Insights

A Week in Impact: Winning slowly is still losing

Reversing climate change while managing social dislocation is the 21st Century's supertanker U-turn challenge. It's time to stop relying on technology and markets alone to provide smooth sailing.

WINNING SLOWLY IS STILL LOSING

Climate Week prompted a deluge of new carbon commitments, yet the announcements have been met with a tepid response. Unfortunately, incremental corporate adjustments—and even the Paris Agreement target itself (which, as the Economist points out, is largely arbitrary)—are unlikely to mitigate climate disaster.  

Why isn't the world thinking bigger, moving faster? As the Economist notes, we would mobilise all our resources and surrender to unprecedented socioeconomic dislocation were an asteroid on a path to devastate the world by 2050. The FT attributes our relatively laissez-faire approach to "blind faith" in market forces and technological innovation: the idea being that once global warming becomes a truly unsustainable problem, “demand for a solution will conjure up remedial supply.”

But technology alone can’t save the planet within the timeframe we have. As per the Economist, “technologies capable of delivering negative emissions of billions of tonnes a year for reasonable prices over decades do not exist,” nor do the incentives for investing in R&D at necessary scale. The environmental crisis, concludes the FT, "represents the ultimate market failure... we cannot rely on the market alone to solve a problem it has helped fuel.”

Far bigger systemic change is needed—from public and private sectors—and fast. This is "the 21st Century’s supertanker-U-turn challenge: reversing the 20-fold increase in emissions the 20th century set in train, and doing so at twice the speed… And doing it all while expanding the economy enough to meet the needs and desires of a population which may well be half again as large by 2100 as it is today.”

WHAT’S IN A NAME?

A great deal, according to energy majors.

Public sentiment is moving away from oil & gas, and some people are Not Happy. The FT reports index provider FTSE Russell has reversed a July decision to label oil & gas companies as 'non-renewable energy' following pressure from sister company the London Stock Exchange, which—in entirely unrelated news—is competing to host Saudi Aramco. Instead, the 'renewable energy' category will now be re-labelled as 'alternative energy' and oil & gas will belong to the 'oil, gas and coal’ category.

Keeping renewable energy classified as ‘alternative’ may help oil & gas in the margins by confining renewable energy to “an old designation that emphasises their small role and obscures their outsize role in marginal growth,” writes the Washington Post, but it’s a Pyrrhic victory for the sector. The underlying reality of which energy sources are renewable "rests with science, not index compilers.” The episode, regardless of outcome, "has highlighted the fundamental shift going on in the energy market, regardless of nomenclature.”

Besides which, why would you want to be lumped in with coal?

STRANDED ASSETS, STRANDED PEOPLE

The S in ESG gets remarkably little airtime relative to the E, leading it to be dubbed the “poor cousin” by PRI CEO Fiona Reynolds at PRI in Person last month. But it deserves more attention: social inequality in particular is a serious problem and a major barrier to achieving the SDGs (alongside the continued funding shortfall).

While in the long term there’s little question that the environmental crisis is a human disaster, it’s an uncomfortable truth that, in the short term and particularly in developing countries, social wellbeing can inversely correlate with positive environmental strides.

This is particularly true of the shift away from fossil fuels. The risk of stranded assets is well understood, but what about stranded workers and communities? Writing for the FT, Investec’s Tom Nelson and Sahil Mahtani argue that stranded workers risk being casualties of the environmental push. It doesn’t have to be the case, but a solution to the problem will require greater emphasis on workers rights, with better engagement and support from investors.

IN OTHER INDUSTRY NEWS

A number of asset managers have made the news this summer for including in their indices companies that definitely shouldn’t have made the cut. Bloomberg reports the phenomenon is prompting plenty of “quiet” meetings on Wall Street to review the quality controls on their funds. Meanwhile, think-tank InfluenceMap has called for greater oversight of the ESG sector as a result.