By Tilly Alexander
Hot on the heels of five days of student divestment protests at St John’s College ending in triumph on Sunday, the Oxford Climate Society’s Green Investment panel couldn’t have been more timely . Subtitled ‘What role can finance play?’, Monday’s event saw its panelists engaged in a lively discussion exploring how investors can, should and will help mitigate the effects of climate change.
The evening’s panelists included Dr Elizabeth Harnett, James Hulse, and Rupert Stuart-Smith. Leader of the Future of Engagement programme at the University of Oxford's Smith School of Enterprise and the Environment, Dr Harnett’s work focuses on bridging knowledge gaps between academia and industry. Industry expert James Hulse also provided the discussion with a professional touchstone. He was a proprietary trader for 14 years before moving on to set up the world’s first climate change hedge fund in 2007 and more recently Hindsight Consultancy, for which he is managing director. (Hulse notes of the name that, “in hindsight” all current movements towards green investment and protecting the climate “seem staggeringly obvious”.) Rounding off the panel was ex-OCS president and co-ordinator of the UK Youth Climate Coalition Rupert Stuart-Smith, currently working as a research assistant at the Oxford Martin Program on the Post-Carbon Transition.
The discussion was kicked off with the question: Why aren’t investors incentivised to care about climate change?
As Hulse highlighted, it comes down to timescales, money, and “lads” mentality. Generally everyone within the industry is working to a short timeline (up to around five years only). What’s more, as a fund manager, your job is effectively to not do significantly worse than the global markets, and you get paid around £400,000 to do that. This means there’s little incentive to do anything other than the same as the rest, just slightly better. In fact, the last thing you want to do is something different: if you take a risk and it works you’ll probably still get paid the same, while if it fails you’re likely to get fired. (In other words, it’s not a very good personal investment.) However, the flipside of this sheep mentality is that when everyone starts making changes, you’re incentivized to do the same. With oil and gas the worst performing sector for three consecutive years, there is increasing incentivisation to get out of it.
According to Harnett and Stuart-Smith, additional reasons include: a lack of belief that risks will actually materialize, and a lack of knowledge about the Paris Agreement and climate change, a lack of data to go off. As Harnett pointed out, with over 400 different companies providing sustainability metrics (with no universal standard), investors are “comparing apples to pears”.
Discussions then moved onto:
What is forcing investors to change their behavior?
The three panelists agreed the Paris Agreement was pivotal. Hulse stated that “Paris changed everything for investors. We can argue about the speed but not the direction of travel. Governments around the world have committed to this.” Articles 2 and 4, which detail the need to keep the global average temperature below 2 degrees above pre-industrial levels and provide scientific support for the urgency of reaching Net Zero within three decades respectively, were particularly praised.
Stuart-Smith also highlighted the growing number of lawsuits seeking to hold big oil companies accountable for the environmental damage impacting millions that they have caused but not had to suffer from individually. (See New York City’s case against Shell, Exxonmobile and three others in 2018, for example.) When these companies actually have to pay for the risks they take, they will no longer be able to remain profitable. Indeed, faced with numerous lawsuits following the California wildfires in 2018, PG&E (Pacific Gas & Electric Corp) was forced to declare bankruptcy. The falling cost of renewables is also accelerating this transition and exposing fossil fuel incumbents.
The focus then turned to: What are investors doing currently doing and what should they do to integrate climate change into their decision-making process?
To integrate climate change in the decision making process, its vital to consider the environmental, social and governance criteria (ESG). These 3 factors are used to measure the sustainability and social impact of an investment.
But how does it work in practice? Hulse noted that though you “can start to measure things” such as carbon emissions, yet these measurements don’t say much about the environmental risk side. Stuart-Smith elaborated on this issue with the example of TPI Tool. Academically based at LSE, the tool assesses companies’ compliance with the Paris Agreement. However, this only spans 5 years into the future, which simultaneously tells you nothing and is misleading (companies tend to look good in the short term). Most significant so far is that banks have withdrawn money from new coal plants. But companies need to have far more ambitious plans. Dr Harnett highlighted the importance of investing in nature-based solutions such as carbon sinks, a discussion that was just beginning in 2019. However, given it is harder to measure results here in terms of financial attribution – you can’t say “I saved this acre of rainforest” – she noted that ways will need to be found to incentivise investors.
What about individual investors and “average people”?
Divestment was recommended by all three panelists. Though “underrated”, it is also “clearly having an impact”, as declining coal share prices indicate. Such change has been triggered not by the collapse of the coal market (which is, sadly, still alive and kicking) but by divestment. As Hulse noted, much to the audience’s amusement:
“You’ve got to be an idiot if you think Exxon is one of the best companies out there. You shouldn’t be managing money for other people if you think that.”
