Week 50: The Arctic, the exploitation and the ripple effects

In this issue: ▸ It’s all cracking up ▸ Exploiting the Arctic ▸ A hummingbird... ▸ Fossil fuels and lower fertility rates ▸ Wall Street hearts made of stone ▸ Fiduciary duty ▸ And much more...

Dear all,

Confusing. Inaccurate. Opaque. Brutal. Unstoppable. Invincible.

The year that is about to end has been truly harsh on so many different levels, for so many people. Salted wound.

December’s icy fingers, stiff face, dark blue eyes. People behind masks in the streets, busses, shops, subways, airports, workplaces. As if distances between us have never been bigger.

Experts, politicians, statements, new restrictions, contradictory measures. Vaccinations, percentages, likelihoods, blamings.

Polarisation dominates our time more than anything else, across all segments of our societies.

Liberal democracies and the core principles of these democracies are under huge pressure and we are too occupied with ourselves to even realise that, let alone fight to do something about it.

In short, populism plunges democratic societies into an endless series of moralized zero sum conflicts. It threatens the rights of minorities, and it enables strong leaders to dismantle the check-points on their road to autocracy.

Today’s neo-nationalism isn’t a humanistic and unifying one. We are moving in cycles. Repeating mistakes until we finally (hopefully) learn.

Humanity was not born in a thunderstorm.

The human ability to adopt regardless of circumstances is well known. We have been doing it throughout our existence on this planet and we will continue doing it. Driven by our natural instinct to survive we push on, we adjust and we prevail. Primal. Even primitive. Swinging ourselves through time.

It has worked and it still works, sort of.

But the collateral damage, sometimes intentional, that we have caused while moving forward on our way to somewhere (we don’t really know where) is colossal.

Deep inside we all know this. We know that what we have is not just, not balanced, not sustainable, not responsible, not equal, not fair. We know it.

We also know that is possible to improve all of this. We know it.

But that change is not televised, it happens in us. We know that too and we keep going on until. Until.

The Arctic and the ripple effects – it’s all cracking up

I’m reading this article and I stop a couple of times to read a sentence again and again.

In research presented this week at the world’s biggest earth science conference, Erin Pettit, a glaciologist from Oregon State University, showed that the Thwaites ice shelf could collapse within the next three to five years, unleashing a river of ice that could dramatically raise sea levels. Aerial surveys document how warmer conditions have allowed beavers to invade the Arctic tundra, flooding the landscape with their dams.

The ice shelf was cracking up. Surveys showed warm ocean water eroding its underbelly. Satellite imagery revealed long, parallel fissures in the frozen expanse, like scratches from some clawed monster. One fracture grew so big, so fast, scientists took to calling it “the dagger.”

Large commercial ships are increasingly infiltrating formerly frozen areas, disturbing wildlife and generating disastrous amounts of trash.

In many Alaska Native communities, climate impacts compounded the hardships of the coronavirus pandemic, leading to food shortages among people who have lived off this land for thousands of years.

The rapid transformation of the Arctic and Antarctic creates ripple effects all over the planet. Sea levels will rise, weather patterns will shift and ecosystems will be altered. Unless humanity acts swiftly to curb emissions, scientists say, the same forces that have destabilized the poles will wreak havoc on the rest of the globe.

“The Arctic is a way to look into the future,” said Matthew Druckenmiller, a scientist at the National Snow and Ice Data Center and co-editor of the Arctic Report Card. “Small changes in temperature can have huge effects in a region that is dominated by ice.”

The consequences for people living in the Arctic can be dire.

In Greenland and elsewhere, meltwater from shrinking glaciers has deluged rivers and contributed to floods. Retreating ice exposes unstable cliffs that can easily collapse into the ocean, triggering deadly tsunamis. Roads buckle, water systems fail and buildings cave in as the permafrost beneath them thaws.

Some 5 million people living in the Arctic’s permafrost regions are at risk from the changes happening at their shores and under their feet.

Collateral damage. Chains and things. And we move on.

