Nick Breeze - Articles
- Published: 24 July 2015 24 July 2015
"... more and more mainstream investors are saying “this is a massive systemic risk right at the heart of the world’s capital system, we have to address this now!”
[Transcript below video]
"...the governor of the bank of England has himself said that he does not believe that financial institutions have got their act together when it comes to appraising that risk, I think that tells us something about where this is beginning to attract mainstream attention."
Nick Breeze: How can we persuade the financial industry to hedge against 97% of climate scientists being right?
Jonathon Porritt: I think more and more mainstream investors are saying “this is a massive systemic risk right at the heart of the world’s capital system, we have to address this now!”
The fact that the governor of the bank of England has himself said that he does not believe that financial institutions have got their act together when it comes to appraising that risk, I think that tells us something about where this is beginning to attract mainstream attention.
I think a lot of the big institutions are getting a lot smarter about this than we might imagine. There’s news out recently for instance that the Norwegian pension fund has decided to delist, to get out of, all pure play coal companies. So any company that has more than 30% of their revenues coming from coal will now be delisted by what is the largest pension fund in the world and the most influential too. If you to look around you can begin to see how those decisions are impacting on the world of hydrocarbons, and it will start essentially by getting rid of pure play coal and then mixed coal and gas companies, and you can sort of see a slow route to a progressive delisting of the hydrocarbon based companies over time.
This is all about momentum. One of the things about capital markets that we have learned to our cost in the past is that they are subject to herd mentality. Very few people break ranks when a particular approach or orthodoxy is dominant or prevalent. Even when people caught in that orthodoxy know that it’s really unsustainable, it’s a bubble, but because they’re caught in it they don’t dare break ranks. I have a hunch that we’re going to see herd thinking, herd reactions kick in with this whole story about unburnable carbon. When it does, those investors will move incredibly fast to derisk their holdings, first in coal companies and then progressively in hydrocarbon base companies.
Now that is not something you’ll hear many analysts talking about in public but when you ask them what they think might trip the wire, as it were, kick the system into a different equilibrium, they say, “when everybody does it, because when everybody does it, guess what, we’ll all think we’re really smart. Actually, we’re all really late but we’ll have some comfort that we’re moving as a herd.”
Nick Breeze: How do you see the current landscape of investing in sustainable and resilient infrastructure?
"...it is perfectly clear that many of the low carbon technologies we can call on now, will actually make society more resilient; better prepared to deal with some of the extremes that are coming down the track at us."
Jonathon Porritt: One of the places where we have to make a much more convincing case is around infrastructure, because it is perfectly clear that many of the low carbon technologies we can call on now, will actually make society more resilient; better prepared to deal with some of the extremes that are coming down the track at us.
If we can do things in a more decentralised and distributed way, for instance, that helps build resilience. If we can rely on technology that is not all about large-scale generating systems, or water purification systems, whatever it might be, then again we can build resilience into this.
If our infrastructure is less locked into carbon intensive, energy materials consumption, then our economy is more resilient.
So all of these things actually build resilience in our society. I think that’s the bit we have to get our heads around. Most of the infrastructure investment being made at the moment is locking us into high carbon demand, high carbon consumption, high carbon production for the next 20, 30 years and it’ll be too late to change things at that stage.
So we’ve got to get this argument about resilience as part and parcel of a low-carbon economy, through to the people who are, essentially, making investments of trillions of dollars into our economies. All around the world. Rich world and poor world. Trillions of dollars going into energy, waste, water, transport infrastructure, IT infrastructure.
These are just massive flows of money through the economy. Much of which is still going in the wrong direction when it could be going in the direction which would build low-carbon economies as well as greater resilience.
Nick Breeze: Is a carbon pricing the right thing to do? If so, why have politicians not implemented it already?
Jonathon Porritt: I think the history about coming up with the right economic instruments to manage the, what economists call, externalities of greenhouse gas emissions, is a really sorry story, it really is. Because economists have been saying for a very long time, going right back to Nick Stern’s report, nearly ten years ago, and in fact to many reports before that, that if you want to address an externality, you have to embody that externality, you have to internalise it on to companies balance sheets, onto governments accounting for different things, onto the way in which the market values things. You have to bring the externality in and price it properly.
