So you think carbonphobics fall into only two categories: useful idiots who fret loudly about a non-existent threat and careerists happy to whip up the scare stories that keep their grants coming. Well, there is a third set of snouts in the trough — bankers and ‘green fund’ managers. Hold on to your wallet
An international pension-fund coalition — co-founded by a UN agency last September — showed great enthusiasm for decarbonisation in Paris last month. It wants to shift at least USD600 billion of other people’s money into renewable energy projects. But only if governments establish ‘legal frameworks to protect long-term investors’ and to ensure ‘capital reallocation’ is risk-free – that is, underwritten by taxpayers – in perpetuity. Nice work if you can get it.
Climate-caliphate: 1. Entity led by a climate-caliph, generally an eco-zealot, ex-politician or career bureaucrat turned climate propagandist; elected by a shadowy process. 2. Global climate-caliphate: theocratic one-world government or de facto government; an ideology or aspiration of this kind promoted by a militant fossil-free sect, or radical group intending to behead, disembowel, or otherwise degrade Western economies with the two-edged sword of wealth redistribution and ‘decarbonisation’, while reciting mantras about ‘saving the planet’. Also known as Agenda 21.
The United Nations Framework Convention on Climate Change (UNFCCC) was not the only agency excited by the 21st annual Conference of the Parties (COP). Another group ecstatic about the prospect of a ‘low-carbon’ world was the United Nations Environmental Programme (UNEP), the 43-year-old brainchild of the late Maurice Strong.
Strong, who passed away at 86, just two days before COP21 began in Paris, was a UNEP founding Executive Director. Achim Steiner, UNEP’s current Under-Secretary General and Executive Director – and a past Director General of the International Union for Conservation of Nature – described him as one of the world’s greats, ‘a visionary and a pioneer of global sustainable development’. Warming to his eulogist’s task, he continued, “Strong will forever be remembered for placing the environment on the international agenda and at the heart of development. He shepherded global environmental governance processes – from the original Rio Earth Summit, Agenda 21 and the Rio Declaration to the launch of the UN Framework Convention on Climate Change and the Convention on Biological Diversity.”
His influence was great. On the eve of COP21, Mr Steiner reiterated Strong’s message to the 2014 UN General Assembly, where he called on world leaders to ‘rise to their historic responsibility as custodians of the planet [and climate], to take decisions that will unite rich and poor, North, South, East and West, in a new global partnership to ensure our common future’. Others have been less flattering. For them, Strong was a ‘consummate sleazebag, thief and all-round corruptocrat who launched and shaped the UN effort to rid the world of CO2’, who left the eco-stage just ‘as his heirs gathered in Paris to rob the world blind.’
Wherever he stands in the hierarchy of the light-fingered, there is no doubt Strong would have been pleased with UNEP’s Finance Initiative. UNEP FI was launched in 1991, when a small group of commercial banks – including Deutsche Bank, HSBC Holdings, Natwest, Royal Bank of Canada, and Westpac – joined with it to drive the ‘banking industry’s awareness of the environmental agenda’. UNEP FI describes itself as a ‘global partnership with the financial sector’. Its mission: to persuade banks, insurers and fund managers to recognise the ‘impacts of environmental and social considerations on financial performance.’ Over 200 members, have signed an FI Statement of Commitment. Its recent activities, however, arguably go beyond this broad objective into new and more intriguing territory.
In the weird world of environmental politics, the UN sees no conflict of interest in one powerful entity and its agencies being responsible for collecting data, concocting ‘projections’ and ‘storylines’, developing policy while (as we shall see) simultaneously funding and encouraging advocacy groups to pressure governments; in this instance to design or modify renewable energy (RE) and carbon-pricing regulations in its favour. Why not? Well, the ultimate beneficiaries are humankind and the planet – not just huge ticket-clipping pension funds (some with significant RE sector exposure) and career climate-bureaucrats.
Conflict of interest: 1. A situation in which the concerns or aims of two different parties are incompatible, or where a party’s responsibility to a second-party limits its ability to discharge its responsibility to a third-party. 2. A situation that has the potential to undermine an agency’s or person’s impartiality because there is the possibility of a clash between self-interest, professional interest or public interest.
An entity that has procured (allegedly) the ‘best available science’ and claims the power to induce a global Goldilocks climate – one protected by legal immunity under the 1946 Convention on the Privileges and Immunities of the United Nations – surely should be allowed to get on with it?
