Discover more from ESG on a Sunday
Week 33: "Where the Money Tree Grows"
A special edition devoted to Karim Sayyad and Sasja Beslik's new book "Where the Money Tree Grows: Invest Climate-Smart and Get Rich"
This week’s newsletter is special. It’s written by both Karim Sayyad and Sasja Beslik, and it’s devoted to our new book entitled Where the Money Tree Grows which was published this week.
Journeys are best when they lead to unexpected destinations. When the feeling of the unknown is accompanied by the pleasure of being in the middle of what can be, not only in what is.
When we started this book journey a couple of years ago, we wanted to bring forward the insights and experiences we had both gained during our years in the ESG space – and share these with as many people as we could.
We have struggled with the same issues that many other people writing books do. Are we clear enough, are we telling this story in a way so people outside this ESG world can understand it? Are we focusing on the right topics, addressing relevant issues, sharing relevant insights?
Writing a book is a tough job, with many stops and only a few easy wins. It is a sweet pain to see it grow and change its shape, see words turn into sentences, ideas manifested on the white pages, into something that remains, at least for the two of us, for many years to come.
Where the Money Tree Grows is an attempt, a humble one, to address one of the most significant changes in the financial industry, a change which is happening right now and right in front of us. It is a quiet revolution, slowly growing over the last 20 years, rocking the cornerstones of the financial system. But it’s still not strong enough to completely change it.
In the book, we are addressing key concepts, challenges and we offer hands-on solutions to at least some of the issues we have both faced over the many years working in this space.
For us, it was a journey into the unknown, and today we are proud to share this with the subscribers of ESG on a Sunday.
We hope the book leads to new journeys and insights that can be shared with many. After all, ESG was never – and will never be – the final destination.
Hopefully, the book can offer you an interesting read on the rocking movement of ESG which will – when fully utilised – completely reshape the purpose of the financial industry.
You can buy book here:
Below, you can read the “Introduction” chapter in its full length (minus sources and footnotes).
Do let us know what you think. And we wish you happy Sunday!
Karim & Sasja
Where the Money Tree Grows: Invest Climate-Smart and Get Rich
By Sasja Beslik & Karim Sayyad
Do we live in a world that is socially, environmentally, and economically sustainable? The short answer is no. There is poverty, hunger, and gender inequality. Slave labor did not cease to exist in the 19th century; it just continues today in different forms. Adequate supplies of clean water, or water resources in general, are not accessible for everyone. Although the world is better today than it used to be, it is not good enough, as the late professor in international health, Hans Rosling, shows in his book Factfulness. And a changing climate makes it harder to achieve a sustainable world. In fact, climate change may erode the social and economic progress we have achieved so far.
Our global economic system is largely based on consumption. In Sweden, half of our GDP comes from consumption. In the US, this figure is about 70 percent. In fact, we consume as if there were four planets with resources. By March each year, Swedes have already consumed their entire share of the world’s resources for the whole year. Globally, this day occurs in August; after that we are overexploiting the world's resources. Only 50 years ago, this day occurred in December. Because of this mass consumption, CO2 emissions are increasing and we face the severe consequences of our failure to limit global warming. In addition, climate change contributes to an increasing uncertainty about the supply of the world's resources, along with an increasing demand for water.
Perhaps you suffer from climate anxiety? But who are you to be blamed for climate change? Is it because you fly too often? Or because either you buy stuff you don’t need or not enough ecological food? No, that’s not the whole truth. The burden and the guilt for a potential ecological collapse is not yours. It is not because you are flying to Spain for a summer vacation or using plastic cutlery with your lunch box. The problem is more complex than that.
The truth is that the economic system is at fault. It is a complex system, involving the combination of several factors. This system—which has served us for well over 250 years—is built on an economic model which is now under pressure. We need systematic solutions to ensure the transition to a sustainable world. The questions we address in this book are how you as individuals may contribute to these acutely-needed, system-wide solutions, and how corporations and politicians— in collaboration with you as a citizen and consumer—may help change today’s economic system, which currently seems unable to provide what we need.