All three also highlighted the different ways in which the individual can exert influence: ask your parents where their money’s invested, use your power as a consumer to signal to investors, campaign, vote in way that helps green policies. Students can also talk to colleges, often sitting on huge endowments, with much of their money tied up in fossil fuels.
The panelists were subsequently asked to expand on the problems that financial institutions face when trying to integrate climate change. “Where to start”, Hulse noted, likening it to the birth of the internet and the tech boom: “climate change changes everything for every business”. It’s not just big oil companies like Exxon that will be affected but delivery services like FedEx, airlines, the steel, concrete and automobile industries, even agriculture (often forgotten about alongside other sectors). We will still need steel, concrete, food, so how do we offset it? Yet at the same time companies can’t be allowed to get away with just saying they’ll offset. The potential for disruption is enormous and it doesn’t take much for civil unrest to start, all of which investors are trying to navigate. Dr Harnett also pointed out another huge underlying issue: many investors simply don’t understand the science. Investors and climate scientists effectively speak different languages and the complexities haven’t been sufficiently translated.
Endeavouring to end on a positive note, the panelists were finally asked about positive trends towards green investment.
(This was initially met with silence, to the audience’s amusement.) Noting that investors respond to societal behaviour, the panelists praised millennial efforts including the fly less movement, surges in veganism, demand for fossil fuel free products and huge changes in expectations around plastics. Activists like Extinction Rebellion and Greta Thunberg speaking out have also got companies scared. While there is “a lot of bullshit” aka greenwashing, this still represents a positive shift as it means companies are scrambling to respond to consumers, wanting to be seen as green while they figure out how to actually change. Millennials are also demanding that the businesses they choose to work for represent their values, with fossil fuel companies finding it increasingly difficult to find people to hire. Even countries like Saudi Arabia, Greece, Qatar are making plans to divest their stock in the fossil fuel industry – a huge shift, unimaginable two years ago. The growing body of scientific evidence able to demonstrate that climate change isn’t just bad luck but the impact of a small group of big companies, as well as rising number of climate litigation cases is also positive. The only thing missing is a political mandate that will put an end to the fossil fuel industry.
Now at risk of losing their social license if they fail to think about ESG factors, financial institutions are ultimately on track to change for the better. While 15 years ago no one in finance was aware of climate change, now everyone running serious amounts of money needs to be.
By Bianca Pasca
The science behind climate change often dominates climate news. But increasingly, the economic impact is coming to the fore: and we have The Stern Review to thank for this.
The review was commissioned by the British government, to report to the Prime Minister, Tony Blair, considering the problem from a medium- to long-term perspective. It used economic models- including integrated assessment models- to estimate the economic impact of climate change and macro-economic models to assess the costs and effects of the transition to low-carbon energy systems for the economy as a whole.
Inaction could cost 20% of GDP each year.
This was highly significant because it changed the perception of climate action from an economic burden to an economic benefit and ultimately an economic necessity
While there was much debate after the publication of the report and there still are diverging opinions (after all, a lot of the consequences are still unknown, unpredictable and hard to assess, especially from an economic point of view), The Stern Review did have an important impact.
By Hebe Larkin
Throughout the 20th century, economic growth was the ultimate goal of all financial markets. For companies, growth meant profit. For people, the availability of more things, the push of a competitive market to innovate, and a rise in wages as a result of this competition inevitably lead to an increase in living standards. In the 1950s, capitalist America became aspirational, and economic growth was viewed as a means of increasing quality of life. Nowadays, major corporations (with some of the world’s largest polluters among them) seize on this argument to counteract a push for Corporate Social Responsibility (CSR) policies. Redirecting money to protect the environment is incompatible with social justice, they argue; for it reroutes money which will trickle down directed to the poor for environmental protection. Growth is the only model under which social justice is achievable.
But growth is inherently unsustainable. It requires the use of resources at an ever-increasing rate; but our current rate of consumption is already unsustainable. Furthermore, with the global ‘middle class’ expected to grow from 2bn consumers in 2012 to nearly 5bn by 2030, resource use is only going to increase – and accelerate. So there is a problem, it seems, at the heart of our socio-economic system: we cannot have a socially just world, if we have an environmentally sustainable one, and vice versa.
Yet Oxford economist Kate Raworth has posited a solution to this, requiring a complete re-conception of our current economic model: she calls it ‘Doughnut Economics’. First introduced in a report she authored for Oxfam in 2012, and later the subject of her 2017 book Doughnut Economics, Raworth’s model provides a framework for an economic system under which the world is both socially just, and environmentally sustainable. So exactly how does it work?