But consider another context — say, an intelligence agency – where no genuine separation exists between intelligence assessment and policy formulation, or between intelligence collection and assessment. Imagine the kerfuffle if, hypothetically, this agency engaged – or ‘co-partnered’ with – advocacy groups to promote the agency’s worldview. Imagine if such an agency felt exporting coal was no longer in Australia’s national interest and was keen to persuade the nation to oppose mining it in the interests of planetary ‘security’.
Consider now the Portfolio Decarbonisation Initiative. Launched at UN Secretary-General Ban Ki-moon’s Climate Summit in September 2014, it was co-founded by UNEP FI, the fourth National pension fund of Sweden, AP4, Europe’s largest asset manager Amundi, and CDP, an international not-for-profit organization reportedly holding the ‘largest global collection of corporate environmental data.’
At the beginning of COP21 week-two, the Portfolio Decarbonisation Coalition – also co-founded by UNEP FI with a mission to mobilise ‘financial markets to drive economic decarbonisation’ – issued a media release designed to ‘send a strong signal to world governments gathered in Paris to negotiate a new global treaty on climate change.’ Two of the world’s largest institutional investors, Allianz and ABP, would be joining PDC. If governments were prepared to play their part, the Coalition could decarbonise at least USD600bn of assets-under-management (AUM), six times an earlier target. (Decarbonisation strategies of its 25 members – which include the University of Sydney and Church of Sweden – are in PDC’s first annual report.)
According to Oliver Bäte, Allianz’s CEO, the group’s climate and decarbonisation actions would:
include the phasing out of coal investments, the use of environmental, social and governance scoring in investment decisions across its portfolio of own investments, and scaling up its investments in renewable energy. Allianz is one of the leading private investors in renewable energy, with more than EUR 2.5 billion committed and plans to at least double these investments.
He stressed that PDC needs “an ambitious and reliable regulatory environment now to live up to our commitment to scaling back our financing of carbon-intensive businesses, and investing in renewables and low-carbon infrastructure. If this is fulfilled, then climate protection will not fail because of a lack of funding.” (my emphasis)
There was a ‘cautionary note regarding forward-looking statements’ at the end of the PDC media release.
“The statements contained herein may include prospects, statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such forward-looking statements. Etc. (my emphasis)
But there was no of mention that changes in outlook could arise due, say, to a decline in scientific ‘consensus’ about climate theory; the continuing lack of empirical validation for climate-model ‘predictions’; doubts about public statements claiming quantifiable links between atmospheric carbon dioxide, anthropogenic greenhouse gas emissions and future global temperatures; more revelations about the accuracy of agency data collection over time, and so on.
PDC also indicated it had no intention or ‘obligation to update any information or forward-looking statement contained herein, save for any information required to be disclosed by law.’
Whether by accident or design, only a handful attended the PDC’s 25-minute press conference. But Fred Pearce, a freelance journalist reporting for Yale Environment 360, Joel Penrick of Green TV – producer of this 56-second classic, What is climate change denial?, and Miranda Johnson of The Economist were there.
Nick Nuttall, UNFCCC’s Head of Communications, was the moderator. Mr Steiner’s principal speechwriter for over a decade, Nuttall apparently transformed its media profile and inspired ‘several landmark reports including the 2009 Climate Change Science Compendium’. Not bad for a Lancashire lad who was once sung with a US pop group and worked as a stockbroker and commodity trader.
Fiduciary duties: the duties of loyalty and care. Pet owners have FDs. So do managers of other people’s money. For them, there is an eleventh and twelfth commandment: “Thou shalt not be casual about due diligence of an investment opportunity. Thou shalt consider all the actual or potential risks involved in it.”
Miranda Johnson asked this question: “How do you balance fiduciary duties against a low-carbon portfolio, and in transitioning to an increasing low-carbon portfolio?” (14.4min.)
Oliver Bäte: “FD is not the real issue (24min.) The real issue in Allianz’s mind is often the legal frameworks for investing in RE infrastructure that are spanning decades – so you need to commit money for several decades – are not properly protecting long-term investors.”
“We are very often at the mercy of the public mainstream [voters] and courts that in hindsight declare some of these contracts invalid and therefore make it very difficult for long-term investors to justify committing money for decades.”
“So let me summarise. It is not a problem of financiers not wanting to put the money in, or a lack of liquidity. It is the wrong incentives from the public [voters] – and the wrong legal frameworks for funding infrastructure – that make it very difficult in practice.” (25min.)
Mr Bäte was right to be anxious. Governments are elected and elected governments change their policies. The UK government is one of them. A week after the COP21 ‘landmark deal in Paris’, Britain cut more RE subsidies.
