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How ‘Climate Investment Traps’ Create A Vicious Cycle For African Nations – Forbes

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The high cost of accessing sustainable investment is preventing developing countries from decarbonizing their economies, but levelling the finance playing field could help accelerate poorer nations’ climate readiness by a decade, new research has shown.

In the race against time to cut emissions and prepare for the effects of global warming, nations are seeking to decarbonize their economies in ways that bring multiple benefits to their people. But the report, from University College London (UCL) and published in the journal Nature Communications, finds that developing countries could be caught in “climate investment traps,” whereby the higher cost of capital in those countries combines with increasingly extreme climate impacts to make credit even less accessible. The effect of these traps will be felt most acutely in the poorest African nations such as Madagascar, which is currently undergoing a catastrophic, climate-driven famine (link may be paywalled).

The scenario exemplifies the phenomenon of climate injustice: simply put, the nations that have done the least to cause climate change are those that will suffer most from its effects, as highlighted by the Intergovernmental Panel on Climate Change.

But the UCL report reveals that making adjustments to the way big financial institutions provide money to these nations could break this cycle, accelerating a green transition in the developing world by a decade.

Lead author Nadia Ameli, principal research fellow at UCL’s Institute for Sustainable Resources, told me that while some observers have predicted the developing world—in particular Africa—could become a “renewables powerhouse” owing to an abundant supply of renewable resources, financial realities had often not been taken into consideration.

“There is a belief that, with the dramatic decline in the cost of renewables and the abundance of natural resources such as the sun, it will be much easier for the developing world to decarbonize,” Ameli said. “However, one of the biggest challenges in sustainable energy transitions is likely to be precisely in developing countries, given the difficulties that many of these countries have in accessing and securing capital on the same terms.”

It’s now widely accepted that investing in a low-carbon future can bring huge rewards, both environmentally and financially, for any nation willing and able to upgrade. 

But Ameli and her colleagues note that the cost of capital is far higher in poor countries than it is in the West, owing to huge differences in everything from macroeconomic conditions to business confidence and legal infrastructure. 

“This is why, in order to invest in risky contexts, investors will demand higher premiums and interest rates and developing countries will find it very difficult to secure and access capital,” Ameli explained.

To arrive at their conclusions, Ameli’s team modelled the effects of changes to what’s known as the weighted average cost of capital, or WACC, which indicates variations in the costs of investment in different regions.

In some African nations, such as Congo, Madagascar and Zimbabwe, the cost of capital can reach 30%, while in wealthy countries such as Germany and Japan, the cost can be as low as just 3%.

“The geographical distribution of low-carbon finance, defined as capital flows directed towards low-carbon interventions with direct greenhouse gas mitigation benefits, is highly unequal,” the authors write. Developed countries are “by far the largest recipients” of climate investment money, while African nations and central American countries like Mexico receive only a small proportion.

The scenarios modelled show that reducing the WACC by 2050 “would lead to an almost 50% increase in low-carbon electricity generation by this time,” and further “would also allow Africa to reach net-zero emissions roughly 10 years earlier.”

In discussing their findings, the authors consider what should be done to lower the cost of investment and break the cycle. They note that the sustainability performance of companies tends to lower the cost of capital, “which would prefigure a virtuous loop with the cost of capital gradually dropping as firms become increasingly present in low-carbon energy.” Yet the EU’s Sustainable Finance Action Plan, described as the most ambitious sustainable investment plan available, “overlooks the impact of financing and investment outside Europe and towards developing economies in general.” China’s own answer to the plan goes somewhat further, “defining how Chinese financial institutions may foster low-carbon finance overseas through green bonds, South-South cooperation and the Belt and Road Initiative.” But none of the plans currently in place specifically target developing economies.

The UCL researchers recommend the development of local green bond markets in developing countries, supported both by governments and the big international development banks.

They also suggest that wealthy countries and multilateral development banks should coordinate their efforts more closely to focus on “large-scale low-carbon investments instead of multiplying small projects not achieving transformational impact.”

Lastly, they say, the International Monetary Fund (IMF) should play “a core role in facilitating developing countries’ access to low-carbon finance,” highlighting other studies that suggest the IMF should take steps to include climate risk analysis in its monitoring activities, and specifically support climate-vulnerable countries suffering debt sustainability problems.

“We don’t believe it is fair that regions where people are already losing their lives and livelihoods because of the severe impacts of climate change also have to pay a high cost of finance to switch to renewables,” Ameli said. “Radical changes in finance frameworks are needed to better allocate capital to the regions that most need it.”

Such finance was a hot-button issue at the recent G7 meeting of rich nations. But by the end of the summit, the member states had conspicuously failed to reach an arrangement on how and when they would deliver on a 12-year-old promise of $100 billion per year in sustainable finance to the developing world.

The UCL paper can be viewed here.

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Montreal investment fund sued over use of founder's great-great-grandfather's name – Montreal Gazette

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The Holt Xchange, which invests in early stage financial technology startups, is being sued by Credit Suisse for trademark violation.