This system—which has served us for well over 250 years—is built on an economic model which is now under pressure.
Before we move on to address these questions, let us try to define what a sustainable world would be like; a world that is socially, environmentally, and economically sustainable. The United Nations General Assembly adopted 17 global sustainable development goals (SDGs) in 2015, which may be described as our—humanity’s—global strategy for a sustainable world:
End all forms of poverty, everywhere.
End hunger, achieve food security, improve nutrition, and promote sustainable agriculture.
Ensure healthy lives and promote well-being for all.
Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all.
Achieve gender equality and empower all women and girls.
Ensure availability and sustainable management of water and sanitation for all.
Ensure access to affordable, reliable, sustainable, and modern energy for all.
Promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all.
Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation.
Reduce income inequality within and among countries.
Make cities and human settlements inclusive, safe, resilient, and sustainable.
Ensure sustainable consumption and production patterns.
Take urgent action to combat climate change and its impacts by regulating emissions and promoting developments in renewable energy.
Conserve and sustainably use the oceans, seas, and marine resources for sustainable development.
Protect, restore, and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss.
Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable, and inclusive institutions at all levels.
Strengthen the means of implementation and revitalize the global partnership for sustainable development.
Table 1 UN’s Sustainable Development Goals (SDGs)
The 2015 Paris Agreement on climate change is part of this strategy for achieving a sustainable world. Its central aim is to make sure that the global temperature does not rise more than 2 degrees Celsius above pre-industrial levels, and to pursue efforts to limit the temperature increase even further to a maximum 1.5 degrees Celsius (aligned with SDG 13 on climate change).
Through the ages, humanity has faced great challenges, from terrible pandemics—including the one we are facing now—to world wars and financial crises. Climate change, however, may prove to be the hardest challenge of all. It is global, but the consequences are still very local. And it’s really all about money. There is no doubt climate change is caused by humans, as 97 percent of all research shows. But we, humans working together, can stop this development.
The answer to the sustainability challenges is global and scalable system change, adapted to local conditions. This will make it possible for us to run businesses and develop societies for a more sustainable world. The UN Sustainable Development Goals can be achieved through systematic support from the private sector, not least with the involvement of the financial sector.
In traditional economic practice, the fight against poverty, inequality, and climate change, as well as water resource management, are all considered costs. This work costs money, and someone must pay. The market-economy model, which has served us well for the last 250 years, is based on continual— though sometimes uneven—economic growth.
In this model there is no planet to consider. Natural resources are infinite, and the climate is constant. The market distributes the resources and compensates for any shortage. It is assumed that costs for pollution, reduced water supplies, and severe climate change are ours to pay, through taxes. Profits are privatized, taxed whenever possible, and hopefully reinvested, causing new cycles of economic growth. This happens in a global economic system that is no longer controlled by nationally elected politicians. However, beyond all the “isms” and the narratives that have characterized the economic discourse since the 17th century, there are people who long for context, balance, acknowledgment, and progressive environmental development in community with others.
We should not confuse economic growth with economic development. This is done too often, even though they mean very different things for us as individuals compared to society at large. Economic development stems from values such as automation, increasing productivity, the circulation of materials, resource efficiency, digitalization, adaptation to needs, and self- sufficiency—in contrast to economic growth, which stems from values such as increased consumption, production, and extraction of resources.
We understand that it is difficult to challenge and question constant growth and consumerism. But the present economic system undermines what we as individuals strive towards with a climate-smart lifestyle. Our societies rest upon a profound conflict between values, pragmatism and ideology—where short-sighted economic interests dominate the narrative we currently all adhere to, and which we cannot influence. We are stuck in a narrative which we can’t get out of, no matter how many times we try to rewrite it.
Economic development stems from values such as automation, increasing productivity, the circulation of materials, resource efficiency, digitalization, adaptation to needs, and self-sufficiency.
