Sweden dumps Australian bonds over “large climate footprint”

Sweden’s central bank has offloaded Australian bonds issued by the governments of Queensland and Western Australia, in the latest show of evidence that “carbon borders” are being put in place in global markets.

Riksbank deputy governor Martin Flodén said on Wednesday that it had dumped the Australian bonds, alongside bonds issued by Canada, as part of its new investment policy to reject issuers with a large climate footprint.

Flodén said that while Australia and Canada were both countries “not known for good climate work,” some states were worse than others for their contributions to greenhouse gas emissions.

“As a result of the new investment policy, we sold our holdings of bonds issued by Alberta [Canada] in the spring. For the same reason, we have recently sold our holdings in bonds issued by the Australian states of Queensland and Western Australia.”

In a speech delivered to the Örebro University and Kommuninvest, Flodén said the financial sector needed to pay closer attention to how climate change would affect – and was already affecting – how economies function.

“Its impact is most clear in the insurance sector, as a direct consequence of the risks of climate-related damage,” he said.

“The risks may also increase on the financial markets when various branches are forced into major changeovers as a result of demand, taxation or regulations being changed.

“It is important that the Riksbank understands these changes, both to be able to conduct an effective monetary policy and to be able to identify risks on the finan- cial markets. In other words: the Riksbank must be able to manage the economic consequences of climate change,” Flodén said.

IEEFA’s Tim Buckley says the move by Sweden, while sensational for its naming and shaming of Australia, is just one small sign among many more of the major shift currently underway in global financial markets.

“What the Swedish government is saying is that, effectively, carbon borders are coming,” Buckley told RenewEconomy on Friday.

“And countries that are global laggards are going to be isolated and punished as a result.”

Buckley says a much more significant example of this trend – which was also in the news this week – was the announcement from the European Investment Bank, the EU’s financing department, that it will bar funding for most fossil fuel projects at the end of 2021.

Under the new policy, energy projects applying for funding must show the EIB – which last year alone funded about €2 billion worth of fossil fuel projects – that they can produce 1 kilowatt-hour of energy while emitting less than 250 grams of carbon dioxide, thus excluding traditional gas power plants.

A few months earlier in July, the key players in the France’s Paris financial centre committed to adopt a mid-2020 timetable for “total disengagement” from the coal sector.

“There have been 110 announcements globally of big financial institutions having formal coal restrictions, and those restrictions are getting tighter and tighter,” Buckley said.

“So what might start as greenwash, inevitably gains some substance, and then becomes a reality.

“Financial markets are funny things, once you start a shift, it’s a bit like an avalanche. It starts with one pebble, but soon you have everyone rushing for the door.”

Simon Currie, a principal at Sydney-based advisory business Energy Estate, said it was now almost impossible to ignore that a global climate trade was emerging, with Europeans and New Zealanders taking the lead.

“(Australia) can put its head in the sand, or we can say ‘whether we like it or not, this is what’s happening, and so what will be our response?’ What do we do?

“The disappointing thing for me is that Australia has all these wonderful characteristics that we’re not amplifying,” Currie said, noting the irony that Western Australia and Queensland – two of Australia’s most renewable resource-rich states – were the ones called out by Riksbank.

“Compared to so many other exporting nations, we actually have … huge structural and societal advantages,” Currie added.

“We should be an investment destination for everyone, if we can get this one thing right. And if we don’t get it right, we’ll end up having our debt starting to become unaffordable and unattractive.”