Big-finance mainstream seeing the light on climate

Here comes some more indication that Paul Gilding’s optimism about market forces steering a rapid transition away from carbon-intensive energy may indeed pan out.  As Exhibit A, check out this op-ed from Hank Paulson, Secretary of Treasury for George W. Bush during the economic meltdown of 2008:

For too many years, we failed to rein in the excesses building up in the nation’s financial markets. When the credit bubble burst in 2008, the damage was devastating. Millions suffered. Many still do.

We’re making the same mistake today with climate change. We’re staring down a climate bubble that poses enormous risks to both our environment and economy. The warning signs are clear and growing more urgent as the risks go unchecked.  This is a crisis we can’t afford to ignore.

And that’s just his opening salvo.  Yowsa!  Exhibit B is even more startling; it’s a dry-as-sand financial assessment of the risks of Paulson’s “climate bubble” as it affects the world’s biggest institutional investors. Despite its “just the fact, ma’am” tone, the message is one that we can definitely get behind:

In a time of accelerating climate change, an increasingly volatile reality will eventually come up against the limits of modern portfolio theory. The definition of fiduciary duty is therefore starting to expand, to include not only traditional and largely passive investment policy but also active stewardship of global average temperature. This is an extraordinary paradigm shift in institutional investing.

Indeed, this is one of the organizing principles of Resilient Investing, though our focus is expanding the definition of investing for individuals, to encompass a life plan that faces the challenges of our times head on.  The audience for this new report, Investing in a Time of Climate Change, is the world’s “superfiduciaries”—pension funds, foundations, endowments—who hold a mind-boggling $93 trillion in assets (almost exactly twice the combined G.D.P. of the O.E.C.D.’s member countries).  This is not the hedge funds and investment banks that nearly gambled away the economic system; rather, these are the staid, careful investors who diligently protect their long-term prospects.

And they’re eager to get that paradigm shift in gear:

Last year, a coalition of larger and more forward-looking funds, including BlackRock, CalPERS, PensionDanmark, and Cathay Financial Holdings, representing twenty-four trillion dollars in assets, issued a statement calling on government leaders to provide “stable, reliable and economically meaningful carbon pricing that helps redirect investment commensurate with the scale of the climate change challenge,” as well as develop a plan “to phase out subsidies for fossil fuels.” This begs the question: Why do we need these leviathan institutional investors—historically the most passive and conservative players in the global economy—to tell us to take action that we know is both imperative and dangerously belated?

Well, for what it’s worth, this is exactly the constituency that Gilding has been convinced will indeed take the action that changes our economy in fundamental and evolutionary ways.  Go read the full NYT article on this remarkable report, which predicts returns from coal will drop up to 75%, while renewables pick up the slack and become leading financial performers.

Even if the world ends up exceeding the two-degree limit (a result that appears increasingly likely: according to the World Bank, we are already locked into a one-and-a-half-degree increase), the report’s authors expect, at some point, a wholesale run for the low-carbon doors, what Anthony Hobley, the C.E.O. of the nonprofit climate-and-finance think tank Carbon Tracker, described in an interview as an inevitable “come-to-Jesus moment.”

It may pain some of us to see the impetus for change here being fiduciary duty, rather than the moral imperative that fuels many on the left; the dispassionate language may rub us the wrong way, but let’s be happy to welcome all comers to the vital task of remaking our economy and stemming the runaway train of climate catastrophe.


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