Exploiting the Arctic

Underneath the Arctic Circle lies massive oil and natural gas formations. The United States Geological Survey estimates that the Arctic contains approximately 13% of the world’s undiscovered oil resources and about 30% of its undiscovered natural gas resources.

So far, most exploration in the Arctic has occurred on land. This work is done by the Prudhoe Bay Oil Field in Alaska, the Tazovskoye Field in Russia, and hundreds of smaller fields, many of which are on Alaska’s North Slope, an area now under environmental protection.

Land accounts for about 1/3 of the Arctic’s area and is thought to hold about 16% of the Arctic’s remaining undiscovered oil and gas resources. A further 1/3 of the Arctic area is comprised of offshore continental shelves, which are thought to contain enormous amounts of resources but remain largely unexplored by geologists.

The remaining 1/3 of the Arctic is deep ocean waters measuring thousands of feet in depth. The Arctic circle is about the same geographic size as the African continent – about 6% of Earth’s surface area – yet it holds an estimated 22% of Earth’s oil and natural gas resources.

This paints a target on the Arctic for exploration and development, especially with shorter seasons of ice coverage improving ocean access. Read more here.

So what to make of all of this? Well, you can start by watching NOAA’s Arctic Report Card 2021 video.

A hummingbird crosses our path

Exaggerating and impractical, the climate movement undermines its cause and everyone suffers. That’s the case according to Ted Nordhaus.

Ted Nordhaus is the founder and executive director of the Breakthrough Institute, a research canter focused on technical solutions to environmental problems.

In principle, what he is saying is that the real result of the COP26 is to further establish the sad reality that the world’s poor are on their own. And I couldn’t agree more.

A fossil fuel infrastructure is arguably of the highest value in terms of fairness, economic development and (not by accident) climate resilience in a poor country.

Historically, multilateral development finance has undertaken these investments. But in greenhouses, which are international climate politics, these are ironically restricted in the name of climate justice, even though rich countries are pursuing projects like the Nord Stream 2 pipeline and Cambria.

China and India are big and powerful enough to be bullied. But other poor countries are not. Even the lowest-emission natural gas of all fossil fuels has been depleted in many African and other developing countries, under pressure from Western countries and Western-led development agencies.

“What do constructive advances look like?” asks Ted Nordhaus, and answers the question himself: “The activist movement, which takes concerns about climate justice seriously, acknowledges that environmental impacts occur at the crossroads of warming climate and poverty, and may support the continued access of the world’s poorest people to fossil fuels. (…) Because they are currently too expensive to replace and [will] make poor countries more resilient to the effects of climate change.”

We have to do this, we all have to… survive.

Fossil fuels likely to blame for lower fertility rates

Decreasing fertility rates may be linked to pollution caused by fossil fuel burning, a review of scientific studies has found.

Over the past 50 years childbirth has steadily decreased.

The study focused on Denmark, but the trend is also seen in other industrialised nations. One in 10 Danish children are born with assisted reproduction and more than 20% of men never have children, according to the researchers.

This decrease seems to have started at the beginning of industrialisation.

Experts have warned the trend could lead to an unbalanced demographic with too few younger people to support the older generations.

A growing body of research has shown growing rates of human infertility due to biological reasons including 74,000 yearly cases of testicular cancer, insufficient sperm and egg quality, premature puberty in young women, and an increase in the number of congenital malformations in male infant genitalia.

Such a trend cannot be explained genetically because evolution takes place over longer periods of time and more generations, so lead author professor Skakkebæk and his colleagues are urging the scientific community to look at the impact of environmental exposure to toxic chemical pollutants from fossil fuels, which have been around since… the Industrial Revolution.

Wall Street hearts made of gold stone

A group of Wall Street giants has decided to sit out one of the industry’s biggest coalitions: the Glasgow Financial Alliance for Net Zero.

