News & Updates
Seminar Series: The urgency of climate finance
Wed June 17th 2020
View the full discussion on YouTube.
Barry Coates, founder and CEO of Mindful Money, warmly welcomed Jonathon. The following is a brief summary of the seminar.
Sir Jonathon Porritt has deep roots in environmental issues in New Zealand and worldwide. He is chair of the Air New Zealand Sustainability Advisory Panel and founder of the Aotearoa Circle. He was chair of UK Sustainable Development Commission for nine years and a founder of Forum for the Future. He has been a leader in Friends of the Earth, the WWF, and the Green Party. His books include Capitalism as if the World Mattered, The World we Made, and the forthcoming Hope in Hell.
Barry Coates is an economist with a Master’s degree from Yale University. He met Jonathon at the time of the Earth Summit in 1992 and worked together on sustainability projects in subsequent years. Barry returned to New Zealand in 2003 and was Executive Director of Oxfam New Zealand for eleven years, initiator of a sustainability programme at the University of Auckland Business School and a list MP for the Green Party. He is the founder of Mindful Money, a charity that promotes ethical investment.
BC: Can you tell us about your recent paper for the Aotearoa Circle, and what you found out about the notion of “Building back better” across sixteen countries?
JP: It was a snapshot to see what’s happening out there in terms of government intentions. Practically nothing has actually started yet. Rather, governments are gearing up their recovery programs. There is plenty of good intent from governments to use some of their recovery funds to help promote low carbon prosperity, and that we must address the climate emergency as part of whatever we do. There is much less going on in terms of using the recovery to restore natural capital, to protect the environment, to put right some of the cumulative damage to rivers, forests, soils over the last twenty years.
The actual picture in terms of bailouts and subsidies is not so good. This was confirmed recently in a report from Vivid Economics. They found that $850 billion out of $6 trillion in bailout funds have gone straight to carbon-intensive, environmentally destructive companies. There’s a massive amount left to play for.
BC: Climate change has been on the radar of insurance companies, banks, and investment companies for three decades. But we haven’t seen it integrated into the way the finance system works. Where do you think the failing has come from?
JP: It is pretty remarkable. The science has become more and more definitive. And scientists are now warning governments that things are moving much faster, and the impacts will be much greater than thought previously. The risk to investors will be very substantial. What was going on in the minds of all the smart people in finance is a classic example of what Mark Carney described as the “Tragedy of the Horizon”. They’ve had a fixed view that value lies in generating revenue over the next three to five years. They thought climate change would play out much slower, and that they would be smart enough to keep their clients happy.
So it’s also a tragedy of systemic arrogance. The world’s capital markets have constantly devalued the natural world. They have demonstrated staggering ignorance over decades. Even now, although more institutional investors are focused on climate risk, when I talk to our partner companies in Forum for the Future, the level of questioning is incredibly superficial. They have not got their heads around what climate risk really amounts to.
BC: And there’s so much they could be doing! They own the fossil fuel companies. They could be providing direction. Do you see any encouraging signs?
JP: The announcement a few days ago from BP that they would cancel a lot of scheduled oil and gas developments, leading to a £17 billion write-down and a need for more capital for renewable energy investments, had a huge impact here. People had very mixed responses. There were enormous worries from the pension funds that BP would reduce its dividend. The oil companies have been borrowing money to pay dividends. If that isn’t a signal of something a bit dodgy, I don’t know what kind of signal you need! BP’s decision is highly significant; it’s seen as a forerunner of what the other listed oil companies will be doing.
On the other hand, we heard yesterday from Fatih Birol, the director of the International Energy Agency, that it was premature to talk about 2019 being the year of peak oil demand. He said that if governments aren’t careful – if they channel money to oil-intensive industries – then we could again be heading towards oil demand of 100 million barrels a day by 2021. Birol is not a patsy for the oil industry. He’s pretty clear that we need to see a massive shift in investment away from fossil fuels. This is a very strong warning that unless governments decarbonize their recovery programmes we
could see oil and gas still in there, keeping investors happy, until the final crunch.
BC: You’ve established the Sustainable Finance Forum in New Zealand. It’s pretty much the only place here where these issues are discussed. What do you see as its role?
JP: The impulse behind the Aotearoa Circle was to put the spotlight on the physical underpinning of New Zealand’s economy. Soils, rivers, forests, coastal areas, fisheries. But you can’t simply say, “Let’s undo the damage and regenerate our natural capital”. It’s as much about financial capital. That’s why our first project was to launch the Sustainable Finance Forum. Their interim report was very clear. No country has successfully managed its capital markets to generate short-term prosperity without undermining the natural capital on which long-term prosperity depends. It’s an outstandingly clear report. It’s saying, “This is tough. Governments will have to regulate capital markets better.”
To take one small example, there’s a debate in New Zealand about whether large companies should be required to disclose their climate risks. That’s just the first baby step! If you don’t do that, how can investors make good decisions? New Zealand needs to seize this quickly.
