Week 23: What's next? The Dark Age or the Regenerative Age?

In this issue: ▸ Democracy is just a kabuki theatre ▸ The dawn of the Dark Age ▸ Rewriting our constitutions ▸ “Investor-state dispute settlements” ▸ Oil and gas are back in fashion ▸ And much more

Jun 12, 2022

Dear all,

Every one of the 195 countries on earth is itself a living organism. An autonomous component within the larger biological unit. Every citizen is a cell within the body politic.

If that sounds overly touchy-feely, it’s only because our horizons have been squeezed so radically by hyper rationalism that we can no longer feel the deeper dimensions of being human. But now that we’re entering the planetary endgame, we better find a way to feel it again.

If you understand your country as a fragile, hypersensitive, living organism, the questions become very basic:

How do you keep her fed and safe and self-sustaining? How do you keep the people happy? How do you encourage them to play fairly with each other? How do you empower them to make wise decisions?

Democracy is just a kabuki theatre

The notion that We the People are somehow in control just because we go to the polls every few years, or that the political parties we vote for represent us and turn our wishes into action, or that government bureaucracies are tuned in to our needs… If only these things were true.

What we call democracy is really just kabuki theatre: politicians, lobbyists, corporations, think tanks and intellectual pundits thrashing around, jostling each other, triggering social-media storms, running op-eds in the global media outlets.

The sad truth is, none of these so-called political, cultural or intellectual leaders have a clue about how to handle the big stuff, how to fix the climate crisis, or avert the next financial meltdown.

The dawn of the Dark Age

You have to wonder how this current time we’re bumbling through will be remembered. Typically, we slap a label on every era of human history, and usually it’s about a monumental tool we invented or a cultural transformation that fundamentally altered our lives. The Bronze Age. The Renaissance. The Modern Age. The Space Age. The Digital Age.

But now it looks like our era will be known not for a leap forward but a slide back. Future generations will remember us for the damage we did: the carbon we spewed, the plastic we dumped, the forests we clearcut, the species we exterminated. And also for the financial meltdowns we unleashed, the inequality we tolerated, the surveillance we endured, and the epidemic of mood disorders, anxiety attacks and depression we inflicted upon ourselves.

Instead of the Anthropocene, why don’t we call it what it really is: the dawn of a Dark Age, a time when we turned away from nature and each other and ran our planet into the ground.

Rewriting our constitutions

Imagine if we could call it Regenerative Age instead. Imagine if we had courage to even visualise it.

Who owns the water? Should nature have rights? What voice should local communities have over resource extraction? Should future generations have a say?

We need to start re-writing our constitutions with such questions in mind. These documents are the embodiment of our ideals and aspirations, our beliefs and values. The constitution thus becomes a living thing, flexible and nimble, not something written in stone long ago and worshipped like holy writ. It becomes a map of a future that’s constantly moving, being recalibrated, reinvented, fought over and born anew with every generation.

Something like this is happening in Chile right now. A supercharged people’s movement is spearheading a Constitutional do-over, in light of the “climate and ecological emergency.” A democratically elected panel aims to scrap the old document and replace it with one that prioritizes the environment, sustainability and the citizens’ ongoing right to own their life-giving resources and frame their own destiny.

It is a grassroots re-invention of a whole country driven by the people themselves. It’s a total re-think of the way political power works, not top down, with corporate, financial interests and lobbying shaping policy, but inside-out, with the core values of the citizens radiating out into the commons. This is how a new vision, a new playbook, comes to be.

The impact of this Mindshift is felt inside the chest of every taxpayer. You wake up in the morning and think, Hallelujah! my country is alive, and I am part of it. I’m going to nourish this organism: feed it, prune it, protect it. My involvement in politics is as natural as fish schooling up. I shed a portion of myself, my rights, my me-first instincts, to serve the larger whole. The larger we emerges us.

“Investor-state dispute settlements”

Instead, yeah well instead. This is how it looks today. It is mind-blowing. Fossil fuel investors are adopting a bold new legal tactic in response to efforts to limit global warming: They are going to private international tribunals to argue that climate change policies are illegally cutting into their profits, and they must therefore be compensated. Now governments are scrambling to figure out how to not get sued for billions when enacting climate policies.

Termed “investor-state dispute settlement” legal actions, such moves could have a chilling effect on countries’ ability to take climate action. Consider this case from 2017: Nicolas Hulot, France’s environment minister at the time, drafted a law that sought to end fossil fuel extraction in the country by 2040. In response, Vermilion, a Canadian oil and gas company, threatened to use such a settlement provision to sue the French government.

