What is Khaki Finance? Investing Explained

In this series, we break down the jargon and explain a popular investment term or theme. Here it is Khaki Finance.

Defense funding?

Not related to funding of army uniforms. There’s also no link to the chino pants favored by tech bosses.

The term, which you will probably hear a lot in 2023, refers to schemes to encourage “grey” or polluting industries, such as steel makers and cement and chemical producers, to become more environmentally friendly.

Hundreds of billions are needed to fund low-carbon technologies. To give just one example: cement, the second most consumed product in the world after water, is used in almost everything we build and is a major contributor to CO2 emissions.

Why is it current?

The war in Ukraine, with its impact on energy supplies, has focused governments on energy security like never before. The urgent need to reduce dependence on Russian oil and gas means a faster transition to renewable energy sources such as solar and wind power.

This revolution also requires companies that rely on fossil fuels, such as steel producers, to move faster to more planet-friendly sources. Such decarbonisation initiatives can have a major impact.

Companies have to be greener, right?

Yes, given the push for net-zero emissions to combat global warming, but decarbonisation financing can apparently be hard to come by as some banks prefer to invest in the development of purely green technologies.

Others are more sympathetic. While HSBC says it will scale back investments in oil and gas, it should provide funding for decarbonization projects. Barclays also promised to fund such plans. But billions and billions will be needed.

Does it have a cheerleader?

Mark Carney, former governor of the Bank of England, is a strong candidate. He heads the Brookfield Global Transition Fund, set up this year to support solar energy and other technologies that aim to reduce emissions.

He said it would support clean energy generation, transform traditional utilities and provide sustainable solutions for industries such as steel and cement. Unfortunately for those who want to support this fund, it attracted $15 billion and is closed to outside investors.

I would like my savings to support projects like this

There is a whole range of ESG (environment, social and governance) funds.

None of them specifically state that they have a preference for khaki financing, but the SDCL Energy Efficiency Income Investment Trust supports companies that help companies lower their energy bills. The managers say that as much as 40 percent of the world’s energy is used in buildings, but half of that is lost or wasted.

Can’t I just put money in different funds?

It’s an option, but shop around because funds are at the center of a greenwashing controversy. It is alleged that some have invested in companies that only loosely meet ESG criteria, when in reality they are not very ethical or sustainable.

City watchdog the FCA is trying to restrict the use of the terms ‘ESG’, ‘green’ and ‘sustainable’.

But there are concerns that these rules are still too lax, although the chancellor, Jeremy Hunt, says ‘the government is acting to ensure the UK is the best place in the world for sustainable investment’.