The model is reasonably simple, consisting of the ‘social justice line’ – the lower limits below which, a society that is socially just, cannot fall– and ‘planetary boundaries’ –the limits beyond which we endanger the earth’s ecosystem.
The ‘Social Justice Line’ is comprised of the following categories as follows:
The ‘Planetary Boundaries’ are the following (N.B. as it stands we have already exceeded the first four boundaries and are dangerously close to reaching many others):
But how can this model be viable, if it is at odds with received opinion? The fact of the matter is, it’s not the needs of the poor that is putting strain on the planet: it is the demands of the rich.
As the Oxfam report states: providing the additional calories needed by the 13% of the world’s population that currently face food insecurity and facing hunger would require just 1% of current global food supply; bringing electricity to the 19% of the world’s population who currently lack it is achievable with less than a 1% increase in global CO2 emissions; ending poverty for the 21% of the world’s population who live on less than $1.25 a day would require just 0.2% of global income.
By contrast, a mere 11% of the global population generate around 50% of global carbon emissions; the richest 10% of people hold 57% of global income, the poorest 20% just 2%; high-income countries, home to 16% of the world’s population, account for 64% of world’s spending on consumer products and use 57% of the world’s electricity.
So achieving social equality requires little increase in resource use – it instead requires a redistribution of existing resources and a balancing of consumption. Indeed, environmental stress can exacerbate poverty (by limiting people’s access to food security, health, safe water & sanitation, among other things), and vice versa (by forcing people to use resources in inefficient ways to meet their needs) - so it is not as simple a dichotomy as it may be made out to be.
What is required, then, is a series of policies enacted with serious consideration of both sides of the coin, that take into account social and environmental factors. Policies which purely focus on one of these factors risk endangering the other. For example, subsidising fertilisers to increase food production and reduce prices can often encourage farmers to use excessive amounts of fertiliser. This brings marginal improvements in crop yields and simultaneously harms the environment when nitrogen makes its way into the water system.
A more effective means of approaching this issue would be to tackle food waste, reducing the demand for an increase in crop yield – for on average, 1.3bn tonnes of food (1/3 of the world’s food supply) is wasted each year. This is achievable by improving harvest techniques, storage facilities and processing in developing countries, and increases farmer’s incomes while reducing land, water, fertiliser use and carbon emissions.
So we shouldn’t cling to growth as the financial model. Raworth’s doughnut provides an economically viable, socially just and environmentally friendly means of rethinking approaching our current economic system.
By Bridget Stuart
What you need to know about COP26
Despite being the longest-ever running in history, COP25 was far from a success (more in OCS blog article). However, 2020 promises to be a crucial year for climate negotiations and action on a global scale. Glasgow is hosting the 26th Conference of Parties (COP26) on the 9th - 20th of November, with Italy hosting the preparatory events.
The location is significant; Glasgow is one of the UK’s most sustainable cities and Scotland was one of the first countries to formally recognise the global climate emergency. Scotland has pledged to be net zero by 2045. The UK itself has committed to net zero by 2050 and has succeeded in reducing emissions by 45% since 1990 while growing the economy by 75%. This sets a leading example for the other G7 countries.
The COP26 conference is a chance for the UK to strengthen its position as a global climate leader, in order to further encourage greater climate ambitions and mitigation goals.
Key Aims of COP26
Key Issues for COP26
Climate science has clearly stated all global nations need to reach net zero by 2050 to have any chance of limiting temperature rise to 1.5 degrees above pre-industrial levels. If there are insufficient greenhouse gas emissions reductions between 2020-2025 (next 5-year ratchet), then it may be too late to meet the 1.5 target. This emphasises the critical importance of COP26: It is clear that COP26 will be remembered as either a momentous success or an unfortunate failure for the UK as a political entity and as part of our planet.
Other important events for the diary:
21-24 Jan: World Economic Forum (Davos-Klosters, Switzerland)
1-11 Jun: UNFCCC Intersessional (Bonn, Germany)
10-12 Jun: G7 Summit (Camp David, USA)
22-27 Jun: Commonwealth Heads of Government Meeting (Kigali, Rwanda)
Date TBC: BRICS Summit (Russia)
Date TBC: EU/China Summit, under German EU presidency (Leipzig, Germany)
15-30 Sep: UN General Assembly/ Climate Week (New York, USA)
Date TBC: Pre-COP26 events (Italy)
15-28 Oct: UN Biodiversity Conference (Kunming, China)
21-22 Nov: G20 Summit (Riyadh, Saudi Arabia)
3 Nov: US presidential election
By Luke Hatton
Imagine for a second you’re leaning back in your chair whilst reading this. As any bored school-child has probably tested out, as you continue to lean back you’ll reach a point where you can feel yourself almost about to fall. A small push later and you’ll end up flat on your back.
