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Week 25: The European climate revolution
The climate revolution in Europe. Climate justice and overconsumption. The time is now. A hot new finance trend. And more.
I hope everyone is well. And that you are up for a new edition of ‘ESG on a Sunday’.
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Europe’s huge plan to ‘remake civilisation’
This week we start with the structural changes needed to kick-start the European continent. Regardless of the many economic realities within Europe as well as political trenches (sometimes deep and very nationalistic), Europe is in a shaky condition as it prepares to face its biggest challenge ever.
Europe needs to restructure its economy in alignment with efforts to curb catastrophic climate scenarios. This will force Europe to take some very bold actions that many would describe as a real Revolution.
In this article by Karl Mathiesen on Politico you get a flavour of the forces behind, as well as historical references on the size and depth of the investments needed to make that change happen. It is a nice and chilling read all the way through.
Who’s to blame for the climate crisis? And what are the solutions?
We move on to very tricky subject of “climate justice”.
Who is really responsible for increased emissions over the last 100 years, and, even more important, is there any scientific evidence related to this?
This piece from Nature provides evidence from literature that consumption of affluent households worldwide is by far the strongest determinant and the strongest accelerator of increases of global environmental and social impacts.
It describes the systemic drivers of affluent overconsumption and synthesise the literature that provides possible solutions by reforming or changing economic systems.
The possible solutions range from reformist to radical ideas, including de-growth, eco-socialism and eco-anarchism.
No matter how you see the piece – bold, crazy or even utopian – there is a red thread that, mostly unspoken, goes through the text: The lack of a societal-contract between the economic system we operate today and the societies we live in.
You get a bit stiff and wary when you understand that consumption (and to a lesser extent population) growth have mostly outrun any beneficial effects of changes in technology over the past few decades.
In principle, it means that technological benefits will not solve it for us.
How much time do we have?
Next up is the question of how much time we have left, if any, to avert the dreadful consequences created by global warming.
When you read the words of Fatih Birol, Executive Director of the International Energy Agency (IEA), you have to take a deep breath.
“The next three years will determine the course of the next 30 years and beyond,” Birol told the Guardian. “If we do not take action we will surely see a rebound in emissions. If emissions rebound, it is very difficult to see how they will be brought down in future. This is why we are urging governments to have sustainable recovery packages.”
In a report published on Thursday, the IEA – the world’s gold standard for energy analysis - set out the first global blueprint for a green recovery, focusing on reforms to energy generation and consumption.
The conclusion is that there is no more time to play with. It is now.
A hot new finance trend
Now on to the topic of money and investments…
Nobody wants their assets to end up underwater in 20 years. “Physical risk” or “climate impact risk” used to be a niche concern, mostly consisting of bespoke analysis for companies’ big investments in massive infrastructure. (This category includes, ironically, oil companies.)
This has changed quickly. Sustainable finance is having a reasonably good pandemic. Environmental themed funds have had fewer outflows, and companies with better environmental, social, and governance ratings have performed more lucratively than their peers.
It makes sense on an intuitive level. The pandemic reminds us of the fragility and importance of the physical world, and also of the threat of sudden, non-linear risks.
This has dramatically accelerated the emergence of a hot new finance trend: Assessing how potential climate change outcomes such as rising sea levels or heatwaves might affect the performance of an investment.
BP set to “reinvent” itself
We end on what could turn out to be a huge, historical announcement in a few months time.
BP will slash up to $17.5bn off the value of its oil and gas assets after taking a more downbeat view of longer-term oil prices in the wake of the coronavirus pandemic, which it expects to hasten the shift away from fossil fuels.
BP, like its rivals, has been under pressure from climate activists and shareholders to take responsibility for the emissions that are released from the burning of its fuels.
In September, it will tell investors how it plans to “reinvent” itself and what its pledge to invest less in oil and gas and more in renewables over time will mean in practice.
And yes, this has never happened before. Ever.
Happy Sunday everyone.
Best regards, Sasja