September this year saw the creation of the world’s first truly carbon neutral bank. Although HBSC had previously self-proclaimed itself to the title its aspirations had been met with stinging criticism over its shaky footprint calculations and questionable offsetting strategy. Spotting this opportunity to redefine the carbon neutral concept, US investment bank Lehman Bros opted for a revolutionary approach to reduce corporate emissions without any need for securing international offsets. In a world increasingly skeptical of superficial “greenwashing” from large corporations, Lehman’s move is being commended by the environmental sector as a truly solid commitment to robust and sustainable reductions in corporate emissions.
It is possible that Lehman fell into this applauded action accidentally due to an unstoppable build-up of risk exposure in its carbon portfolio. Although the bank has not confirmed these reports, Lehman is rumoured to have relied upon a number of fundamentally flawed securitised environmental assets – known in the trade as “ecological securities” – which were in fact worthless. Banks would normally protect against this eventuality through buildilng up a complex web of so-called Carbon Default Swaps (CDS) whereby they in effect purchase insurance contracts against failures of their environmental assets. In this case the carbon assets involved had become so complicated and mired in bureaucracy that the CDS purchases could not protect the collapse of the environmental integrity of the assets that the bank relied upon.
Nevertheless the outcome is being seen in financial circles as a positive step that proves the sector’s commitment to ‘sustainable’ development. As he was leaving the bank’s headquarters for the last time, a senior employee said “you have to see the bright side. Now that the Bank’s emissions have fallen to zero our environmental impact has been neutralised so we can start again without guilt. Personally I had purchased a number of carbon offsets which I clearly no longer need, so I will be reselling these on the secondary market to someone who still has assets to be offset”.
Another trader was overheard saying “There are no more emissions left in Lehman. The buzz is now in hedge fund management”. She was referring to the new concept of amassing carbon credit portfolios from avoided hedge clearance across England and Wales. For years now Britain’s countryfolk have lamented the loss of their famous hedgerows as giant farms swept across the countryside creating hedgeless megafields. The threat of climate change has finally put a stop to this as the mitigation value of healthy hedgerows has come to be recognised for its true bushy worth. A shrewd landowner can claim a temporary carbon credit from promising to maintain his hedge over a certain period, although he may be required to repay it or requalify if excessive topiary or other such mutilation should befall his hedge during the alloted time or ‘crediting period’. Cunning hedge managers are diversifying their investments across a range of country landmarks including hedgerows, woods and forests. Said one manager, “Portfolio diversity makes for broad and easy management. Hedges and woods are great, but you need to be a bit careful with copse. Sometimes you can be caught out and even arrested”.
As they begin to learn the ropes of being paid handsomely in carbon credit sales by sitting still and doing nothing to the precious hedges, many former bankers are starting to realise the value of their transferrable banking skills. “Back in the City I used to sit around drinking coffee and make loads of cash from other people worrying about scares I did not believe in” said one former financier. “Out here in the country things are different. I can’t get good coffee anywhere.”
Lehman’s actions are nonetheless starting to be emulated all around the world by banks seemingly eager to follow in its green footsteps.