YouSaid · the spoken record

Daniela Gabor

lines on the record: 30
first: 2021-05-24
most recent: 2021-05-24
sittings or episodes: 1
sources: podcast

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“Provide public solutions has not sort of materialized yet. So to me, in a sense, the question of will we have a lot more ESG over the next years? Yes, definitely a lot more. There will be, I guess, better, at least for the European Union, the European Union now has a directive for disclosure where if you want to sell financial products as environmental or social, you need to provide a narrative of what they call principle adverse impacts or pies. I think it's quite funny that they are described like that. But what they say is, well, you need to convince us that your ESG products or truly ESG. So there is more scope for sort of monitoring closely the extent of greenwashing so you don't buy ESG ETFs that have a chevron or totaling them. But whether that is ambitious enough for the scale of the low carbon transition, I am a bit skeptical”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, it does to me in the sense that in the case that you described around inflation, we are seeing sort of old orthodoxies dying, kind of slow for our taste, whereas in the sustainable finance space, there is a new orthodoxy emerging, but the political momentum or the ability of elected politicians to”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“If you have in-house ESG desks and large institutional investors would have them, you can do a lot of due diligence. So I'm not very optimistic that there will be a sort of global public standard.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“Negotiations around the European taxonomy over the last couple of years, your question, Tracy, becomes very relevant because what we have seen is conflict between member states of what kind of activities should receive the label green. And most recently, civil society organizations that were involved walked out because the European Commission, under the pressure of several member states, said that it was contemplating including natural gas, which is a fossil fuel, as a sustainable activity. And that is sort of stretching it by miles in terms of credibility of a public taxonomy. And that is an strategic opening, I guess, for private ESG ratings because at least private finance can produce some ratings and some risks.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, sorry, that is a trillion dollar question in some ways because it points to the political difficulties in agreeing on, say, a global level, but even if you look at the European Union, the European Union level, the European Union for a while thought of itself as a leader in the green finance agenda, particularly because the Trump administration wasn't interested in participating, right? So they said, okay, we'll come up with a public taxonomy, the sustainable finance taxonomy. This will identify activities that are sustainable. And then we will take this at a global level and create some form of coordination that says this is a public standard of green and it's not supposed to be a public standard of brown because the European Commission has sparked the question, oh, sorry, what are the activities? It sort of doesn't deal with it for now, but at least it says this set of activities are green. But if you look at the political debate and”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“Not able to provide some sort of green label for the assets that you're holding, it might be much more expensive to hold them or you might end up with a lot of stranded assets.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“Which is in the central bank's task force for financial disclosure, for example. The status quo is we have to ask for disclosure of climate risks and for disclosure of exposures, but I guess a year from now or two years from now, if you look, for example, at the European Central Bank, who is undertaking a review of its monetary policy operations, you could see a state that says, I am going to increase capital requirements on dirty assets you're holding or I'm going to subsidize green assets by reducing capital requirements or reducing haircuts on the collateral that banks are using in order to borrow from central banks. So in a sense, the rise of ESG is not simply about profits, but it's also about a strategic positioning.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“I think we have to recognize that private financial institutions have taken on the sustainability agenda in a sort of comprehensive way. To some observation, it has been surprising, but I guess sort of the bigger public pressure comes from young citizens everywhere in the world mobilizing in the Fridays for future and governments responding to this public pressure to act on climate. So I wouldn't say that it is the private financial sector that sees profit-making opportunities that has been driving it, but there is certainly a responding to what they see as a future where the state might possibly become a much stronger inflexing its green regulatory muscle. And here where the question of greenwashing becomes even more important because I can see that in the near future, governments will go away from or will move beyond what we have now as the status.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“In the sense of you can go and choose a high SG rating from whichever provider gives it to you and there are some perverse incentives in there and then you don't have to do very much, right? And as somebody who believes that the climate crisis is very real, I am concerned about the idea that we have to rely on private financial institutions in order to drive our climate agenda and to ensure that corporations go towards low carbon activities.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“Rely on these investors to sort of try to discipline corporations. I think that's a more difficult question to answer because it is true that we have seen experiences here and there and there is a lot of public pressure from civil society organizations to make sure that, for example, BlackRock flexes its muscle in order to make sure that the companies where it's a shareholder or where it holds shares on behalf of its investors improve their practices. But to me, the question that raises then is if investors have to assess the ESG behavior on the basis of private ratings, is it possible to have arbitrage?”