In the end, the French law was watered down to allow new oil and gas exploration even after 2040. When these legal actions move forward, the results tend to benefit oil and gas interests.

A recent report on investor-state dispute settlement (ISDS) actions found that when such cases were decided on by their merits, fossil fuel investors emerged victorious 72 percent of the time – earning, on average, $600 million in compensation.

According to a paper published in Science last month, more ISDS claims could soon be coming. That is because of the Energy Charter Treaty (ECT), a 30-year-old international energy agreement that has been ratified by 50 countries, mostly in Europe.

The treaty calls for “fair and equitable treatment” of investors and “payment of prompt, adequate and effective compensation” in case governments take over their assets – clauses that fossil fuel investors could use to threaten ISDS legal action against new climate regulations.

It was not supposed to be this way. What are we doing? Why? Now we have an opportunity to initiate a grand energy transformation. We can do it. Yes, it takes time, it will hurt, but we can do it.

Oil and gas are back in fashion

About a year ago, Canada’s big oil sands in the country’s Midwest were shunned by oil majors and ESG investors alike. But now, the mood is brightening in Alberta, according to FT’s Derek Brower: “Production is rising again. So is export capacity: a pipeline system to the Midwest has been expanded and another to the west coast is due online next year. Across the province’s oil patch, business is suddenly brisk.”

“Everything’s just totally switched,” says Tim Valleau, owner of 1441 Energy Services, an oilfield maintenance company in Wainwright, a town close to the Saskatchewan border. When the pandemic hit in 2020, he dismissed the 11 men who worked for him. Now he is struggling to find enough workers. “Folks are punching wells all over the place. It’s right back to where it was in 2014 — and in 2014 it was nuts,” he says, referring to the last time oil topped $100 a barrel, before prices crashed.

Oil and gas is back in fashion. Shares in UK-listed Shell, Europe’s biggest oil company, are up 47 per cent since January, while BP’s have climbed 37 per cent. By contrast, the FTSE 100 is up less than 2 per cent, while the S&P 500 is down 14 per cent. France’s TotalEnergies and Italy’s Eni have risen 26 per cent and 16 per cent respectively.

But the biggest winners are the US supermajors. Texas-based ExxonMobil is up 71 per cent and has promised to buy back $30bn worth of stock, while Chevron is up 54 per cent. Both BP and Shell have pledged to cut future oil production and it would be near impossible for them to reverse course by dramatically increasing output, say analysts.

Indeed, despite bumper profits in 2021 and the first quarter of 2022 the supermajors have generally left spending plans for this year unchanged. It just does not add up anymore.

The fight against climate-conscious policies

Two days ago West Virginia has passed anti-ESG legislation, Idaho will follow. The Empire strikes back.

Republicans and right-leaning groups fighting climate-conscious policies that target fossil fuel companies are increasingly taking their battle to state capitals. Texas, West Virginia and Oklahoma are among states moving to bar officials from dealing with businesses that are moving to ditch fossil fuels or considering climate change in their own investments.

Those steps come as major financial firms and other corporations adopt policies aligned with efforts to reduce greenhouse gas emissions. Bette Grande, state government relations manager at Heartland, recently testified before a panel of New Hampshire lawmakers on a bill that would bar banks from using social credit scores.

Grande has also testified on legislation addressing ESG factors in Kansas, Wyoming and West Virginia, and is tracking bills in several other states, according to David Hoyt, Heartland’s executive director of development. “The often-cited negative impacts from CO2 are not supported by facts.”

It’s like a bad C-rated tragicomedy.

The new ESG risks for sovereign bonds

Investors in Russian sovereign debt are sitting on hefty losses after Vladimir Putin’s invasion of Ukraine sent the value of his country’s bonds into freefall.

Could they have avoided that outcome by paying more attention to environmental, social and governance factors? And could they protect themselves against similar losses by waking up to ESG risks in other troubled nations?

New research is showing that 15 hard-currency sovereign debt issuers have even worse ESG risks than Russia.

One important case is Turkey, a big bond issuer that ranks two notches below Russia, reflecting President Recep Tayyip Erdoğan’s continuing crackdown on civil freedoms and the separation of powers. Egypt, Peru and Nigeria are among the other nations coming in behind Russia. China and Saudi Arabia, while ahead of Russia, also score poorly.

These results might raise eyebrows among those who note that Peru, for all its recent political unrest, has not invaded a South American neighbour.

ESG on a Sunday