Week 34: No room for economic growth

In this issue: ▸ Is this the end for economists? ▸ Can central banks save the world? ▸ No room for further economic growth ▸ Taliban sit on minerals the world desperately needs ▸ And much more...

Dear all, 

Revolutions are rarely televised. More often than not they happen in silent mode, without much fuzz. Self-evident, solid, unconditional. They roll over realities, rock entire societies.  

We are in the midst of one of those silent revolutions where systems that we for years regarded as beacons of prosperity now stand naked in the rain, unable to provide shelter for themselves, let alone anyone else.

If you close your eyes and listen you can hear that cracking sound from all over the world. This is not about doomsday, not about apocalypse, we just simply need to move on. As we always do, as we’ve done throughout history.

This revolution is not happening thanks to people staying home and being good. Capitalism is in crisis. Catastrophic flooding in Germany and China. Record-breaking temperatures north of the 49th parallel. A “heat dome” that annihilated one billion marine organisms in one fell swoop. Wildfires which make the Plagues of Egypt look like small stuff.

All of this is not a coincidence. Climate change is unignorably here. And humanity’s in it neck deep the world over. But while ordinary people bear the brunt of the devastation, world leaders are content to sit by and twiddle their thumbs. These are dire days indeed.

Is this the end for economists?

The inability of economists to deal with species extinction, resource depletion and climate change, not to mention the 2008 financial meltdown that blindsided them all, has turned the profession into, well, a bit of a joke.

Economists routinely appear near the top of “least-trusted professions” polls. Ordinary people see them, more and more, as inept.

Neoclassical economists basically say: Trust the models. Trust us. We have this thing figured out. We can micromanage growth, engineer prosperity and keep the economy humming.

If economists could see past their mathematical models and formalist pretensions and embrace psychology, sociology and anthropology, even history and religion, their discipline could evolve into an all-embracing hybrid science that could solve many of the ills that plague humanity. Economics could be the Queen of the Sciences. Yes, could be, but right now that is not the case.

We need something else, something far more inclusive, far more human & nature centric, relying on balanced development, not merely growth. We need to be able to think beyond our own fears, dare to discuss and change systems that do not serve our joint development anymore.

You might ask yourself “why”? Well, we simply won’t be able to achieve the transition to more sustainable solutions, solve the climate crisis and ensure socioeconomic progress with the current market economic hammer.

The incentive models we operate are just too skewed and short-sighted. That is a fact we almost never hear about in the current climate crisis debate.

It’s like an organised hypocrisy we all take part in. 

Can central banks save the world?

Well, actually, they could. At least, they are part of the answer.

Central banks could play a critical role in catalysing the rapid shift of financial flows away from oil, fossil gas, and coal. However, to date, central banks have instead tinkered at the edges.

With a few isolated exceptions (such as decisions by the French and Swiss central banks to partially exclude coal from their asset portfolios), central bank activity on carbon pollution and the climate crisis has been limited primarily to measures to increase financial market transparency.

While some central bank executives claim that tackling the climate crisis is beyond their mandates, at the same time they have positively reinforced fossil fuel financing, and even directly financed fossil fuel production. You can read a fresh and rather sad report here. 

Let me be very clear: It’s completely bonkers that we don’t use the global financial infrastructure to our benefit. While politicians are commiting to the “net-zero” hysteria, their own central banks fuel climate destruction. It is just unbelievable. 

“… little or no room for further economic growth …”

A week or so ago, a leaked report from IPCC revealed that the growth model of capitalism is unsustainable. Well, we’ve known for some time, but it’s important to get the definitive diagnosis of the IPCC.

The second draft of the IPCC Group III report, focused on mitigation strategies, states that we must move away from the current capitalist model to avoid surpassing planetary boundaries and climate and ecological catastrophe.

It also confirms previous reports that “greenhouse gas emissions must peak in the next four years”. The new leak acknowledges that there is little or no room for further economic growth.

Read that last sentence again. Little or nor room for further economic growth. What does that mean for the 8 billion people on this planet? Or, to be more precise, for the 99 % who do not eat lobster and drink champagne?

Climate funds fall short of Paris goals

New data shows that India has fewer funds focused on ESG issues than the other top 10 economies. The news comes amid investor caution about ESG funds which have yet to build a track record in India’s market.

The world’s sixth largest economy has 23 ESG funds, compared to the U.S. and U.K. with more than 500 each, while Japan has 182 and China has 119. Other economies in the top 10 also have more ESG funds.

