Comment by credit_guy | Hacker News Reader

Comment by credit_guy | Hacker News Reader

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> Adopting to a new world in which they must onboard new tools to assess climate risk is like

But what exactly are you even asking the banks to do? A green company suffers from the same climate risk as a regular company. Yes, a loan to a green company might reduce the global climate risk, but do you see how you've got a prisoner's dilemma here? A bank that gives a green loan below market rate is basically subsidizing the green transition. That's laudable, but that bank has to compete with other banks that don't make such subsidies.

It almost feels like stating a truism: subsidies should come from governments, not from for-profit corporations.

Maybe you deplore the whole "for-profit" thing, but that's a dangerous direction to go to. It has been tried before, a number of times, and it did not look that rosy in the end.

It's best to work with what you've got: people do business to make a profit. They are not hell bent to destroy the world, but they don't have a motive to save it either. Let them do business, and we as a society we'll take care of saving the world via government action, or via charitable NGOs.

> But what exactly are you even asking the banks to do?

I don’t think I’m asking banks to do anything in that comment.

What I am trying to do is set out a problem statement, and given your knowledge (and handle), I’d greatly appreciate your input on it:

1. Banks have a powerful ability to determine which projects happen and which don’t through the credit mechanism. Because often times no credit = no project.

2. When projects are evaluated on narrow financial criteria, wealth can be destroyed rather than made. The project will create free cashflow and the loan will be repaid, but the credit issuance process will not take into account whether the project is a net benefit to human wealth across other important metrics such as environmental and human heath.

3. To avoid the competition issue, governments could regulate to change market rules, but banks themselves frustrate this by lobbying against change.

If we have agreement on a problem statement, then we are in a position to discuss responses. Your response might well be do nothing, but that should be justified to be credible.

> but the credit issuance process will not take into account whether the project is a net benefit to human wealth across other important metrics such as environmental and human heath

The solution is extremely simple: governments can make the assessment if a project is a net benefit for humanity, and either provide loan guarantees or loan subsidies. Then the banks will be happy to do the thing they do best, provide credit using their existing lending framework.

That’s a comfort to know, as that is precisely the type of project I build. I arrange guarantees for working capital loans to farmers which include in their terms requirements for a transition to sustainable agricultural practice.

But this doesn’t get around the problem: how to stop financing of projects which damage the environment? And that’s also the problem raised in the parent Bloomberg article. The usual response is that government must legislate to stop these businesses. But the reality is that governments won’t do something banks don’t want. That’s the Catch22 I described in my first comment.

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