THEME
- SUSTAINABLE MARKETS
Risk management
Environmental Financial Products
Rutger Schellens - a suite of new services
This contract will guarantee an off-take of emissions from
projects that Rabobank is financing in developing countries,
giving clients extra cash flow to make projects more viable.
'In effect,' says Dijk, 'we will be generating income for our
clients from sales of "certified" carbon emissions, whicli
will then be sold to the Dutch government to be used to
ensure its Kyoto compliance. I his will help us to service our
clients and improve the financial viability of projects.'
Changes in the regulatory framework on sustainability are
increasingly factoring the environment into the economie
equation. Now that natural capital and assets are no longer
free, a new environmental asset class is emerging, including
forestry rights, sulphur credits, water rights and nitrogen
oxides (NOx). While these may be new types of assets, in
banking terms they are simply another variation on com-
modity trading and finance. Dijk is concerned about the
failure of some businesses to appreeiate the significance of
sustainability requirements: 'The new regulatory environ
ment is introducing new assets and liabilities into business
decisions. I sometimes worry that the financial sector is not
aware of the impending dangers: many clients have environ-
ment-related liabilities on their books which might affect
their capacity to service debt. This is important for the
bank's risk management strategies.' In November 2002
Rabobank took part in the Carbon Disclosure Project in
which 35 financial institutions wrote to Forbes 500 companies
requesting them to provide carbon emissions disclosure
alongside financial disclosure. The companies signing the
letter (including Merrill Lynch, Allianz and Swiss Re)
wanted to stress the relevance of carbon disclosure to risk
assessment.
RI is now preparing to launch a new product group related
to environmental risk management, to be known as
Rabobank Environment Financial Products (REEP). Rutger
Schellens is in charge of the project: 'RE EP represents a new
product range for us to market to our clients. It gives us
another very good reason to call them. As it is a "new"
product, clients will need advice and handholding. To date,
financial institutions have tended to treat these relatively
new forms of tradeable assets simply as additions to existing
product lines. REEP will provide a suite of new services to
existing customers through a single desk. I.ondon is the
heart of the emissions trading business, so that's where our
operation will be located.' John Marlow, who heads up the
I.ondon team, is enthusiastic about the potential: 'The
largest of these environmental asset markets is the CiHG
market toreshadowed in the Kyoto Protocol on Climate
Change, which is due to become operational in 2008.
10 I RI The Word I