevents unnecessary legal challenges and ensures the deceased’s wishes are respected.
These changes help make probate less stressful and more efficient for you and other families across Canada.
Working with a probate lawyer in Vancouver can significantly simplify the probate process, especially given the city’s complex legal landscape.
Here’s how they can help.
Probate lawyers ensure all legal steps are followed, preventing costly mistakes and ensuring the estate is managed properly.
They manage all the paperwork and court deadlines, taking the burden off of you during this difficult time.
If conflicts arise, probate lawyers resolve them, avoiding legal battles.
With a probate lawyer’s expertise, you can trust that the estate is being handled efficiently and according to the law.
With a skilled probate lawyer, you can ensure the entire process is smooth and stress-free.
The updates to probate law make a big difference for Canadian families. Here’s why.
With these changes, probate becomes smoother and more manageable for you and your family.
Even with the recent changes, being prepared makes probate smoother. Here are a few steps to help you prepare.
These simple steps make the probate process easier for everyone involved.
Recent updates in probate law are simplifying the process for families, from virtual witnessing to easier estate rules. These reforms are designed to ease the burden, helping you focus on what matters—grieving and respecting your dead loved ones’ final wishes.
Despite these changes, it’s best to consult a probate lawyer to ensure you can manage everything properly. Remember, they’re here to help you during this difficult time.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
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