GFANZ, whose members oversee $130 trillion, is finding it can’t attract some of the top names in money management. Among them, Pacific Investment Management Co., Fidelity Investments, Capital Group, T. Rowe Price Group Inc., PGIM, Northern Trust Asset Management and the fund management units of Goldman Sachs Group Inc. and Morgan Stanley.

In total, the eight holdout firms Bloomberg News contacted represent over $17 trillion in assets, which is more than the combined gross domestic product of the European Union.

Asked why they opted out, they pointed to their fiduciary duty and to a reluctance to be bound by external rules.

Mark Carney, the co-chair of GFANZ, has spent much of 2021 trying to appeal to the financial behemoths steering capital flows to commit to decarbonization. But his efforts have fallen flat in some key circles.

And even though Carney occupies a seat on Pimco’s advisory board, the $2.2 trillion asset manager insists that joining would be a dereliction of its fiduciary duty. (Pimco’s owner, Allianz SE, is a member of three GFANZ sub-alliances.)

Ryan Korinke, managing director and global head of sustainability at Pimco, said the firm “strongly supports climate and sustainability-related initiatives.” It also offers a “full range of strategies and products” that allow it to manage client money in a manner that’s consistent with net-zero goals, he said, describing Pimco as “a leader” in incorporating environmental, social and governance considerations into its investment process.

“However, as a fiduciary, we don’t believe it’s appropriate to make specific commitments on our clients’ behalf, especially given the complexity of the long-term challenges ahead,” Korinke said.

For that reason, Pimco hasn’t joined GFANZ, he said.

Fiduciary duty – what it really means

Fiduciary duty. Now might be a good time to look at what it really means.

Here’s a very broad definition: “A fiduciary duty is an acceptance of responsibility to act in the best interests of another person or entity.”

Some say fiduciary duty is like polishing silver on the Titanic. Which evidently sank.

But in all seriousness, climate change has evolved from an “ethical, environmental” issue to one that presents foreseeable financial and systemic risks (and opportunities) over mainstream investment horizons.

This evolution has substantially changed the relevance of climate change to the governance of corporations. A critical corollary of that evolution is that there are implications for the fiduciary duties of directors and officers.

This report provides an overview of contemporary evidence that climate change and the transition to a net-zero emissions economy presents foreseeable, material, and systemic financial risks that will affect corporations.

In so doing, it sets out the practical circumstances in which a failure by directors or officers to have adequate regard to climate change-related issues could fail to satisfy the standard of conduct required to fulfil their duties and lead to potential litigation and liability exposures.

As agents of the corporation and its shareholders, officers and directors in the United States and all other countries around the world operating under fiduciary obligations, have obligations to act consistently with duties of care, loyalty, and full disclosure.

Generally speaking, the duty of care requires officers and directors to make lawful, reasonably informed decisions. The duty of loyalty requires officers and directors to act in good faith; put the interests of the corporation above his or her own interests to exercise oversight regarding law compliance.

The duty of full disclosure encompasses an affirmative duty for agents to bring forward economically significant information to the principal, and to communicate honestly in all “public or direct”  communications with the corporation’s shareholders.

This paper describes these duties further, and then discuss the implications for theories of directors’ and officers’ fiduciary obligation to consider climate change carefully, honestly, and in good faith in their deliberations and decision-making.

Here’s how it all started in England between the twelfth century and the sixteenth century. It set the structure and character of our modern law. Yes, it’s a very, very long time ago.

When my heart beats like a hammer and my eyes are full of tears…

And now, towards the end of this newsletter, we take a closer look at the top 10 Christmas wishes from Human Rights to the so-called ESG investor community around the world.

Human Rights are like an orphan in the ESG community nowadays. That will inevitably change, not because the ESG community will suddenly feel a deep parental love, but because it will be forced to do so since the current ESG investing really does not make any tangible improvements for the people and the planet.

This is a ticking bomb.   

That’s all for this week. I wish everyone at least some less confusing, inaccurate, opaque, brutal and unstoppable holidays.

Here’s a quote that sums it up nicely.

The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.

– Antonio Gramsci

Kind regards,
Sasja