Week 38: Mass poverty is here, but we don't care

In this issue: ▸ The next management’s problem ▸ Mass poverty is here. What do we care? ▸ The steps needed to reduce inequality ▸ Tracking emissions via satellites ▸ Are ESG assets overvalued?

Sep 26, 2021

Dear all,

A lovely Sunday morning. The sun is shining, a crispy September sun, shy and lazy, tip-toeing over the sky, carefully resting its arms on the clouds. Looking at the world with its bright eyes.

Different parts of the world, different time-zones, all of us welcoming the new day, the same but different, each and every one of them. The feeling of stepping into the light of a new day. That first look at the sky, first breath.

To live is a beautiful gift, and despite the repetitions it feels good every time you think about it.

This week, we walk out into the world with that feeling. We are free because we choose to be. Most of us, but not all of us, have that choice. We can make things happen because we choose to do so, we can leave things as they are because we can afford it.

All the power needed to move our humanity forward lies within us, all of it.

Yes, we are greedy and we are selfish, but we are also generous and grand, compassionate and caring.

The next management’s problem

Here’s one issue we face when corporates are trying to address big long-term problems: They can do so without really working on it, because it will not be their, but the next, next, next, next management’s problem.

This week, according to this excellent article from Financial Times, the chief executive of a large financial institution made a striking comment in private conversation. He said it was easy for bosses to commit their companies to net zero carbon emissions because it was “next, next, next, next management’s problem”.

He was riffing on the phrase “next management’s problem” with which chief executives habitually — albeit quietly — dismiss issues they do not expect they will have to deal with during their incumbencies.

Emissions pledges often have agreeably long deadlines. The tenures of bosses have been shortening. The revolving doors of most C-suites will have spun several times before chief executives of multinationals are expected to keep promises made by predecessors.

Mass poverty is here. What do we care?

Lately, I’ve read some pieces on behavioral psychology, and some of the things from those readings are rather interesting.

First and foremost: We are numb. Our senses are so overloaded and our ability to emotionally process what we are facing is so restricted that we just give up.

In this piece you can find a very good summary of latest insights in this field.

And then on to one of the topics we feel numb about. An important systemic topic, which we have difficulties even talking about. That topic is poverty.

We know we face a crisis of mass poverty: the global economy is organized in such a way that nearly 60% of humanity is left unable to meet basic needs.

We have been told that the global development is working: that the global South is catching up to the North, that poverty has been cut in half over the past thirty years, and will be eradicated by 2030.

It’s a comforting tale, and one that is endorsed by the world’s most powerful governments and corporations. But is it true?

Not really. Since 1960, the income gap between the North and South has roughly tripled in size. Today 4.3 billion people, 60 per cent of the world's population, live on less than $5 per day. The richest eight people now control the same amount of wealth as the poorest half of the world combined.

What is causing this growing divide?

We are told that poverty is a natural phenomenon that can be fixed with aid. But in reality it is a political problem: poverty doesn’t just exist, it has been created.

Poor countries are poor because they are integrated into the global economic system on unequal terms. The aid narrative hides the deep patterns of wealth extraction that cause poverty and inequality in the first place: rigged trade deals, tax evasion, land grabs and the costs associated with climate change.

Jason Hickel’s book The Divide tracks the evolution of this system, from the expeditions of Christopher Columbus in the 1490s to the international debt regime, which has allowed a handful of rich countries to effectively control economic policies in the rest of the world.

I highly recommend reading the book. It will radically change the way you understand the global economic system and the challenges faced by poor countries trying to advance within it.

The steps needed to reduce inequality

So what can we do about poverty?

A widespread narrative is that there is not enough for everyone to live well, and that the only way to solve this problem is to press on the accelerator of aggregate economic growth.

That’s a misguided idea. There’s a number of things we can do to change things.

Overall, reducing inequality needs to be at the very heart of climate policy. Or to put it even more bluntly: at the heart of our economic system.

Here’s a list of things we can do to reduce inequality:

We need to scale down throughput by introducing progressive taxes on resource use, emissions and waste, or impose caps on these activities and tighten them each year.
We need to require manufacturers to offer extended warranties on all material products in order to encourage longer lifespans.
Also, we should legislate a “right to repair”, and introduce laws against planned obsolescence. And ban advertising in public spaces.
We also need to prevent supermarkets from trashing food and impose fees on food waste while banning it from landfills.

Reducing the material throughput of the economy not only takes pressure off ecosystems, it also reduces energy demand, which – as the recent IPCC report points out – makes the transition to renewable energy much more feasible.

But there’s much more we can do:

We need to expand universal social goods and reinstate commons, to ensure that people can access the resources they need in order to live well without high levels of income. This means generous, high-quality public healthcare and education, rent controls, affordable public housing and transportation, and access to public parks and recreational facilities. It could also mean a system of universal basic services. Scaling down aggregate economic activity might reduce private riches, but does not need to reduce public wealth.

We need to distribute national income more fairly by introducing either high marginal tax rates on top incomes (like the 80% top marginal tax rate the US averaged from 1943 to 1983), or a maximum wage policy. Roll out a wealth tax, as Thomas Piketty has proposed, and a financial transaction tax. Close down secrecy jurisdictions and introduce a global minimum corporate tax to wipe out tax evasion.
We need to use the proceeds of these taxes, and of the above-mentioned fees on resource use, emissions and waste, to (a) help fund the rapid rollout of renewable energy infrastructure, (b) contribute to a universal basic income, and (c) invest in public goods.
We need to democratize workplaces and encourage cooperative ownership structures for businesses.
We also need to shorten the working week and distribute available work more equally in order to ensure full employment. Not only does a shorter working week have all sorts of positive ecological and social benefits, it also relieves pressures for growth. In the existing economy, as labor productivity improves people get laid off, and we have to generate more growth in order to create new jobs and mop up unemployment. Shortening the working week allows us to create jobs without the need for growth.
A shorter working week also ensures that if aggregate economic activity slows down (which it likely will as material throughput declines) then workers laid off from dying dirty industries can get jobs in cleaner ones, even as total labor requirements diminish.
To offset reductions in working hours, we can either increase hourly wages with a living wage policy or (to avoid hurting small businesses) introduce a universal basic income, as per proposals by Andre Gorz.

