82,903
edits
Template:M intro isda sustainability-linked derivatives: Difference between revisions
Template:M intro isda sustainability-linked derivatives (view source)
Revision as of 18:17, 4 February 2024
, 4 Februaryno edit summary
Amwelladmin (talk | contribs) (Created page with "{{dpn|/səsˌteɪnəˈbɪlɪti lɪŋkt dɪˈrɪvətɪvz/|n}} {{quote|A derivative transaction with an ESG overlay, taking into account specific measures and targets in the form of Key Performance Indicators.<ref>Deliciously unenlightening definition courtesy of [https://insightplus.bakermckenzie.com/bm/banking-finance_1/global-sustainability-linked-derivatives-isdas-case-for-standardisation...") |
Amwelladmin (talk | contribs) No edit summary |
||
| (2 intermediate revisions by the same user not shown) | |||
| Line 1: | Line 1: | ||
{{ | {{d|Sustainability-linked derivatives|/səsˌteɪnəˈbɪlɪti lɪŋkt dɪˈrɪvətɪvz/|n}} | ||
{{quote|A derivative transaction with an [[Environmental, social and corporate governance|ESG]] overlay, taking into account specific measures and targets in the form of [[Key performance indicator|Key Performance Indicators]].<ref>Deliciously unenlightening definition courtesy of [https://insightplus.bakermckenzie.com/bm/banking-finance_1/global-sustainability-linked-derivatives-isdas-case-for-standardisation-in-a-globalised-world Baker & McKenzie]. If you have any idea what “an ESG overlay” to a “derivative transaction” might be, do write in. JC considered ending this article with “[[key performance indicator]]” as that neatly captures the absurdity of this asset class, but felt oddly compelled to carry on.</ref>}} | {{quote|A derivative transaction with an [[Environmental, social and corporate governance|ESG]] overlay, taking into account specific measures and targets in the form of [[Key performance indicator|Key Performance Indicators]].<ref>Deliciously unenlightening definition courtesy of [https://insightplus.bakermckenzie.com/bm/banking-finance_1/global-sustainability-linked-derivatives-isdas-case-for-standardisation-in-a-globalised-world Baker & McKenzie]. If you have any idea what “an ESG overlay” to a “derivative transaction” might be, do write in. JC considered ending this article with “[[key performance indicator]]” as that neatly captures the absurdity of this asset class, but felt oddly compelled to carry on.</ref>}} | ||
| Line 25: | Line 25: | ||
So this becomes an open invitation to systematic [[insider dealing]] on one’s own operations. And that is assuming a wily trader stays “long” her own firm’s sustainability performance at all times. But swaps are by their nature bilateral. What is to stop her [[short sale|''shorting'']] her own sustainability credentials, incentivising her employer’s transition ''towards'' carbon and modern slavery? | So this becomes an open invitation to systematic [[insider dealing]] on one’s own operations. And that is assuming a wily trader stays “long” her own firm’s sustainability performance at all times. But swaps are by their nature bilateral. What is to stop her [[short sale|''shorting'']] her own sustainability credentials, incentivising her employer’s transition ''towards'' carbon and modern slavery? | ||
Secondly, the need for robust, measurable [[Key performance indicator|KPI]] | Secondly, the need for robust, measurable [[Key performance indicator|KPI]]s implies a grand, work-creating, rent-generating, carbon footprint-inflating bureaucratic infrastructure of little drones running about, setting targets, measuring them, publishing them, making determinations about them, resolving disputes about them and so on. Who is going to fund the sustainability determinations committee? And will the whole enterprise not, by wasting trees, do more environmental damage than it solves? | ||
Thirdly. why should my trading counterparties ''care''? What has any of this to do with them? What benefit accrues to the environment when my swaps desk pays more or less cash to theirs? Why would they make themselves hostage to my ESG compliance effort? Why should they suffer a penalty just because I have cracked my own gender pay gap? (Isn’t there reward enough in just ''doing'' that, by the way? What does it say about economic incentives that we must bribe each other to promote our own staff fairly?) | Thirdly. why should my trading counterparties ''care''? What has any of this to do with them? What benefit accrues to the environment when my swaps desk pays more or less cash to theirs? Why would they make themselves hostage to my ESG compliance effort? Why should they suffer a penalty just because I have cracked my own gender pay gap? (Isn’t there reward enough in just ''doing'' that, by the way? What does it say about economic incentives that we must bribe each other to promote our own staff fairly?) | ||
And besides, how are you supposed to ''hedge'' that? | And besides, how are you supposed to ''hedge'' that? Are you ''allowed'' to hedge? Would hedging [[Environmental, social and corporate governance|ESG]] penalties be somehow ''cheating''? | ||
Nor will these be a kind of [[Emission allowances|synthetic carbon credit]] (and, anyway, ISDA already has a [[Emissions Annex|product for that]]). No money flows into tax coffers or environmental protection funds as a result under this proposal. It just means parties pay more money than they need to to each other. This is an odd way of vouchsafing efficiency. | Nor will these be a kind of [[Emission allowances|synthetic carbon credit]] (and, anyway, ISDA already has a [[Emissions Annex|product for that]]). No money flows into tax coffers or environmental protection funds as a result under this proposal. It just means parties pay more money than they need to to each other. This is an odd way of vouchsafing efficiency. | ||
| Line 38: | Line 38: | ||
It feels like there is a [[category error]] here. The “[[sustainability]]” a financial counterparty should really care about is ''solvency''. | It feels like there is a [[category error]] here. The “[[sustainability]]” a financial counterparty should really care about is ''solvency''. | ||
''That'' kind of good corporate governance — and sorry, millennials, but [[JC]] is with Milton Friedman on this one: that means [[shareholder capitalism|''shareholder return'']] — is reflected in [[credit spread]]s: how likely does the market regard my [[bankruptcy]]. Not [[Environmental, social and corporate governance|ESG]] [[Key performance indicator|KPI]] | ''That'' kind of good corporate governance — and sorry, millennials, but [[JC]] is with Milton Friedman on this one: that means [[shareholder capitalism|''shareholder return'']] — is reflected in [[credit spread]]s: how likely does the market regard my [[bankruptcy]]. Not [[Environmental, social and corporate governance|ESG]] [[Key performance indicator|KPI]]s. | ||
My brokers will not discount my credit premiums just because I care about polar bears. If they don’t get their money back, the happy knowledge that I did my bit for water scarcity will be cold (wet?) comfort. What will — should — matter a lot more is that I ''keep up my payments on my swaps and loans''. | My brokers will not discount my credit premiums just because I care about polar bears. If they don’t get their money back, the happy knowledge that I did my bit for water scarcity will be cold (wet?) comfort. What will — should — matter a lot more is that I ''keep up my payments on my swaps and loans''. | ||