Debate: “Capital markets must be leveraged for climate efforts”
“In order to cope with the climate change threat, we must not only decrease emissions of greenhouse gases. We must also be able to manage severe consequences of climate change. Hence, we should, to a considerably greater extent, leverage the resources provided by capital markets,” argues Entropics’ chief meteorologist Martin Hedberg and former minister for financial markets Peter Norman in a debate article.
The following is a summary of the debate article. The full article can be found at DN.se (Swedish, behind paywall).
In a debate article in Sweden’s largest morning newspaper, Dagens Nyheter, they highlight how innovative financial solutions have provided for vaccination programmes, micro credits, and, recently, pandemic preparedness.
Yet, the Swedish debate has almost exclusively focused on green bonds. While encouraging, this is not enough. It is not enough to invest in solutions to decrease greenhouse gas emissions, there is also an urgent need to manage the effects of climate change that we know will take place. The potential economic consequences are of a magnitude where traditional insurance and government programmes will no longer suffer.
One solution is cat bonds, which leverage the capital market to provide insurance protection for exposed areas. While they are mostly leveraged in regions with greater exposure, such as Florida, California, and Japan, they could be considered also for Swedish perils, such as winterstorms. They also offer investors an asset class with virtually no correlation to the equity markets.
The G20 meeting in Hamburg paid attention to insurance solutions and cat bonds as an instrument to increase resilience to climate change. This was followed up by the UK government, which will establish an international centre for disaster protection, focusing on financial solution.
Five years ago, the present minister of financial markets, Per Bolund, was one of the first Swedish politicians to pay attention to cat bonds. If Sweden is to remain a front-runner in the transition to a sustainable society, we must pay greater attention to the opportunity of using capital markets as an instrument for transition. Of course, the industry must take more responsibility. But it also takes an increased political and public interest in cooperation with market actors to create prerequisites for increased use of financial instruments for sustainability.