The good news is that humility brought massive changes in behaviour to limit the risk and unlocked enormous public and private resources to resolve it. Social distancing buys time. A vaccine puts the boundary back in place. Our collective response is a moral one: we took on staggering costs in the blink of an eye to protect ourselves. A united public sector is arbiter of that moral dimension. It defines the framework by which we act, and only it can provide the foundation upon which the economy recovers.
That unlocks a once-in-a-lifetime opportunity: as the global corporate world leans – once again – on the public purse for recovery, we might demand in return a renewed “climate capitalism,” a sustainable economy built for the 21st century.

Climate risk looks a bit like COVID-19, if you squint. Climate risk is the mother of systemic risks. We’re changing the planetary-scale boundary conditions under which civilization evolved: the patterns of weather and water that dictate how we get our food and where we build our cities. Inaction on climate risks our security, civic infrastructure and institutions. The response to climate risk is thus also a moral one: we act to keep ourselves safe. The public sector is director of the show, the private sector its actors.

COVID’s threat feels closer than climate, though – right? That’s why we called a political truce and acted with urgency. We want to protect our aunts, dads and friends – today. And climate’s still way over the horizon. Well . . . did COVID feel so immediate a few months ago? The risk of a pandemic was always there; we just ignored it. And the climate threat feels less distant with each new firestorm, flood or drought. Ask an Australian how up-close and personal climate risk feels, or someone whose home burned in Fort McMurray or California. A new generation, led by Greta Thunberg, certainly feels an immediate sense of insecurity.

We have to invent a vaccine for the climate crisis – it’s called climate capitalism

There’s one crucial difference no amount of squinting can reconcile. Worst case on COVID is we screw up on social distancing but still resurface in a year or so when a vaccine comes along. We can fail on COVID and recover. Failure on climate is forever. There’s no putting planetary boundaries back once they shift to more energetic and dangerous states. It’s a one-way trip. There’s no equivalent of social distancing to buy time, marshal resources and plan a counter-attack. So we have to invent a vaccine in advance. That’s climate capitalism: a vaccine to anticipate climate risk.

Left and right united under COVID – Trudeau and Ford working together! – because people won’t tolerate leadership that can’t protect them, whatever their political stripes. You don’t have to be a lefty to appreciate a strong public sector today. Neither must you be a Wall Street titan to understand market forces; big corporations and private capital are powerful tools to solve wicked problems – if given focus. We see that with COVID: the private sector scales up needed tech – tests, vaccines, treatments – when coordinated and incented by the public sector. Climate capitalism is no different: the private sector can and will act decisively on climate but only when incented and directed by an empowered and united public sector.

But on climate the political divide grows wider. Many on the far left – led by Naomi Klein – blame capitalism itself for climate risk and would have us throw it out. This is misguided in three ways. First, we can’t possibly rebuild energy systems without private capital, innovation and all the complex activity only markets can organize.

Greenhouse gases aren’t DDT – you can’t just ban them. Second, radicalizing the politics of climate hinders the work of building the large tent needed for decisive action in a democracy. Third, it sets arbitrary limits on what capitalism can look like. If Klein’s target were limited to American-style free-market fundamentalism, she’d have many allies, including me.

On the other side of this cultural divide sit reasonable people, civic and business leaders who understand that climate risk is real but prefer an incremental approach. They fear radical intervention in the economy. Instead, it’s proposed we nibble around the edges. That too is misguided – a bit like lifting COVID’s social distancing restrictions too soon because you fear short-term pain. The reduction in risk is illusory. It’s the long game that matters. It’s too late to nibble around the edges; only deep, radical cuts in emissions will do. Incrementalism feeds into Klein’s radical narrative: “See? Capitalists won’t do what’s necessary. Let’s bring it all down!

Nothing can redeem COVID. But it offers us a once-in-a lifetime window to fund that vaccine.

