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

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