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Brendan Holt Dunn said he wanted to invoke the legacy of his great-great-grandfather, pioneering Quebec industrialist Sir Herbert Holt, in the name of his Montreal-based venture capital fund.

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Now, he may have to go to court to keep the name.

His fund, the Holt Xchange, which invests in early stage financial technology startups, is being sued by international bank Credit Suisse for trademark violation.

In a statement of claim filed last year with Federal Court in Edmonton, Credit Suisse subsidiary CSFB HOLT said it owns the right to use the brand “HOLT” when offering financial goods and services in Canada and that the branding and offerings of the Montreal venture capital fund — known as the Holt Accelerator when the lawsuit was filed — is too similar.

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The bank, which is seeking at least $100,000 in damages, argues that similarity “will cause confusion amongst Canadian consumers” and reduce the value and reputation of its trademark.

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Dunn said he doesn’t think there’s a risk of confusion.

“We’re in different areas, the financial sector as a whole is very broad,” he said, adding that he’d never heard of Credit Suisse’s HOLT brand before being sued.

“I think what they’re worried about is that our name, our family’s name is better known than them in Canada,” he said in an interview last week. “There is absolutely no overlap.”

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Elisabeth Laett, managing partner at the Holt Xchange, said the decision to use the Holt family name when the fund launched in 2018 was a reference to the history of Montreal’s financial sector and the fund’s ambitions to help make Quebec a hub for a new generation of financial technology companies.

“We were the financial hub of Canada, in Montreal, at one point,” she said.

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When Herbert Holt died in 1941, he was described as the richest man in Canada. A railway engineer who helped build the Canadian Pacific Railway, he was knighted for his work planning railways in France during the First World War. He later consolidated several power companies in the Montreal area — which would eventually be expropriated to create Hydro-Québec — and was president of the Royal Bank of Canada from 1908 to 1934.

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Holt was also a controversial figure in Montreal at a time when many French-speaking Quebecers resented the city’s English-speaking business elite.

In court filings, the Holt Xchange maintains the Holt name has been used by generations of family members when offering financial goods and services in Canada. It has also filed a counter claim seeking to have Credit Suisse’s HOLT trademark struck down.

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Credit Suisse’s HOLT brand comes from the name of a United States-based financial consulting firm acquired by the bank in 2002 and is an acronym based on the letters of the last names of consulting company’s founders. The bank, which filed an application to register the “HOLT” trademark in Canada in 2006, sells software used to value companies, as well as offering consulting services and investment products, under the HOLT name.

Whether consumers would interpret “Holt” in the name of the Montreal venture capital fund as a reference to the Holt family is one of the issues being disputed in court filings.

Teresa Scassa, the Canada Research Chair in information law and policy at the University of Ottawa’s law faculty said the courts look at several factors when evaluating the possibility of confusion in trademark cases “including how long each name or mark has been in use, and how similar the goods and services are, and the way in which they’re marketed or sold.”

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While the Trademarks Act allows people to use their own names as trade names, she said that defence has “been interpreted fairly narrowly,”

“For example, someone named McDonald is not prevented from using their name in business and if they open a burger stand, they’re not prevented from using their name in their family business to sell burgers, but they can’t just call it McDonald’s,” she said. Instead they have to make it clear it’s a different business.

Credit Suisse spokesman Jonathan Schwarzberg declined to comment on the case, saying the bank can’t say anything publicly beyond what’s in court filings. No trial date has been set.

Dunn said the fund entered into negotiations with Credit Suisse after the lawsuit was filed and changed its name from Holt Fintech Accelerator to the Holt Xchange in the spring, a move he said he thought would satisfy the bank.

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He noted there are other companies using the name Holt.

“I don’t understand it,” he said. “It’s insulting and we’re obviously feeling like we’re being bullied. We’re a very successful family, but no family in the world can go up against a financial institution.”

Laett said the Montreal fund has built an international brand around its name, attracting interest from startups from around the world. “We’ve received roughly 3,000 applications to be part of Holt,” she said. “There is a tremendous momentum.”

Dunn said he’s not open to dropping “Holt” from the company’s name.

“It is my personal name and my family’s name and our family’s history and reputation in Canada,” he said.

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Canada Sets Plan to Merge Investment Regulators Into One Agency – Bloomberg

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Canada’s securities regulators plan to merge two industry groups that oversee financial advisers into a single organization, a move intended to address years of complaints about the overlapping roles and higher costs of the groups.

Provincial regulators published Tuesday a framework for how to combine the Investment Industry Regulatory Organization of Canada, which regulates investment advisory firms that sell a broad range of securities, with the Mutual Fund Dealers Association of Canada, which oversees firms that sell funds.

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Carlyle to Invest in Abrigo at $1 Billion-Plus Valuation – Bloomberg

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Abrigo, an Accel-KKR-backed software provider for financial institutions, has secured an investment from private equity firm Carlyle Group Inc.

The Austin, Texas-based company is valued at more than $1 billion after the investment, according to people with knowledge of the matter who asked not to be identified discussing private information.

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