The activist group Extinction Rebellion’s human roadblocks brought London traffic to a standstill in early February. In the US, Climate Silence and the Climate Mobilization Project continue to mobilize citizens to “cancel the apocalypse.” Meanwhile, several of the Democratic contenders have signed onto the Green New Deal framework — projects which are estimated to take trillions of dollars. At the same time, curbing climate change could also prevent trillions of dollars in damages globally.
Have we ever seen a larger surge of energy for facing the global climate threat? If this continues, the path of human progress could continue to climb upward in spite of climate prognosis. We appear to be at a fulcrum when we could abolish global poverty in the 21st century or spike global poverty conditions. Where we go depends on taking well-considered next steps.
Graphs on global prosperity show us that people are living longer, more children are going to school; extreme global poverty has already fallen worldwide from 85 to 10%. But until recently, we have seen little consensus on the implementation of the UN Sustainable Development Goals. This could be explained by the fact that we’re looking at 3.3 to 4.5 trillion in US dollars in annual investment, according to the Organization for Economic Cooperation and Development.
A few months ago, the buzz on the latest IPCC report was that we have about twelve years before we lose the chance to stop the climate change clock. Scaling solutions to global poverty (including mitigating risks to healthy climate) and building climate-smart infrastructure in the next few years will take major financing and soon.
“Let’s be as rigorous as we can be about how to take things to scale,” said Jim Yong Kim, World Bank President, in a 2015 Freakonomics Radio interview. “That really has to be our main focus. We’ve got to take solutions, scale them, and scale them more quickly than we ever have.”
Before he stepped down on February 1, Kim urged the Bank Group to maximize finance for development by working with private sector partners committed to building sustainable infrastructure in developing countries.
Good Will Indexing
So why don’t we start taking our own investment decisions to support these goals? Put money into companies with a reputation for public goodwill, and those with outstanding Environmental, Social and Governance (ESG) ratings?
Unfortunately, this way of winnowing down to an index of high ESG ratings undermines the general investment rule of broad diversification. While the idea of investing in socially conscious funds is appealing, the reality is less so. The financial sector first delivered “green” funds to consumers late last century. When they underperformed, fund managers swapped in old workhorses. This tendency appears not to have changed much since the early aughts.
Today, if an investment with a high ESG rating performs poorly, it is likely to be replaced with a mega-corporation. Have a look at one of the first Socially Responsible Investing (SRI) indexes. Established in 1990, the MSCI Index KD 400 Social Index is self-described as comprised of companies with strong sustainability profiles that screens out companies incompatible with these values.
So it’s slightly mind-blowing to see that Microsoft, Alphabet, and Facebook comprise the majority of holdings. And another top MSCI Social Index constituent, Coca Cola, probably has no hope of ever having a “strong sustainability profile.”
If market analysts, fund managers, and investment consultants could promote our advocacy rights to make regulatory changes, and set targets on fair trade supply chains and the responsible development of commodities, we might begin to see some more movement in such index funds.
As domestic investing methods somewhat fall down in this area, we look to other incentives that could significantly shift the fabric of the global economy. With any luck, incentives will move us toward innovating infrastructure that better sustains the planet.
For example, the World Economic Forum promises a growth opportunity to create $4.5 trillion in economic value in the next 11 years for corporate leaders to “go circular.”
“Scale 360” plans to support entrepreneurs with solutions that meet the criteria of a circular solution. Google also launched Circular Economy 2030 to engage similar innovation. In April, the contest finalists will attend Google Cloud Next San Francisco to participate in a hackathon for a grand prize.
What is going circular? According to “renegade economist” Kate Raworth of Oxford in her book Doughnut Economics, her diagram of this type of economy shows the inner ring representing common needs for optimal living: food, clean water, shelter, sanitation, energy, education, healthcare, democracy. The outer ring represents the Earth’s limits. The area between the two rings is “the safe and just space for humanity.”
But in the end, this whole discussion is flawed. Looking at climate adaptation through the lens of cost-benefit analysis (CBA) leaves too much out of the equation. CBA has blind spots. Tufts economist Frank Ackerman points out one of the problems with CBA is the need to “make up monetary prices for priceless values of human life, health, and the natural environment.”
In consideration of the unavoidable climate-related systemic risks we know we are facing, to think only of the cost is like trying to break even gambling with house money. Let’s stop dithering, reorganize the economic structure, and push the lever to move us in a more protective direction.