This point is called the tipping point (surprise surprise!), and is often bandied around in relation to climate change and international climate negotiations. To understand its importance we have to dig a bit deeper into the global climate system and its complexities.
When we talk about the climate system, we are talking about the collection of processes that control the climate (the average weather over a period of several decades), such as ocean currents and wind patterns. It can change as a result of
The climate system is incredibly complex, with thousands of different processes affecting different areas of the planet and interacting to influence the global climate. Each of the elements of the climate system react to external forcing differently; whilst some parts may respond to a change in the intensity of the sunlight entering the Earth's atmosphere, others may take centuries to reach a new balance.
The complexity is increased further by the effect of feedback. A feedback loop is where the outcome of a process goes on to amplify or reduce the effect of an initial change to the system. This can work in one of two ways:positive (where the output amplifies the initial change) negative (where the system reduces the initial change).
In the case of climate change, negative feedback would be a welcome respite from the struggle we are having to decarbonise - while positive feedback loops could spell a grave threat to the Earth and our way of life.
Positive Feedback loop: melting ice sheets
The most easily understood positive feedback in the climate is linked to the Antarctic and Arctic ice sheets outlined in the process below
Feedback in the climate also comes in the form of negative feedback. The increase in global temperatures could lead to a rise in cloud coverage. The increased cloud thickness could reduce and reflect incoming sunlight, limiting global warming - in much the same way as melting ice coverage could increase global warming.
Unfortunately for us, scientific studies have shown that there is a net positive feedback to global warming - meaning we can’t count on the planet to get us out of this mess.
The tipping points in climate change refers to the global temperature rises that will kick these positive feedback mechanisms into action. The most up to date research on this is worrying to say the least. ‘Hothouse Earth’, a study published in the Proceedings of the National Academy of Sciences in 2019, examined ten natural feedback processes and concluded that even if the emissions targets set in the Paris Agreement are met, there is a risk of the Earth seeing a long term rise of 4 to 5 degrees on pre-industrial levels as a result of tipping points being crossed.
Tipping points are also largely estimates rather than concrete thresholds, with even the IPCC being unsure of the precise levels of climate change which will trigger tipping points. This uncertainty adds a new dimension to the risks of climate change - and could mean that we have already crossed a tipping point. Johan Rockstrom, co-author of ‘Hothouse Earth’ warns that tipping points are likely to be linked, and that crossing one could set off others in a potentially catastrophic chain of dominoes.
If the case for immediate climate action was not strong enough already, the findings of research into these tipping points should be enough to justify radical change as we push towards a zero-emissions emissions society. Going back to the chair, if you were tempted to lean back again and shift your weight forward at the tipping point, you’d right yourself. No such trick exists for the global climate - and we’ll be left with far more than just bruises to deal with if we do exceed the tipping point(s).
By Tilly Alexander
In the wake of COP25, the Oxford Climate Society invited a panel of climate experts to examine the progress in climate action made in 2019, as well as outline opportunities and challenges for international and domestic climate policy in 2020. With Brexit now upon us and Glasgow set to host the next UN climate change summit (COP26) in November, 2020 is a crucial year for the UK in defining climate policy. The evening’s panellists included Professor Julia Steinberger, Professor Henry Shue and Dr Simon Evans.
Dr Simon Evans
Dr Simon Evans, deputy and policy editor of Carbon Brief, opened the discussion, outlining his ten-day experience of COP25. Dr Evans highlighted the “disconnect” between the “outside”: the positive media attention surrounding the event and the “inside”: the disappointing lack of resolutions achieved within it, noting how often “Rule 16” was invoked. (“Rule 16” dictates that if the parties cannot even agree to disagree, then the issue is put on the following year’s agenda, and the decision pushed forward another year.)
Evans noted the discrepancy among definitions of “ambitions”. He commented that what made the situation “particularly complicated” was that countries such as Australia, Brazil and India blocked discussions on similar issues but didn’t agree on all counts, making it “a very complicated Venn diagram”. Dr Evans ended by pointing out that examining the wording surrounding COP26 reveals that the obligations expected of countries are lesser than we have been led to believe. Evans also highlighted the significance of the upcoming US election in determining climate policy in 2020.