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it depends who you ask, right? I think for governments and regulators in general, the idea is, and you can think about the European Union Sustainable Finance Initiative and the taxonomy that comes with it, the idea is that they would like investors to think about the ways in which their lending to companies may have an environmental impact or may reproduce or accommodate corporate practices in sort of social and governance areas that are not aligned with public standards. So to my mind, for regulators, it is important to accelerate the shift in financial flows away from carbon activities towards green activities. Now, what does that mean in practice? And that goes to your second question, is should we”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“Total shares or bonds, you can say, well, this is a company that is carefully planning its transition out of fossil fuels because sustainal analytics ESG ratings tells me so. But what I see is that probably And I think it can be solved by relying on private metrics like ESG. It needs a public taxonomy. It needs the technocrats to say this is green or this is sustainable and this is not.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“and chevron as having severe ESG risks. And if you look at Otal, well, you'd say it has a nature-based solution unit that promises to invest in natural carbon sinks in order to sequester CO2 from its operations, right? However, if one looks closer at what Total has been doing over the last few years, then this ranking of medium ESG risks looks to me a lot like greenwashing. For example, in Congo, Total wants to exploit oil there and it says, well, in order to compensate, we will create a natural carbon sink of 40,000 hectares. But this involves first destroying a local natural savannah ecosystem and replacing it with what non-native trees, I think acacia trees, that can be commercially exploited. So if you're an institutional investor, right, and you hold”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“So I would say in the ESG space, it plays out, and I think the devil is in the technocratic detail is very important. It's crucial, is who decides or according to what rules or taxonomies we call them taxonomies in this space, according to what taxonomies do we decide whether investments and products are green or dirty? And there is broad agreement in regulatory circles that industry-led ESG approaches open the door to systemic greenwashing. That is, in a sense, maybe if I give you the example of Total, the French oil and gas company, because I think it's a powerful example, if you take sustainal analytics, which is one of the provider of ESG ratings, sustain analytics rates Total as having ESG risks at a medium level. It rates X-On high.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“Through public investment as opposed to imposing user fees and de-risking PPP investments there. The more important, sort of the bigger issue, and this brings us back to the topic of ESGs, I think there is also a question of systemic greenwashing that arises with this kind of de-risking paradigm.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“We haven't had yet a successful or many successful examples, particularly in the global south, but also in Europe, where this distribution of risks works better for the public purse. That's one thing. And the second one, which for the Euro-European audience, perhaps it resonates better, is that once you organize public services through PPPs, then basically you're saying that the users have to pay a fee in order to access them. And that is the case for highways, that is the case for trains, but it's also the case for health services, for education, for nature as an asset class. The idea is to use these PPPs everywhere. So in a sense, there is also a question of the public good here, whether the governments around the world are not equipped to provide or to meet the social contracts with its citizens by providing good quality public service.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“public private partnership right it is the kind of it is the kind of arrangement that blackrock for example uh called for the biden administration to use in order to involve the private sector in infrastructure investment and the experience with ppps in europe and elsewhere is in general an experience of a lot of very high cost for the state that would have In other words, that it would have been cheaper if the state did it by basically spending directly as the Biden administration plans to do with its infrastructure plan. So that's one issue. It has been very costly for the public purse. And I guess the second issue is, as you describe it, Joe, well, maybe we can find a better way of governing these projects to make sure that the distributions of risk works better. And the World Bank has done a lot of sort of efforts into that direction. But to my mind,”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that's a very legitimate question. And historically, the critique towards this de-risking PPPs has come from the empirical reality in the European Union and in countries around the world that have used PPPs for infrastructure investment”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“To sort of absorb this. And there are many other examples in PPP contracts everywhere because the logic is if you want to direct or to escort private finance into sustainable assets, you need to change the risk reward profile, right, to align it better with their preferred risk reward profile, then the state says, okay, I will guarantee a certain level of demand. I will pay or if a future government decides to, for example, increase minimum wages or if it decides to put a carbon price, the state absorbs some of the risks of the private investment in order to guarantee a constant stream of cash flow.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“So let me give you, for example, the example of Ghana's Sankofa offshore gas project where the state signed a public-private partnership contract with a couple of French companies. And in PPP contracts, there is a very clear specification of who assumes what risks. And the state assumes, for example, in this contract, demand risk in the sense that it guarantees a level of cash flows for the private investor and for the private operator. In the case of this Ghanaian project, because the state agreed to the risk and demand, or in other words, to provide a guarantee, then according to the IMF, it now pays about 500 million annually for power generation capacity that it cannot use because the infrastructure, the grid is not performant enough.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the papers that I've written on what I call this Wall Street Consensus, I look at the hidden fiscal costs of de riskings and they can be quite significant. We have examples in the European Union. We have examples in countries in the Global South, like Nigeria or Ghana, where we can see that it doesn't sort of relying on the private sector to drive the sustainable agenda doesn't mean that the state is not putting fiscal resources on the line. It is in a sense, and the risk to me there is that it sort of privatizes profits and it socializes loss.