Christopher Berendt, of counsel to the firm’s Washington, D.C., co-authored an article for Environmental Finance on the financial implications of not distinguishing between environmental instruments, and the cash-settled contracts they engender.
In “The Nature of the Thing,” the authors note that the environmental markets community often takes for granted the distinction between an environmental instrument or commodity and financial products that package these things as securities or use them as the underliers for derivatives.
They encourage the environmental markets community to “maintain consistent definitional clarity” to keep the line between environmental instruments and the financially-settled products linked to them as clear as possible.
“[C]reative marketing in the secondary markets is putting the primary markets that directly support project finance at risk from significantly heightened transaction costs,” they say. “If you hear someone speaking about RECs or offsets themselves as ‘eco-securities’ or ‘green financial products’ correct them.”