No more hiding: tracking emissions via satellites

Here’s an interesting story promising to have a big, lasting impact. Because what gets measured gets done (more or less).

Last week, the emissions tracking coalition Climate TRACE unveiled the world’s first comprehensive accounting of global greenhouse gas (GHG) emissions based primarily on direct, independent observation.

Their approach is set to fill a critical knowledge gap for all countries that rely on the patchwork system of self-reporting, a patchwork that serves as the basis for most existing emissions inventories.

Driven by satellites, remote sensing, and advanced applications of artificial intelligence and machine learning, the inventory is particularly relevant to the more than 100 countries that lack access to comprehensive emissions data from the past five years.

In practice, this means that heading into climate negotiations at COP26 in Glasgow, world leaders in every country can inform their decisions with data that reflects current emissions trends, rather than trends prior to the creation of the Paris Agreement.

Climate TRACE is unlocking an era of radical transparency by identifying precisely when and where emissions are produced, enabling leaders to pinpoint and prioritize where to focus decarbonization efforts for maximum impact.

The inventory, which spans the years 2015–2020, reveals striking insights about recent emissions trends across 10 sectors and 38 subsectors of the global economy.

To produce these insights, the Climate TRACE coalition harnessed AI and machine learning to analyze over 59 trillion bytes of data from more than 300 satellites, more than 11,100 sensors, and numerous additional sources of emissions information from all over the world.

This unprecedented effort provides a significant step forward in emissions monitoring, transforming a system that has previously all too often relied on rough estimates, opaque methods, and inaccessible reporting.

This new way of measuring emissions will likely continue to reveal new real data and stories.

For example, based on Climate TRACE’s newly released data, the following has already been observed:

In oil and gas production and refining, emissions from oil and gas may collectively be around double (1 billion tons higher than) recent UNFCCC reports. Further, it is likely that over 1 billion additional tons CO2e per year – more than the annual emissions of the 100 lowest-ranking emitting countries combined – have gone uncounted by countries that aren’t required to report their oil and gas emissions regularly.
Steel production globally resulted in 13.1 billion tons of CO2e between 2015 and 2020, equivalent to the total emissions of Japan and the United Kingdom combined over that same period. In 2020, steel emissions fell in nearly every country except for China. Further, this year China’s steel industry is on track for an estimated emissions increase of 158 Mt CO2e, roughly equal to the entire annual emissions of Singapore.
Shipping and aviation together emitted nearly 11 billion tons of CO2e between 2015 and 2020, totals that would make these two sectors combined the 5th largest emitter in the world, if they were a country. Shipping emissions increased about 10% per year from 2018–2020 despite the COVID-19 pandemic, considerably faster than expected. Yet emissions from both sectors are exempted from countries’ mitigation commitments under the Paris Agreement.
Forest fire emissions have more than doubled in Russia and the United States since 2015, which together now emit more from fires than Brazil.
Rice emissions are higher than previously thought in several countries, and in India’s case may be nearly 3 times the most recent official inventory from 2016. Perhaps even higher: Climate TRACE data also detects substantial cropland fires, which are mostly rice stubble, further increasing rice’s total emissions impact.

Are ESG assets overvalued on the markets?

In finance news, the central bank to the world's central banks, the Bank for International Settlements, has warned of the growing risk of a price bubble in environmentally friendly-focused asset markets.

Increasing urgency to limit global warming and tackle other issues such as racial and social inequality has seen ESG investing explode in popularity in recent years.

Some estimates indicate that ESG-focused assets have soared to a value of $35 trillion and now account for more than a third of all assets professionally managed by banks and investment funds. A narrower definition including only exchange-traded funds (ETFs) and mutual funds with ESG or socially responsible investment (SRI) mandates points to even faster, tenfold growth, to approximately $2 trillion.

This is evidenced in assets such as clean energy and electric car stocks and green bonds, which have soared in recent years.

The question is, of course: Is it all just one big green asset bubble?

Climate funds are undermining the fight against global warming

It certainly looks like an asset bubble. And if we are to judge by the amount of greenwashing happening in the markets, the asset bubble is not even green. It’s just painted green.

As research now suggest, the climate-focused investment funds are in fact undermining the fight against global warming by routinely engaging in greenwashing.

It turns out that passive exchange traded funds tracking “low carbon”, “climate change” or “Paris-aligned” indices allocate little of their money to the greenest companies – and they habitually increase the weighting of companies whose environmental performance is deteriorating.

Read more in this article from Financial Times.

The semiconductor dilemma

Meanwhile, the semiconductor industry also has a problem.

Demand is booming for silicon chips, which are embedded in everything from smartphones and televisions to wind turbines. But it comes at a big cost: a huge carbon footprint.

The industry presents a paradox. Meeting global climate goals will, in part, rely on semiconductors. They’re integral to electric vehicles, solar arrays and wind turbines.

But chip manufacturing also contributes to the climate crisis. It requires huge amounts of energy and water – a chip fabrication plant, or fab, can use millions of gallons of water a day – and creates hazardous waste.

ESG on a Sunday