Saving the Green

Finance.

In the Industrial Revolution the word brought up images of Andrew Carnegies and J.P. Morgans. Today, it draws up thoughts of The Wolf of Wall Street and Tony Stark; plutocrats sweeping aside the mere mortals in their way.

More importantly, the word brings with it certain connotations, most of them divisive. Where one might see a career path for building affluence and security for their family, the other sees a business mogul grabbing up land like Mister Potter from It’s a Wonderful Life. It is easy to view this world in black and white. Yet, recently, an appropriate color has been splashed onto the canvas:

Green.

In this era of social and environmental awareness, the engineers of the clockwork that is the financial world are adjusting their cogs and mobilizing their resources.

The vanguard of this push comes in the forms of green loans, sustainability loans, and social loans — the result of a coalition between the Loan Syndications and Trading Association (LSTA), the Loan Market Association (LMA), and the Asia Pacific Loan Market Association (APLMA). These loans aim to arm organizations with the capital they need to participate in a global initiative, whether it be by converting a corporation’s energy resources to sustainable power supplies or constructing a new plant with the express purpose of reducing greenhouse gas emissions.

Yet, as always with finance, divisiveness hangs ever present.

Michael Tobin and David Scigliuzzo writing for Bloomberg​​ Green are but a few voices investigating these new loans. In their article “Wall Street’s ESG Loans Charge Corporate America Little for Missed Goals” the authors point out the lack of penalties for breaking the covenants that entail with any given ESG loan. Critics, Tobin and Scigliuzzo claim, have become outspoken on this very issue. To some, ESG loans have proved to be nothing more than mere lip service; a way to placate the zeitgeist and to perhaps attract investors.

To validate this view, it would appear that The U.S. Securities and Exchange Commission has also noticed this trend. Esther Whieldon writes in the article “Top US financial regulator faces big questions in move to mandate ESG disclosures” published in S & P Global that the reckoning has begun. This inquisition seems to be no small order. Harmonizing ESG guidelines with existing practices outside of the financial realm alone should prove a titanic task.

Like the rest of the financial and fintech world, we at Forest Park are watching these developments with keen interest. As new regulations and rules are applied to ESG loans, they may thrive into popularity or become fecund with a never ending swamp of red tape.