Riccardo Rebonato Answers Stuart Kirk: Even children in Italy know that ‘lo spread’ matters

By Riccardo Rebonato, Scientific Director, EDHEC-Risk Climate Impact Institute, Professor of Finance, EDHEC Business School

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In his article “The banking approach to net zero is claptrap” (Weekend FT) Mr Kirk claims that directing investors’ money away from brown and towards green firms is ineffective because the existing securities just change hands: “if I have sold my oil shares, the buyer is now misaligned”.

Only primary sources of funding matter, in his view of finance, and they only “make up a fraction of most managers and owners assets”.

Really? Does Mr Kirk really think that an oil company does not care about what interest rate it will have to pay in its next round of debt financing?

Does he really believe that it doesn’t matter what its equity price is, when it has to do its next equity raising?

Imagine the sigh of relief from the Italian government when, in the summer of 2012, its debt was trading around 6%, if only Mr Kirk had told them that there was nothing to worry about, because it was only secondary trading.

In reality, even children in Italy know that ‘lo spread’ matters. It is puzzling that someone like Mr Kirk, who works – sorry, worked – for a bank should not understand this.

Unless, of course, Mr Kirk has decided to become the Mr Farage of climate change. Will he be telling us soon about how many hospitals we can build with the money we save by not installing wind turbines and solar panels?

Access the Financial Times' version of the letter "Letter: Even children in Italy know ‘lo spread’ matters" published on November 25


Other EDHEC researchers have published an open letter refuting some of Mr Kirk's earlier pronouncements on climate change.