BC: More fundamentally, we need to address the “Tragedy of the Horizon” and think more long-term. Is there an opportunity for New Zealand to have a more distinctive position on this? What other things can we do?
JP: There are opportunities to allow individual investors and pension holders to make decisions that focus on the longer term, and for that to become the default. If people take the trouble to find out about ethical and sustainable funds, using Mindful Money, they will find that they outperform conventional funds. The evidence is rock-solid. But it takes a long time for that evidence to trickle into the minds of financial advisers and consultants.
BC: The government recently required default Kiwisaver funds to be free of fossil fuels. Now the critics of that decision are seeing the chickens come home to roost!
Your new book, “Hope in Hell: A decade to confront the climate emergency” signals a new direction for you.
JP: It certainly does! 2019 was extraordinary from a climate perspective. We had a wonderful infusion of new energy from the School Strikes 4 Climate, Extinction Rebellion and so on. It caused me to look again at the size of the gap between the science and the political response. The gap is getting bigger.
The science says everything is getting worse everywhere faster than anybody thought possible. The political response in inadequate. That gap is not going to be narrowed unless politicians come under a different kind of political pressure. For me that means a huge upsurge in political activism, including mass civil disobedience. We have to accept that “this is the last decade to get it sorted” is not just facile rhetoric. This is for real now.
All the work that I do, and that Forum for the Future does with corporates, is not going to make things change fast enough. We have to shift the focus to decision makers in government so that they are compelled to act.
BC: The Stern Report addressed short-termism through the lens of interest rates. It argued that with lower interest rates people would value the future more. Now we have low interest rates. Will this affect behaviour in a positive way?
JP: It’s too early to tell. Nicholas Stern is out there now making this very point. He’s been massively frustrated that governments and other economists haven’t accepted the basic point of his report, that you need to change the discount rate to get a proper balance between short-term and long-term planning. I think that at least with low interest rates, governments will be less obsessive about debt, and should feel freer to invest in all the low-carbon industries directly.
To take an example, there are strong calls in the UK to shift the government’s planned £29 billion roading program into active and public transport, and into building low-carbon cities. There aren’t going to be private investors ready to shift the entire basis of urban infrastructure. Low interest rates make this easier for governments to take on.
BC: What is your wish-list for post-Covid recovery?
JP: I’m a big supporter of the Green New Deal. It’s been around for more than a decade. It’s a big source of insights for both the USA and the UK, and it can apply to almost every country. There are three big things that could really make a difference.
The first is urban infrastructure. There is no reason that New Zealand couldn’t have all of its towns and cities largely free of privately owned vehicles.
Secondly, the retrofit of existing housing. New Zealand has a lot of very poor quality housing. This is getting big attention in the UK and elsewhere; it also generates lots of jobs and skills.
The third idea is growing more slowly. It goes back to the original New Deal in the 1930s, when Roosevelt launched the Conservation Corps. We need a Conservation Corps, an Earth Corps, to allow young people to put right damage around the country, to understand the dependence of their country on the environment, and to embed those values for the future.
BC: Should governments put environmental conditions on bailouts?
JP: Not only should they, it’s absolutely fundamental. The signals at the moment are not brilliant. None of the central bank programs in Europe or the US have such conditions. It’s a missed opportunity of staggering proportions. A rare bright spot: the French government has confirmed the conditions placed on Air France, that they won’t be allowed to compete with rail on short flights. And in Canada, a country up to its neck in fossil fuel dependency, companies receiving bailouts must submit to climate risk disclosure.
BC: Christiana Figueres, former head of the UN climate program, has said that the timeframe for getting the investments right is 6–18 months. Does that sound right to you?
JP: Yes. She’s building the logic of the next 18 months. If governments get things wrong with these recovery programmes, and go back to supporting carbon-intensive industries and focusing on economic growth at any cost, then we’ll be locked into that course for the whole period of the programs. Then we’ll miss our targets for 2030. And if we miss those then we have no chance of limiting warming to 2ºC by 2100. If those trillions of dollars of government money go into carbon-intensive industries, she’s right: we’re screwed.
BC: Are politicians actually capable of taking this agenda on? What is the role of citizens?
JP: I don’t think politicians are capable of doing this at the moment. Their understanding of the state of the planet – climate, collapsing ecosystems – is far too low to enable them to be the decision-makers they have to be. I retain an image from 2019 in which young people from the Sunrise Movement occupied Nancy Pelosi’s office. Pelosi is an experienced and progressive politician. She is utterly useless on anything to do with climate. The young people said, get going on this or we’ll find another way. Pelosi was patronizing and humiliated.
I read this event symbolically. I think we need the offices of politicians “occupied” by young people all over the world. My job is to support them.
With thanks to Robert McLachlan from Massey University for the draft transcript.