So economists may differ about how you do the pricing, whether its through a tax or some other instrument, but certainly all agree that markets only work when you internalise cost efficiently. So the price we pay for something reflects it true cost. So its been a slow grudging prices that has now held us back from carbon commanding a proper price in the global economy.
I am really encouraged by the fact that now, countries which command more than a third of global GDP, or possibly as much as a half, are all signed up to the idea of there being a proper price on carbon, a global price on carbon.
There is a gathering sense in the run up to Paris that there has to be an in principal agreement about carbon pricing. In truth we can’t really deal with climate change until we pay for the green house gases, primarily the CO2 that we emit.
Once we do that, many many things will start changing in the markets. There are simple ways of addressing what could be regressive impacts on poorer communities, poorer societies, poorer countries. There are all sorts of ways of coming up with instruments to ensure that the poorest don’t suffer again as a consequence of policymaking.
But we have to have that simple central tenet of effective markets at the heart of what we are doing. We have to be able to internalise that cost.
Nick Breeze: How can we accelerate the transit of capital into green investments in order to finance a sustainable and resilient economy?
"...we need to be seeing billions and billions of these investments moving in that direction, moving out of these various small-scale, sometimes even niche asset classes, and becoming the mainstream."Jonathon Porritt: I guess you can look at the worlds capital markets and cut this both ways, to be honest. As a total percentage of the flows of capital going into economic activity of one kind or another, more sustainable, greener investments are still a very small fraction of that total resource flow. But, that very small fraction gets bigger and bigger every year. And it gets bigger by a bigger margin. This arrival of green bonds for instance in the last four or five years is clearly very material to how these investment flows are changing. Corporate bonds are much more easily available, or companies are more prepared to start taking money in on that basis. There is a readiness now to start looking much more experimentally at the different ways of organising financial flows.
So, if you take it from the perspective of: is it gradually growing and getting better? Yes it is. Is gradually changing fast enough? No, because we need to be seeing billions and billions of these investments moving in that direction, moving out of these various small-scale, sometimes even niche asset classes, and becoming the mainstream. We are still someway from that.
Nick Breeze: What is your vision of the world in succeeding decades and are we winning in this important phase of human development?
Jonathon Porritt: I am sort of more hopeful about things than i have been for a long time. Obviously not because of what is happening out there in the big wide world. It is very difficult to be hopeful, let alone optimistic, when you look at the evidence base, you look at the datasets, in terms of climate, biodiversity, build up of different wastes in society and so on. There is no false reason or false hope in any of that data, but the things that are now being marshalled, the strengths, the forces that are being marshalled to address that, look much different to me now than was the case 5 years ago, let alone 40 years ago when I first started out on this particular journey. It’s coming from so many different places now.
The readiness on the part of progressive companies to take leadership roles. The readiness on the part of innovators, technologists, creators, designers, to step up there and bring into the market place brilliant new products, that help us to reduce the impact of the goods and services that we want on the natural environment and on people.
You can see a sort of marshalling in the worlds religions and faith systems. I am personally persuaded that things won’t happen at a fast enough pace until the worlds religions won’t wake up to just what is happening out there. I am encouraged by the kinds of changes in that area.
If you hear the way young people talk about this, it’s different, they’re not arguing about whether or not there has to be change. They know there has to be change but they refuse to go along with the kind of change processes that might once have been thought as necessary.
So if you look at all these different factors, you look at technology, you look at faith and religion, you look at progressive businesses, you look at young people; this is a powerful set of institutional, personal and collective forces that are being marshalled. Is that enough to change the political systems that seem to be almost impervious to these pressures? Personally I think it is.
I am more hopeful now that those systems will begin to adopt a completely different orientation towards the natural world than has ever happened before. And, I am still persuaded that that can be done in time. I don’t subscribe to this notion that it’s already too late. If it can happen within the next five years then that’s still going to deliver massive improvements in the inherently dysfunctional system that we have today.
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