Capitalism isn’t monolithic. It means different things to different people. For an ordinary person, it might mean owning your own bakery, working for options in a tech start-up or watching your RRSP grow so you can retire in comfort. It can mean Russia’s anarcho-capitalism, Indonesia’s crony capitalism or China’s state capitalism. Sweden is as much a capitalist country, on this view, as America. There’s no preordained role for the public sector. Roosevelt’s New Deal didn’t make the U.S. any less capitalist. Nor is private capital sacred – it moves under a legal framework that citizens endorse. There’s no predetermined moral dimension: it’s neither good nor bad, but reflects human complexity.

Climate capitalism is a rewiring of the economy using whatever works to put a cork in emissions – whether they come from the left, right or anywhere else. Economic radicalism is not the same thing as political radicalism. We harness as many existing institutions as possible for the sake of expediency. We don’t throw out the machinery of capitalism; we replace the fuel.

Twenty years ago, the story would start and end here: price carbon – start low, ratchet it up slowly, keep it revenue-neutral so it’s not a government cash grab. Sit back and watch the market work its magic. Optimally efficient, it’s the incrementalist’s dream! Unfortunately, it’s too late for that soft landing. If your house is on fire, you don’t care if the hose leaks; you just want lots of water. Speed matters more than efficiency.

We need shortcuts – even if they’re less efficient. Here are some ideas.

Has anyone fought an election over efficiency regulations? Car mileage standards or the carbon content of fuel? Sustainable energy professor Mark Jaccard points out that the heavy lifting on emissions reductions thus far, whether in Canada or California, was borne by regulations. Many define an outcome – say, energy use in buildings – without defining how to get there. Jaccard calls them “flex-regs.” Fast, effective, often under the political radar.
Remember “Own the Podium” back in the Vancouver Olympics? We picked athletes who competed at an international level and gave them resources to train. Do the same for cleantech. Back companies with demonstrated traction in global markets with loan guarantees for production and project finance. Today, old stuff gets cheap capital, new tech doesn’t. Let’s flip that around. This isn’t the government picking winners; it’s the government backing winners – a big difference.

Teach young CFOs that energy costs are of strategic importance. Why? Because capital budgets are reserved for core investments – more T-shirt machines for a T-shirt company, bigger holes in the ground if you’re a miner. Energy retrofits are stuck begging from operating budgets, which means they need paybacks in a year or so. Most efficiency fruit remains unpicked, across the economy. Yet rare is the CFO who gets more than 15 to 20% on core capital, and efficiency pays twice that! No policy required, just fresh thinking.

Fund low-carbon infrastructure with green bonds, with a twist. The government raises cheap capital with a Canada Savings Bond–like instrument. The private sector bids on the right to deploy it. A public mandate incents those private money managers with a single metric: maximize carbon reduction at minimum cost to Joe Public. A green bank, done right, combines the public cost of capital with the private sector’s nose for profit.
Finally, use the most powerful institutions we have. We gave up a degree of sovereignty to the World Trade Organization. It has real teeth that impinge upon national governments. Leverage those teeth. The WTO (and World Bank and IMF) reflects the priorities of those who negotiated it. If Trump can upend NATO, imagine how an empowered group of national leaders might reform the WTO to level the playing field between countries by forcing climate laggards to bear carbon tariffs.

Nothing can redeem COVID. It’s a nasty little thing. But maybe it’ll help us hear experts on climate risk and reconcile the priority of long-term stability over short-term cost. We might also use the strongest public hand we’ve had in a long time and write a new climate contract between citizens, our governments and the private sector. If so, we’ll emerge the stronger for COVID, however horrid its impacts.

Tom Rand is a cleantech investor and author of The Case for Climate Capitalism: Economic Solutions for a Planet in Crisis.

The post Can climate capitalism cure what ails us? Fighting climate change in the age of COVID appeared first on Corporate Knights.

