Andrew Hohns, the boss of Philadelphia-based hedge fund firm Newmarket Capital, is pitching a new type of securitisation he says would allow banks to reduce the carbon footprint of their balance sheets, according to a report by Bloomberg.
The report cites Hohns, a former Managing Director at Mariner Investment Group, as confirming that he has already held talks with several banks over constructing novel emissions-weighted risk transfers.
While banks already repackage and transfer the credit risk from their loan books to less-regulated private fund managers which gives them capital relief allowing them to do more business, and provides those on the other side of the trade with double-digit returns, structured credit specialist Newmarket is proposing a similar mechanism banks’ financed emissions – the greenhouse gas pollution linked to their lending and investment activities.
The report quotes Hohn as saying that the idea is to “transfer the credit risk, but at the same time transfer the so-called emissions risk to a third-party investor outside of the banking system, such as ourselves”.
Newmarket’s suggestion comes as banks are face growing pressure from regulators to cut their financed emissions, but according to Amir Sokolowski, Director of Climate at CDP, a nonprofit that advises public and private entities on how to measure and report their carbon footprint, emission-weighted transfers are “engineering” rather than “innovation” and do not address the wider challenge of reducing emissions in absolute terms.
