PA’s Graham Lloyd, financial services expert, is quoted in an article in a Financial Times special report on sustainable banking and finance. Graham comments on the role of banks in supporting a green economy.
Graham explains the valuable role banks can play: “They’ve got a very important capability … Because the great core strength of banks is their ability to take an intelligent view of the value of an asset and its associated risk.”
Graham cites the example of a corn trader in Chicago, who might have little interest in deforestation in the Amazon. “If someone translates the value of a hectare in rainforest into the rainfall in Iowa and the knock-on effect on corn prices, then suddenly that corn trader has a strong interest,” he says.
“Financial institutions can assist with the pricing of that.”
Graham also argues that banks could help large environmental projects such as offshore wind farms attract investment by breaking up their risks, whether they are associated with the turbine’s transmissions system or marine life. This would take some of the pressure away from government backers and make environmental projects more attractive to investors.
“When you service a marine wind farm in the North Sea, you have to take significant and costly steps to not damage marine mammals and, for investors, that can feel like a bridge too far,” he explains.
“But if you take that bit of it out and leave them with what they can work with, you have a different proposition.”
Graham concludes that in creating green financial products, banks simply need to rely on skills they already possess. He says: “What they have are people whose sole purpose is to understand and price risk and to create attractive financial instruments for investors.”
“So they have the ability to draw on those resources.”
You can read the article here.
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