The first time I went to the annual Woodstock for capitalists in the Swiss village of Davos back in 2005 (to launch the inaugural Global 100 Most Sustainable Corporations in the World ranking), Dylan’s lyrics would have been the last theme song in the universe chiming in my head.

I remember then asking Steven Schwartzman, co-founder of the giant investment firm Blackstone, if he was doing any investments in renewables or green companies. He replied, “Nah, that stuff is too small for us.”

How the music has changed. In 2019, it’s not just Corporate Knights crooning about sustainability in the Swiss alps. Now, the world’s biggest investors are dancing to the same beat, even if they still look a little awkward on the dance floor (anyone who made the McKinsey soiree at the Belvedere Hotel will know what I am talking about).

On Tuesday, François Riahi, the CEO of Natixis, a French bank with assets under management of $1 trillion, told guests at a dinner in the Belvedere Hotel, hosted by Corporate Knights and Climate Bonds Initiative, that his bank has introduced a Green Weighting Factor.  Weighting factors go to the heart of how bankers allocate money and this one aims to promote finance deals with a positive impact on both the climate and the environment at large by adjusting the expected profitability threshold on various transactions according to their effects on climate change. Riahi said that he sees a point not far off where two companies with the same financial profiles will have different costs of financing based on their alignment with a 2° C or less world.

We also heard from an executive at BNP Paribas (one of the ten largest banks in the world) that the bank has set – and met – a target of 15% of its corporate loans being dedicated to furthering the UN Sustainable Development Goals (SDGs), in part because they link executive bonuses to achieving the target.

After dinner, I swung by a reception hosted by Steve Forbes of the eponymous Forbes magazine (otherwise known as the bullhorn for red-blooded capitalism), whose main (and most read) story published that day was a feature on Corporate Knights’ Global 100 Most Sustainable Corporations. Whereas past incarnations of the Forbes Davos shindig showcased magazine covers celebrating the wealthiest people on the planet, this year the blown-up cover on display beside the champagne flutes was for the Just 100, a ranking of America’s most just companies.

Wednesday morning on the way to breakfast, I picked up one of the many free copies of the Financial Times on offer. As I was leafing through the paper at breakfast, I couldn’t help notice two of the largest investors in the world (UBS $3.2 trillion, and Amundi with $1.5 trillion) had taken out prominent ads extolling that they were going all-in on sustainable investing.

As I pondered this, a friendly-looking woman with a Northeastern U.S. twang asked if she could join me for breakfast. It was Barbara Novick, vice-chair of Blackrock, the world’s largest investor with $6.4 trillion assets under management. The week prior, Blackrock had been the target of a brilliant Yes Men campaign, which distributed the 2019 annual letter ostensibly from Larry Fink complete with a faux-web site announcing that the world’s largest investor was going to dump companies failing to comply with the Paris accord: “To make good on the threat I issued last year, we will begin this work by divesting from coal companies in our actively managed funds. Within 5 years, more than 90% of our 1000+ investment products will be converted to screen out non-Paris compliant companies such as coal, oil, and gas, which we see as declining and endangered.”

The remarkable part, and sign of the times, was that the venerable Financial Times fell for it, publishing a story that the world’s largest investor was going to dump companies failing to comply with the Paris accord, before Blackrock clarified it was hoax. The fact that such a story could be deemed plausible by the world’s financial newspaper of record tells us how far perceptions on sustainable investment possibilities have come in just a short time.

Later that evening at a dinner focused on financing the sustainable development goals, an academic from Cambridge University, Ellen Quigley, challenged Scott Mather, chief investment officer of Pimco, one of the world largest bond fund managers (with $1.8 trillion assets under management), to account for what his firm is doing to defund “zombie companies” out of step with a sustainable low carbon future. I was expecting a canned answer but was instead surprised by Mather, who between bites from his poached pear desert, noted that they are keenly aware of companies at risk of “zombification” and are already taking measure to reflect this in their credit ratings and in the make-up of their investment portfolios.