To reset the world to sustainability, and to set it on a path towards a sustainable future, requires massive investments and commitments. According to the UN climate panel, IPCC (Intergovernmental Panel on Climate Change), investments in energy of $2.4 trillion per year will be required by 2035 to limit global warming to 1.5 degrees Celsius. That is seven times the Bloomberg estimates of actual investments in renewable energy during 20177. Where can we get this money? One option presented by the climate panel is the introduction of CO2 taxes, to pay a fairer price for the damage caused by the emissions associated with the use or manufacture of products. This market-economy mechanism should work since everything has its price in the global market-economy casino. Today’s carbon taxes have reduced emissions to some extent, but they are not high enough. A global carbon tax of at least $135 per ton, and up to $5,500 per ton in 2030, is indicated as a necessary interval. However, given this wide span, specified by the United Nations, we may assume that the necessary tax should be closer to $5,500 than $135 per ton. Perhaps this is part of the solution we need to restart the system.
The problem is that CO2 taxes at these levels are politically unfeasible today. If these prices were reflected at the consumer level, it would mean cost increases in everyday life that the public would likely have difficulty accepting. A return trip to New York from Stockholm could be $400 more expensive. One liter of fuel might become 736 percent more expensive than today. This can be seen in relation to the price increase of 16 percent on diesel in France in 2018, which prompted hundreds of thousands to protest, along with a crisis of confidence for President Macron.
CO2 priced at the necessary levels would consequently be very expensive and difficult to implement politically. But there are more options to cover the investment gap of $2.4 trillion a year to limit global warming. We should look to the financial sector, where the big bucks are.
In today’s system—where external circumstances are not properly priced and where profits are reinvested or consumed— growth continues, and the wheels spin ever faster. Growth on a planet with finite resources—unevenly distributed and owned— is perhaps in itself an absurd economic premise, but it also makes it difficult to implement the radical changes we need. Unlike any other industry in the world, the financial sector reflects—in its origins and its mission—the pursuit of an eternal economic paradise.
While the financial sector has become the epitome of greed and short-sightedness, its ability to achieve global sustainability objectives and halt climate change (and its ability to create a more balanced and sustainable world) is severely underestimated. No other sector in the world is as global in all its constituents. Stock markets around the world are connected in nanoseconds; money and investments are moved at the speed of light from New York to Beijing or London. Everything in the financial sector is global and is therefore crucially important for global sustainability goals and climate resilience.
The financial sector plays a key role, not least because of its short-sightedness. This short-sightedness is an epic obstacle to using money as a toolbox for building a sustainable future, an obstacle to more consistent economic development. Our current economic model is—in fact—the biggest obstacle to achieving the low-carbon future we are striving for. When financial analyses, policy decisions and incentives are short-term, long-term factors (such as the consequences of climate change) are ignored. Everyone knows this: politicians, consumers, investors, and finance people. But so far, no one has been willing or able to rework and change the system.
A telling example is investment in the extraction of coal in Australia, coal being among the most polluting forms of energy in the world. The coal industry has long been one of Australia's most profitable sectors or—rather—has been perceived as such. The coal reserves, which are large and continually being expanded, are extracted, and shipped to the relatively nearby China, whose growth over the last 30 years has been tremendous. The coal industry accounts for approximately 40,000 jobs in Australia, and these job opportunities can likely be multiplied in a country with a large land mass and small population. So, the coal industry is good for the country’s economy, for its growth, and for the Australian citizen, or so the story goes.
Everyone knows this: politicians, consumers, investors, and finance people. But no one has been willing or able to rework and change the system.
However, the extraction and consumption of coal creates global climate problems and pollution that in the long-term affect Australia's greatest economic asset—the Great Barrier Reef. The reef, located in the northeastern part of Australia, has been heavily damaged by climate change and is slowly but surely dying, due to increased acidification and the increasingly warm sea. Every year about 2 million tourists visit the Great Barrier Reef, and almost 64,000 people work in tourism and other industries related to the reef. The value of the Great Barrier Reef is estimated at $56 billion, with revenues of over $6 billion per year. This is more than the total revenue for many countries, including Greenland or Fiji. The question one might ask is why coal is considered a more important asset for Australia and its population than the Great Barrier Reef?