Folk still sceptical about the UN’s climate-caliphate ambitions should reflect on these closing remarks by Mr Steiner:
“Financial assets of the global banking sector alone amount to USD135 trillion. Institutional investors represent somewhere in excess of another USD100 trillion – just to give you a sense of the magnitude here. This is why what Allianz and the other PDC members are trying to get others to recognise that you can invest public finance in an alternative pathway.
But if the mainstream financial system – which is 1,000 times more significant in terms of volume and scale is investing in the other direction, you are not going to see the kind of shifts [that UNEP and the UN want]. This is why what we are now seeing in the financial and insurance world is so significant – because it reinforces what Paris COP21 is trying to do with public policy and international co-operative instruments”. (23.50min.)
According to the panel, annual global investment of USD1 trillion in RE infrastructure was ‘doable’. In calendar 2014 it was USD270 billion. China claims it alone will be investing USD300 billion annually from 2016.
Mr Steiner was just warming up. Later on the December 7 he gave a stirring speech to the Sustainable Innovation Forum, Why not? He was especially grateful to one sponsor – BMW – “for getting the UNEP delegation around Paris with clean consciences and clean energy in the BMW i3s. Apparently I can’t call them cars: the BMW website says they are in fact ‘sustainable, emission-free mobility’.”
Ladies and gentlemen, if you want to see what sustainable innovation has to offer, take a look at the new Clean Voyage 2, which spells out the need to shift from a linear economy that extracts, consumes and discards to low-carbon and resource-efficient growth and from subsidizing [fossil] fuels to accelerating clean renewable energy and improving efficiency. If we can use such innovation to deliver a healthy planet, with a healthy population that leaves nobody behind – why not?
Why not? As The Australian’s Graham Lloyd noted (December 11), COP21 was “a seductive echo-chamber where the political lessons of high electricity prices, failed government subsidy programs, major renewable energy company bankruptcies don’t seem to cut through the groundswell of good feelings for change.”
In Paris, not only eco-love was in the air, but also money – and a belief that, “like a Magic Pudding, the climate change response will release economic forces to rival the Industrial Revolution, liberate continents from poverty, boost food security and right historical wrongs.”
On December 10, the Geneva-based UNEP FI, Washington-based World Resources Institute and 2Degrees Investing Initiative released a new report outlining ‘options for portfolio decarbonization across asset classes, investor strategies, and metric families’: Climate Strategies and Metrics: Exploring Options for Institutional Investors. Investors wanting to ‘help facilitate low-carbon change’ would find it a ‘useful guide’. The report was funded by the EU Horizon 2020 research and innovation programme; the French Environment and Energy Management Agency (ADEME); the French Ministry of Ecology, Sustainable Development, and Energy; and the Dutch Ministry of Foreign Affairs.
The ‘core concept’ here – according to the 2DegreesII website – is that institutional investors, banks, and financial service providers play “a key role in capital reallocation in line with 2°C climate goals. We call this mobilization and the related changes in investment frameworks ‘2° investing’.”
The financial sector’s role is to ‘supply investment capital to make the 2° transition happen’; and to anticipate changes in demand for capital, such as “introduction of more stringent carbon policies, new technologies, and the potential development of climate litigation – which will change the risk-adjusted returns of different financial assets, creating financial risk and opportunity.”
So this 81-page document – compiled by 106 ‘technical working group members’ (page 80) – is designed to persuade institutional investors and money managers to restructure portfolios, embrace ‘climate friendliness’ and commit to lowering ‘carbon risk’. Yet nowhere in it is there a critique of the current state of climate science – or even a footnote on the persistent areas of controversy, such as model predictive claims, ex post facto EWE attribution studies and so on.
Climate friendliness: the intent of an investor to contribute to GHG emissions reductions and the transition to a low-carbon economy through investment activities.
There are three lessons here. If you hear a banker or fund manager claiming to be a global ‘climate-protector’ and pleading for an ‘ambitious and reliable regulatory environment’ – especially one with big bucks already invested in RE – hold on to your wallet.
If you are a financial-type – especially one employed by a PDC signatory – get the company’s corporate lawyers to review your fiduciary duties. Be serious about due diligence going forward. Better to be safe than sorry.
The planet’s future climate may – or may not – turn out be an insoluble mystery, but one thing is certain. Sooner or later, the wheels will come off Clean Voyage 2 (or 1.5). For climate-$$-change is shaping up as the greatest boondoggle in history.