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, I would very much agree in the sense that I think if you trace the importance of ESG in general is that it is a private taxonomy for identifying green or sustainable assets and in a sense distinguishing them from dirty assets, right? There are a couple of issues to consider there. I think one is that although we tend to applaud in some ways the fact that technocratic central banks are at least working closer with governments in order to design say the green transition or to respond to the COVID-19 pandemic, to me the question is when government technocrats sort of take over, do they take over to design public investment in green infrastructure and green industries or do they take over to design and to negotiate de-risking in public-private partnership contracts? And there are very different fiscal implications for both.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“To me, this turn towards the state as an instrument of de-risking for private finance explains to a significant extent the dramatic growth that we have seen in sustainable finance products in the last years. It's a global political appetite for a market-driven approach to development and to climate.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“Into this ESG sort of sustainable assets, right? And to give you the example of the G20 infrastructure as an asset class, which the Biden administration is already supporting through its international climate finance plan. The idea in the G20 infrastructure as an asset class is that the private sector does not build ports or high-speed trains or renewable energy plants or hospitals because there are very important risks to projects, cash flows. There might be sufficient demand, there might be currency depreciation, climate risks, fossil fuel subsidies for the poor. So what the state needs to do is to step in and to de-risk the public-private partnerships, so these partnerships between the state and private finance by assuming risks that demand falls or that future governments might increase policies like minimum wages or new climate regulations such as an increase in carbon price. And I think this”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“Assets worldwide, around 100 trillion belong to institutional investors and asset managers, and probably 30 trillion more or less have already a sustainability label attached to them. So 5 to 7 trillions annually, it's not that large, but what it requires, and I think this is very important to bear in mind, what it requires is for public finance to crowd in private finance, in other words, for the state to help private finance invest in infrastructure projects. And this is, I think, an important political project that goes hand in hand with the rise of ESGs because it says when the state has to de-risk investments, particularly infrastructure investments, for private finance, and that goes in two steps. One is to allow private finance to identify sustainable asset classes via ESG metrics, and then to de-risk private flows.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a very interesting question in the sense that it very much depends which avenue governments will decide to take, whether they go for big public investment, which I somehow doubt. I think the Biden infrastructure plan is somehow an oddity in sort of high-income countries. I would guess, especially after the COVID-19 crisis, because we still rely very much on this powerful macro fiction of the last 40 years that governments have limited fiscal space and that it should not rely on independent central banks to maintain borrowing costs low, then the idea, the question becomes if governments cannot produce the trillions in green investment, these have to come from somewhere else and that will be private finance. And that's where you get the sort of back of the envelope calculations that you were described earlier. And they run something like this. You have 380 trillions US dollars in financial.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. I mean, it doesn't necessarily cut them out because you could say, well, you know, private finance could still buy the government, the bonds issued by governments to finance the green carbon transition. It definitely goes against this idea that private finance needs to be in the driving seat, an idea that comes with the ESG push over the last five to seven years.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“Trillion annually that are necessary for the low carbon future. And there is a big finance regime and a big green state regime that we often discuss as a Green New Deal kind of arrangement. So when private equity companies and asset managers were complaining that Biden had abandoned about the Biden plan, they were complaining to me that they had abandoned this big finance regime that was dominant until then in global policy forums like the G20, the United Nations, in multilateral development banks, the Conference on Climate Change, the Global Investor for Sustainable Development Alliance, which was a consensus that private finance needs to be in the driving seat for us to achieve the SDG and decarbonization commitments by 2030.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“In sustainable projects. And the way in which this complaint was framed that Biden chose old style government investment instead of a partnership with private finance signals to me the importance of thinking about the rise of ESG and what is the purpose, how should we think about its limitations through the lens of what I call macrofinance regimes, that is the configuration of policies and institutions used by governments, central banks and private finance to design the low carbon transition that is the transition towards a low carbon economy. And I would guess since 2015, the year of the Paris Agreement and also the year of the Addis Abeba Financing for Development Conference, we have seen what I would describe as two broadly distinctive macrofinancial regimes that promise to generate investment in the order of about USD to 7%.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source
“So I would say that my interest in ESG comes from observing the broader political context in which ESG investment has a reason in which this wall of ESG funds that you just described has sort of come about to describe that political context, I would like to start with a quote from a private equity lobbyist that was discussing the Biden infrastructure plan. And he said something along the lines of this is a very traditional government in spending on infrastructure plan. It's like an old funded through the government approach. And what we were expecting was Biden to put private finance in the driving seat to partner with private finance through public-private partnerships and to tap into the huge pools of capital, particularly ESG capital standing by and looking for a sort of sustainable investment.”
2021-05-24 · Odd Lots · Daniela Gabor on the Critical Case Against Private Sector ESG · IDENTIFIED FROM THE TRANSCRIPT · source