Cli­mate Change and Sov­er­eign Debt

The Pak Banker - - OPINION - Matt Levine

THE regulation of cli­mate change as a mat­ter of se­cu­ri­ties law is very odd. We've talked be­fore about Exxon Mo­bil, which has been ac­cusedof cov­er­ing up re­search about the risks of cli­mate change in or­der to sell more oil. If those ac­cu­sa­tions are true, then that was a bad thing to do. But the odd part is that the ac­cu­sa­tions are be­ing in­ves­ti­gated as a mat­ter of se­cu­ri­ties law: The prob­lem is not that Exxon maybe lied to the pub­lic or reg­u­la­tors or leg­is­la­tors or cus­tomers or sup­pli­ers or any­one else in­volved in the use or regulation of oil; it's that Exxon maybe lied to its share­hold­ers about how much cli­mate change would cost them. Why would we as a so­ci­ety fo­cus our at­ten­tion on the ef­fect of cli­mate change on oil com­pany share­hold­ers? Who cares? The an­swer, of course, is that it is eas­ier to pun­ish com­pa­nies for ly­ing -- or al­most-ly­ing, or be­ing care­less, or omit­ting things -- in se­cu­ri­ties fil­ings than it is to pun­ish them for ly­ing any­where else.

Here is an ar­ti­cle ti­tled "S.E.C. Is Crit­i­cized for Lax En­force­ment of Cli­mate Risk Dis­clo­sure," and again I find it very odd. I mean, I can un­der­stand why the Se­cu­ri­ties and Ex­change Com­mis­sion's thoughts about cli­mate change might be lim­ited to its ef­fects on in­vestors. (The SEC's thoughts about all is­sues are, nec­es­sar­ily, lim­ited to their ef­fects on in­vestors.) But the con­cern is ac­tu­ally that the SEC is not wor­ry­ing enough about the ef­fects of cli­mate change on in­vestors: "The S.E.C. has been un­der­re­act­ing in the ex­treme," says Sen­a­tor Brian Schatz of Hawaii. The goal of the crit­ics seems to be to get the SEC to use se­cu­ri­ties regulation as a mech­a­nism of envi- ron­men­tal regulation, de­spite the SEC's ap­par­ent lack of in­ter­est. In some ways it's a nice com­pli­ment to the SEC: Our se­cu­ri­ties reg­u­la­tory ap­pa­ra­tus is ap­par­ently so ef­fec­tive that we use it to ad­dress so­ci­etal prob­lems (cli­mate change, con­flict min­er­als, in­come in­equal­ity) that other reg­u­la­tors can't man­age. The SEC is such a model reg­u­la­tor that it will soon do all of our reg­u­lat­ing.

To be fair, though, it's not just political; there are also in­vestors who are com­plain­ing. While en­ergy com­pa­nies do make cli­mat­e­change dis­clo­sures, "many of th­ese are vague gen­er­al­iza­tions that give in­vestors lit­tle to work with": Chevron, for ex­am­ple, wrote that "in­cen­tives to con­serve or use al­ter­na­tive en­ergy sources" might re­duce de­mand for its prod­ucts. Exxon noted that new laws might "re­duce de­mand for hy­dro­car­bons." Nei­ther com­pany made clear to in­vestors what the fi­nan­cial costs might be. Th­ese are is­sues of a so­ci­etal, or re­ally plan­e­tary, scale. Chevron might be a bit bet­ter at pre­dict­ing the political cli­mate, or the ac­tual cli­mate, than its in­vestors are, but it's hard to imag­ine Chevron re­li­ably quan­ti­fy­ing the fu­ture ef­fects of cli­mate change and cli­mate regulation on its busi­ness.

"We're not ask­ing for any­body to pre­dict the weather or to be­come cli­mate sci­en­tists," Sen­a­tor Schatz said. "We're sim­ply ask­ing that the S.E.C. ac­knowl­edge that there is real risk for com­pa­nies, and that it ought to be dis­closed." I guess. But it is dis­closed. The crit­ics want it to be quan­ti­fied. Else­where in reg­u­la­tory agen­cies: "A Le­gal Bat­tle BrewsOver the Power of Amer­ica's Con­sumer Fi­nance Watch­dog."

For most of the last 10 years, Ar­gentina had a con­sis­tent of­fer for hold­ers of its de­faulted pre-2001 bonds: It would give them new bonds worth about 30 cents for ev­ery dol­lar of the old bonds. Some hold­ers of old bonds ob­jected. They sued, fought Ar­gentina in court for years, and kept rack­ing up victo- ries, even in the U.S. Supreme Court. Once they seized an Ar­gen­tine navy ship. Fac­ing the im­mi­nent prospect of de­fault­ing on its new bonds, Ar­gentina was forced to the ne­go­ti­at­ing ta­ble. Its min­is­ter of the econ­omy came to a me­di­a­tion ses­sion in New York, sat down with the hold­out bond­hold­ers, and of­fered them: 30 cents on the dol­lar. The con­sis­tency, at least, was im­pres­sive. Ar­gentina was happy to ne­go­ti­ate terms with the hold­outs, as long as those terms were 30 cents on the dol­lar.

But that was a year and a half ago, and since then Ar­gentina has got­ten a new govern­ment and made much more con­cil­ia­tory noises about set­tling. In­clud­ing at Davos: In a bid to end a bit­ter le­gal dis­pute that has ef­fec­tively barred the coun­try from in­ter­na­tional cap­i­tal mar­kets since 2001, Al­fonso Prat-Gay, fi­nance min­is­ter, told a panel that Ar­gentina would hon­our the face value of debts owed to the US hedge fund hold­outs while seek­ing to ne­go­ti­ate the costs of ac­cu­mu­lated in­ter­est.

"We want to put an of­fer on the ta­ble," Mr Prat-Gay said, adding that Ar­gentina was of­fer­ing 120 cents on each dol­lar owed. The prob­lem, he said was that the cred­i­tors, in­clud­ing El­liott Man­age­ment, were ask­ing for 350 cents on the dol­lar, which had spi­ralled due to ac­cu­mu­lated in­ter­est pay­ments over the past decade on cer­tain loans. Ob­vi­ously 120 is quite a bit more than 30. Also this just seems more like ne­go­ti­a­tion: Ar­gentina says a num­ber, El­liott says a higher num­ber, Ar­gentina raises its num­ber, El­liott low­ers its num­ber, etc., you know how this works.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.