The Davos 2019 takeaway for me is that while the establishment capitalists are late to the sustainability party, they have finally shown up. Thank goodness, because we are running out of time, and we need all the help we can get. As Sir David Attenborough pointed out in his plenary address:

 The future of the natural world is in our hands. We can wreck it with ease. We can wreck it without even noticing.

 

-Sir David Attenborough

There is no question in my mind that we can find a way to reconcile humanity with a livable planet. The question is whether this happens smoothly within our current capitalist system or with great upheaval. If capitalism is going to adapt and survive as economies change to become symbiotic with the planet and society, it will require a new mindset which appreciates that healthy markets require healthy societies, and that serving society is not incompatible with serving shareholders—within reasonable limits.

I believe this ethic is taking root. In order to make capitalism dance for society, the below dos gleaned this week in Davos offer some instructive wisdom:

#1 Do focus on the big numbers. Plastic straws matter symbolically, but if China’s Belt and Road Initiative (China’s multi-billion Marshall-esque Plan for economic development along the old Silk Road route) doesn’t have sustainable design principles embedded, its impact will be on par with adding two China’s worth of carbon emissions to the planet, as Simon Zadek, the UN man charged with figuring out how to finance the SDGs, pointed out.

#2 Put your money where your mouth is. Let’s make sure major capital flows all go through the lens of sustainable development, including the sleeping giant, corporate pension plans. That could unlock trillions of dollars for green investment, as the heads of the world’s largest corporate and investor sustainability initiatives have called for.

#3 Hold investors to account. While corporate sustainability rankings abound, it’s time to rank the world’s largest investors on what they’re doing to bring about a sustainable world (stay tuned on this one).

#4 Put more women in charge. Dominique Reiniche (the chair of Chr. Hansen, the most sustainable corporation in the world), Angela Merkel (climate warrior and closest thing we have to a leader of the free world), New Zealand’s rock star PM Jacinda Ahern (who is going beyond GDP with a well-being budget to guide her government’s priorities), and the trailblazing heads of the world’s largest corporate (Lise Kingo) and investor sustainability initiatives (Fiona Reynolds) are all women. Notice a pattern.

#5 Scale bottom-up solutions. While the big institutions of yesterday are coming around, their inertia makes it more likely that transformational solutions will emerge from bottom-up sources that harness the better angels of human nature.

#6 Champion new visionaries for a sustainable economy. It’s time to replace yesterday’s capitalist icons with new heroes that point the way to a sustainable planet, like Mariana Mazzucato in her new screed, The Value of Everything, that lays out a powerful framework for purposeful capitalism and Oxford’s Colin Mayer, author of Prosperity: Better Business Makes the Greater Good.

#7 Do stay in touch with the nature. Its essence will sustain and inspire this journey, as Jane Goodall and 17-year old wildlife photographer, Skye Meaker (my bus-mate from the Zurich airport), emphasized. If the proprietor of local cross-country ski rental shop is any indication (“we are not big fans of the WEF because they’re too busy with their meetings to go skiing”), the Davos men and women still have some work to do here.

#8 Do swim against the current—it could be the best way to get ahead of the pack which is still extrapolating from the past to predict a future that is going to be radically different. As Bill Gates wisely reminded: We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.

#9 Exercise persistence. Nothing worthwhile is easy.

#10 Get out of your comfort zone. That’s the best sign that you may be doing a jig that has legs.

Bottom line: CEOs who want to be on the right side of history will want to lead change rather than stand in its way. Although it would be hard to imagine him ever making an appearance at Davos (like Sting did this year at the Salesforce party), Dylan may have captured the zeitgeist best: Your old road is rapidly agin.’ Please get out of the new one if you can’t lend your hand, for the times they are a-changin.’

The post 10 lessons from Davos on changing capitalism’s tune appeared first on Corporate Knights.