But what does that mean for all the ESG/Climate/Save the World investments out there?

Well, funds marketed as “climate themed” often hold shares in large polluters including big oil companies, and many are inconsistent with the goals of the Paris agreement despite claiming to be “aligned” with it.

Unfortunately, that is how it is nowadays, and a new analysis by think-tank InfluenceMap confirms it.

About 72 of the 130 climate-focused funds examined – which collectively hold more than $67bn in assets and are managed by leading investment houses including BlackRock and State Street Global Advisors – were found to be misaligned with the Paris agreement goal of limiting global warming to well below 2C.

Collectively, the 130 funds held $153m in fossil fuel production chain companies, according to the InfluenceMap report published on Friday.

Both a State Street “fossil fuel reserves free” fund and a BlackRock “fossil fuel screened” fund held shares in Marathon Petroleum and Phillips 66. Funds that more closely track broad stock market benchmarks would typically hold greater shares of their portfolios in such companies.

In principle, it’s very hard for investors to be able to accurately ascertain whether funds that are branded as climate-focused are actually Paris aligned or not. The investment industry can’t deliver on Paris since the underlying, secondary economy they invest in has not changed its business models. It’s that simple.

Let the whistle blow on greenwashing!

But there is also courage in the financial industry, hail to that!

According to the Wall Street Journal, DWS’s former global head of sustainability has highlighted problems with the asset manager’s 2020 annual report, which claimed that more than half of its $900bn in assets were subject to ESG integration.

The employee said this claim was misleading, prompting investigations from BaFin, the German regulator, and the Securities and Exchange Commission in the US.

In a statement released on Friday, DWS said it does not comment on questions relating to regulatory matters but wants to address the “unfounded allegations” on its ESG disclosures. Read more here.

You have to imagine and feel the courage that this person had to assemble to do this.

It’s a clear signal to all the other “ESG integrated and we got it all sorted out” asset managers to be very, very careful. 

Systemic action, not personal virtue

I’ve written about it in our new book and I have come back to this many times: Yes, personal virtue makes a difference, but the systemic changes we need require more, much more.

Personal virtue is an eternally seductive goal in progressive movements, and the climate movement is no exception. People pop up all the time to boast of their domestic arrangements or chastise others for what they eat or how they get around.

The very short counterargument is that individual acts of thrift and abstinence won’t get us the huge distance we need to go in this decade: We need to exit the age of fossil fuels, reinvent our energy landscape, rethink how we do almost everything.  

But the oil companies would like you to think that’s how it works. It turns out that the concept of the “carbon footprint”, that popular measure of personal impact, was the brainchild of an advertising firm working for BP.

As Mark Kaufman wrote this summer: British Petroleum, the second largest non-state owned oil company in the world, with 18,700 gas and service stations worldwide, hired the public relations professionals Ogilvy & Mather to promote the slant that climate change is not the fault of an oil giant, but that of individuals.

It’s here that British Petroleum, or BP, first promoted and soon successfully popularized the term “carbon footprint” in the early aughts. The company unveiled its “carbon footprint calculator” in 2004 so one could assess how their normal daily life – going to work, buying food, and (gasp) traveling – is largely responsible for heating the globe. 

You can read more on this here. 

Taliban is sitting on the minerals we so desperately need

Over the last couple of weeks we’ve all witnessed the catastrophic defeat of the democratic world in Afghanistan.

Yes, Taliban have time and we have watches, and apparently they have far too much time to control not only their population barbaric ways, but also control some of the crucial minerals we need for the transition to a more sustainable future.

China already has its eyes on the world’s biggest deposit of lithium which is found in Afghanistan. The country also has large reserves of neodymium, silver, gold, mercury, and other valuable elements. These rare earths are estimated to be worth between $1 trillion and $3 trillion.

China is a dominant player in the global rare earths market and has used shadow curbs on their exports for leverage during trade frictions with other countries. Figures from the U.S. Geological Survey show that the world’s second-largest economy holds about 35% of global rare earth reserves.

China’s ability to control Afghanistan’s reserves will further add to its ability to target advanced manufacturing industries of other countries during periods of trade and military friction.

Additionally, it would open up a steady revenue opportunity for the Islamist terror group. The Taliban has already called China a “welcome friend” in Afghanistan. Read more here.

So, sadly, we are going to do business with the Taliban, and we are most likely already doing it. What is the view of ESG investors on this? 

That would be all for this week.

Best regards,
Sasja