Policy is important in a sustainable transition. There are regulatory changes that support this conversion and the opportunities associated with it. But these political commitments are hardly a driving force. In today's global market economy system that we are all part of, the shareholders and financiers are the driving force. This group includes you and us, with pension savings and investment portfolios.
The European Commission has given attention to the need for changes in the financial sector. In 2018, the European Commission adopted a package of measures in its action plan on sustainable finance. The aim is to direct monetary flows towards sustainable investments, promoting long-term management, and tackling climate and social risks with financial instruments. “Current levels of investment are not sufficient to support an environmentally sustainable economic system that fights climate change and resource depletion. More private capital flows need to be oriented towards sustainable investments ...” the EU commission wrote in a press release.
Do you sometimes make sacrifices for the sake of the climate? Are you sorting waste, recycling cans, or buying organic bananas but feel that it doesn't really contribute to solving the problem? You are partially correct. Whereas every individual can contribute marginally to reducing emissions, such actions do not lead to the long-term, complex changes in the economic system that are necessary to achieve a sustainable future. Individual actions like these rarely change structurally unsustainable business models or incentive structures. Sustainable alternatives cannot be created unless there are mechanisms and capital to support them.
Current levels of investment are not sufficient to support an environmentally sustainable economic system that fights climate change and resource depletion.
Suppose we shut down the entire aviation sector in Sweden for a year, for the sake of the climate. How many tons of CO2 emissions would we avoid? A million? 15 million? The answer is a little over three million tons if we use the Swedish EPA methodology. Sure, it’s a lot of CO2. However, there is a single steel company in Sweden that emits the same amount of CO2 in just three and a half months. Of course, it is important that we as individuals make sacrifices. We should fly less in our everyday and professional lives, for instance. However, there are limitations to the type of systemic change needed that this could create. How much can be accomplished by recycling cans when only 100 companies in the world emit 71 percent of the world's industrial emissions? Among these companies we find China Petrochemical Corp, Exxon, Royal Dutch Shell and Rosneft. How can we get these companies to re-invent their business models?
A powerful force that could make a substantial contribution to much-needed systemic solutions would be if the public assured that their investments, their retirement, and other savings, are invested sustainably. So, while we are recycling cans or taking the bike instead of the car, we must not forget the power of capital and its potential in combating climate change. An illustration of this is presented in Chapter 1.
In Chapter 2, we describe how investments in companies offering climate solutions as part of their products and services can be a value-adding component of your investment portfolio, and how it contributes to a better world. In this chapter we also give examples of companies who are likely to be tomorrow's winners. Will the famous electric vehicle manufacturer Tesla be one of them?
In Chapter 3, we explain how to assess the sustainability of a business, how to reason, and why it is important to analyze business conduct and practices before you invest. For example, are the Swedish retailer H&M and the US tech-giant Facebook sustainable companies? Why or why not? We also look more closely at the tech-giants Alibaba and Amazon.
In Chapter 4, we explain how to manage companies that do not meet the expectations of a “climate transition-ready” company, why you should care about them, and why it is better not to own them.
As an investor in a company, either directly, through an investment in the company's shares, or indirectly, as a fund- holder, it is possible to influence the company in a sustainable direction. In Chapter 5, we describe how you can get involved with your investments and explain why it is important that your fund manager is engaged, and how this serves your financial interests. Chapter 6 provides guidance on fund selection and how to allocate your investments among securities.
This book does not describe a complete solution to the climate issues, nor to the planet's sustainability challenges. Nor does it claim to provide a comprehensive list of how you can use your savings to reduce your carbon footprint. But it will provide you with a guide, with a focus on stocks and mutual funds which can make you personally part of the solution, while making money. We do not go into discussions about how to make a thorough fundamental stock analysis, or a comprehensive sustainability analysis, but we explain this in broad terms, so you can gain a perspective on investments that differs from traditional views. We hope this book will help you make more informed decisions and discover opportunities that others may overlook. With these insights, we believe you can become a sustainable individual by reducing your carbon footprint and, in the process, have the prerequisites for getting rich.