82,503
edits
Sustainability-linked derivatives: Difference between revisions
Jump to navigation
Jump to search
no edit summary
Amwelladmin (talk | contribs) No edit summary Tags: Mobile edit Mobile web edit |
Amwelladmin (talk | contribs) No edit summary Tags: Mobile edit Mobile web edit |
||
| Line 15: | Line 15: | ||
Nor is this a derivative, but rather more of random [[penalty clause]]: a payment derived not from some observable third party indicator, but an internal metric entirely within the counterparty’s gift to game. I know what targets I can plausibly meet; my counterparty has no idea at all. This becomes an open invitation to systematic insider dealing on ones own operations. Could I short my own ''sustainability'' compliance, and incentivise my own transition ''towards'' carbon and modern slavery? | Nor is this a derivative, but rather more of random [[penalty clause]]: a payment derived not from some observable third party indicator, but an internal metric entirely within the counterparty’s gift to game. I know what targets I can plausibly meet; my counterparty has no idea at all. This becomes an open invitation to systematic insider dealing on ones own operations. Could I short my own ''sustainability'' compliance, and incentivise my own transition ''towards'' carbon and modern slavery? | ||
And what has any of this to do with my | And what has any of this to do with my counterparty? Why is paying, or not paying, cash away to a random stranger any kind of benefit to the environment? Why would a counterparty make itself hostage to my compliance effort? What incentive does it have to offer a discount just because I have cracked my own gender pay gap? Just by way of applause for its moral aspiration? That is not how commerce works. Besides, how is it supposed to ''hedge'' that? | ||
The sustainability a counterparty should really care about is that of its counterparties’ solvency. Good corporate governance — and sorry, millennials, the [[JC]] is with Milton Friedman on this: that means focus solely on shareholder return — is after all reflected in my [[credit spread]]s: how likely does the market regard my bankruptcy. This is coded into my spreads when I trade swaps. But once traded, these are not then adjusted during the life of the trade — hence a rich lifetime of employment for [[credit value adjustment]] traders. But in any case, my incentive is to manage my business as best I can so that ''when I trade I achieve the tightest spreads''. That is all the incentive the market has needed, until now, to promote sustainability. Hardcore [[Libtard]]s may differ — we are all libtards now — but nothing has changed. | |||
There is force in the idea that carbon credits are derivatives not so much of environmental damage as much as of regulatory fashion. SLDs aren’t event that. These aren’t even derivative at all. They penalise, and reward, innocent parties. | There is force in the idea that carbon credits are derivatives not so much of environmental damage as much as of regulatory fashion. SLDs aren’t event that. These aren’t even derivative at all. They penalise, and reward, innocent parties. | ||