INVESTMENT EXPLAINED: What you need to know about Khaki Finance, where polluting industries are encouraged to go greener
In this series, we break the jargon and explain a popular investing term or topic. Here is Khaki Finance.
Defense funding?
Not related to army uniform funding. Nor is there any connection with the chinos acclaimed by tech bosses.
The term, which you’ll likely hear a lot in 2023, covers programs to encourage “grey” or polluting industries, such as steelmakers and cement and chemical makers, to become more environmentally friendly.
Hundreds of billions are needed to fund decarbonization technologies. To take just one example, cement, the second most consumed product in the world after water, is used in almost everything we build and is a major contributor to CO2 emissions.
Sustainability: hundreds of billions are needed to finance decarbonization technologies
Why is this topical?
The war in Ukraine, with its impact on energy supply, has drawn governments’ attention to energy security like never before. The urgent need to reduce reliance on Russian oil and gas means there must be a faster transition to renewables such as solar and wind.
This revolution also demands that companies dependent on fossil fuels, such as steelmakers, move more quickly towards more planet-friendly sources. Such decarbonization initiatives can have a significant impact.
Companies should be greener, surely?
Yes, given the drive for net-zero emissions to combat global warming, but financing for decarbonization can be hard to come by, apparently, with some banks preferring to invest in the development of pure green technologies.
Others are nicer. Although HSBC announces that it will gradually reduce its investments in oil and gas, it is expected to finance decarbonization projects. Barclays has also pledged to finance such projects. But billions and billions will be needed.
Is there a cheerleader?
Mark Carney, former governor of the Bank of England, is a strong candidate. He leads the Brookfield Global Transition Fund, established this year to support solar and other technologies that aim to reduce emissions.
He said it would support clean energy generation, transform traditional utilities and provide sustainable solutions for industries like steel and cement. Unfortunately for those who would back this fund, it has attracted $15 billion and is closed to outside investors.
I would like my savings to support this kind of project
There is a whole range of ESG (environment, social and governance) funds.
None specifically say he has a penchant for khaki finance, but the SDCL Energy Efficiency Income Investment Trust backs companies that help businesses lower their energy bills. Its officials say that up to 40% of the world’s energy is used in buildings, but half of that is lost or wasted.
Couldn’t I just put money into a range of funds?
It’s an option, but be careful, as the funds are at the center of a greenwashing controversy. Some claim that some have invested in companies that only vaguely fit ESG criteria, when in reality they are not very ethical or sustainable.
The city’s watchdog, the FCA, is trying to restrict how “ESG”, “green” and “sustainable” descriptions can be used.
But there are concerns that these rules are still too lax, although Chancellor Jeremy Hunt says ‘the government is acting to make the UK the best place in the world for sustainable investing’.
