nut Kjaer rummages through kitchen cabinets to find
some water glasses. The founding chief executive
officer of Norway’s oil fund now chairs Sector Asset
Management, a firm focused on actively managed
funds that he says can help create a greener planet by altering
investor behavior. Right now, though, his challenge is to find
some matching tableware in Sector’s offices, which are still under
construction in Oslo. It’s a gray January afternoon. He looks out
the windows and gestures toward the hills that surround the
Norwegian capital. “They should be covered in snow at this time
of year,” he says. “But it’s too warm.”
After running one of the world’s largest sovereign wealth
funds for Western Europe’s biggest oil-producing nation, Kjaer
has become something of an activist. “Climate change is a threat
to our civilization,” he says after gathering up some old Ikea
glasses and heading to his 10th-floor conference room. “We only
have a few decades to handle it.”
That realization sent Kjaer, 63, down a somewhat unusual
path—he’s become a green missionary who remains a suit-clad
member of the investing establishment. He’s not one for making
speeches at the World Economic Forum in Davos, Switzerland.
That, he says, should be left to the “jet set.” Instead he’s quietly
begun to argue for change from within the more obscure corners
of the global bond market.
It’s a mission that’s growing more complicated now that
the world’s attention has been hijacked by the spread of the
corona virus, with any momentum around fighting climate change
subsumed by the need to fight what seems to be a more urgent
threat. Covid-19 has spawned a kind of panic in markets not seen
since 2008. Kjaer says he recognizes some parallels between
pandemic risks and climate risks. “It’s also about human vulner-
ability and the limits of human life and civilization,” he says.
Whereas global warming has been with us for generations,
the pandemic is “a global catastrophe that we seem to be at the
beginning of,” Kjaer says. The coronavirus threatens to leave
public finances severely damaged, according to Kjaer, and at the
other end of this crisis, a new economic reality awaits, charac-
terized by volatile inflation and higher real interest rates.
Because of that, Kjaer says he’s “pessimistic about the
medium-term outlook for every risk asset.” That includes credit,
which is the market he’s come to focus on in his campaign to fight
climate change. The world’s worst polluters rely on debt markets
more than on stock markets. As an asset class, stocks have a market
capitalization roughly half that of fixed income; the 25 biggest
carbon emitters are responsible for 25% of industry emissions
globally, and only a quarter of those have publicly traded shares.
In the current health-cum-economic crisis, the smart money
was in bonds. With the sell-off in the first quarter, the MSCI World
Index of stocks had lost roughly a third of its value as of late March,
while global investment-grade bonds as measured by the Bloomberg
Barclays Global Aggregate Index were down less than 10%.
The dominance of debt over equity has given rise to a
growing market in bonds linked in some way to climate change
solutions. But rewarding clean debt issuers doesn’t get you very
far, Kjaer says. “Just doing good by buying green bonds isn’t
enough,” he says. “It’s such a tiny market, representing about
0.5% of outstanding bonds.”
Kjaer says real change lies in punishing dirty issuers. For
K
“Just doing good by
buying green bonds isn’t enough.
It’s such a tiny market,
representing about 0.5% of
outstanding bonds”60 BLOOMBERG MARKETS