Europe has the chance to lead the world in developing capital markets for green finance, according to UBS Chairman Axel Weber.
Speaking to CNBC at the World Economic Forum in Davos, Weber said that while Europe will struggle to catch up to the size of U.S. capital markets, one area where U.S. companies and federal policy trails the continent is in sustainability.
“If you are asking me, as capital markets for green finance develop, where will the nucleus of those markets be? It will be in Europe,” Weber told CNBC’s Geoff Cutmore and Steve Sedgwick.
Asked whether the European Commission was to blame for European companies’ failure to maintain pace with transatlantic counterparts, Weber suggested that banks and market players had failed to gain the “dynamics and size of global capital markets that the U.S. has,” adding that Europe will soon be surpassed by China on capital also.
“Europe has for too long been a bank-based system, and banks have been holding on to that position and haven’t really been a gatekeeper to create capital markets,” Weber said.
Axel Weber, chairman of UBS Group
Michele Limina | Bloomberg | Getty Images
“That’s the story of success for the U.S. banks; they are the gatekeeper to a deep and liquid capital market, and they have credit business, so they have two pillars of earnings whilst we in Europe largely rely on one.”
Bank of England Governor Mark Carney recently said that the financial sector had begun to curb its investment in fossil fuels and shift its priorities toward sustainable investing, but at far too slow a pace. Weber agreed, adding that companies are left with “two journeys” at this stage.
“There is a glide path, where you get more and more into green finance, or there is a cliff edge. If you don’t do anything for a long period of time, you are going to end up with governments passing law and you might face the same fate as German energy companies have,” he said.
The German Energiewende, a planned transition to a low carbon, environmentally sustainable and affordable energy supply, entails phasing out Germany’s nuclear reactors by 2022 and retiring coal-fired generation, with the aim of transferring to a 100% renewable system.