Professor Julia Steinberger
Second to speak was Professor Julia Steinberger, Professor of Social Ecology & Ecological Economics at the University of Leeds’s School of Earth & Environment. Steinberger began by commenting that the UK government’s failures in terms of climate policy has forced her to take up a new hobby in 2020: writing to newspapers complaining about UK ministers’ climate denial statements or/and lack of action. Professor Steinberger outed MPs such as foreign office minister Heather Wheeler who recently (and falsely) stated in Parliament that 75% of Australian bushfires were caused by arson. Steinberger also exposed that the UK government effectively spent more money subsidising short haul flights than electrifying trains in 2019. Although £106 million could be found to bail out British airline Flybe, highly-used rail links such as the Manchester to Leeds train line continue to run on diesel despite past commitments to electrification, owing to the project allegedly costing too much (read: less than bailing out Flybe!). Steinberger returned to the theme of “disconnect”, noting that while on some levels UK government officials are rhetorically credit-worthy (unlike certain US and Australian leaders who won’t acknowledge the reality of climate change), their actions fall short.
Though this phase is difficult to navigate, Steinberger cautioned the audience not to listen to what leaders say but instead to look at what they do, reiterating that it is essential to keep exposing the full picture, the whole time. Moreover, with climate activists like Extinction Rebellion being listed as terrorists, we are entering an “age of open confrontation”, where anyone who advocates for change around transport, food and resources is seen as a threat. For context, animal rights groups and cycling advocacy group Critical Mass have also been placed on the counter-terror list.
Steinberger ended by quoting Sam Knight’s ‘Manifesto for the Future’ and noting that going into 2020 we need to think about where we situate ourselves with respect to a government that might be saying the right things but doing the wrong things, and that is branding climate activists as extremists.
Professor Henry Shue, Professor Emeritus of Politics and International Relations at Merton College
Professor Henry Shue, rounded off the opening statements, bringing his work on climate justice and theories of responsibility to the forefront. Shue noted that despite the increasing success of alternative energy like solar and wind, fossil fuel emissions continue to rise. 2018 and 2019 have each witnessed the highest levels ever seen, and though nudging consumers towards alternative energy instead of fossil fuels may eventually work after some decades, it is not doing nearly enough now. (Although more people are buying electric cars nowadays, even more are buying gas-guzzling SUVs, meaning it doesn’t even cancel out.)
As such, Professor Shue argued the importance of radically rethinking our approach to climate change, recommending the need to confront the fossil fuel industry. Armed with a handout that named and shamed global banks who continue to invest in fossil fuels (spoiler: it’s a lot of them!), Shue pointed out that one way we can make a difference is to oppose banks that fund fossil fuels. As Stop the Money Pipeline (www.stopthemoneypipeline.com) evidences, the worst offender JPMorgan Chase has given nearly 200 billion dollars towards fossil fuels since the Paris Agreement. UK consumer favourite Barclays Bank also ranks worryingly highly in Shue’s worst offenders’ list, at number six. Shue recommends closing accounts with offending banks like Barclays and HSBC, and letting them know exactly why you have chosen to do so. Citing “social license”, Shue argues that it is more than reasonable to demand that banks act in the national and social interest. As he points out: we wouldn’t allow banks to fund revivals of the slave trade, so we don’t have to let them get away with loaning money to fossil fuel industries either!
An engaging round of discussions followed, with questions primarily targeting past and future roles of global players like the US and China, as well as what the UK needs to do next. Responding to a question about the international environment, Dr Evans noted that the UN’s Paris agreement has been subtly undermined in many ways by the US’s behaviour. Both the lack of the diplomatic pressure from the US and its trade war with China have been detrimental to collaborative international efforts.
What needs to change, though? While the US election remains the single biggest gamechanger, in the absence of the US, the EU and China need to step up, lead from the front and apply pressure on other countries. Following on from Evans, Shue pointed out that given the high probability that Trump will be re-elected, it would be irresponsible not to prepare for this eventuality. With COP26 coming to Glasgow this year, the UK has a terrific responsibility. Though the UK won’t be part of the EU anymore, we need to work with them to establish European-Chinese leadership and encourage more ambitious climate commitments. This could involve imposing carbon import duties on countries that are the least ambitious with their carbon commitments, as well as a pact between Europe and China. As Shue highlighted, though the UK’s 1% of global emissions are not negligible, attempting to bring down Chinese emissions (currently at 29%) will be more impactful.
Finally, the questions-and-answers homed in on the UK’s schemes, with Steinberger and Evans outlining expected failures and shortcomings with regards to achieving Net Zero. Transport, the single biggest source of UK emissions was brought into focus. Though a deadline for the last internal combustion engine to be sold has been set, it is still far in the future. What’s more, due to weak policy, the UK is set to fail its fourth and fifth carbon budgets (target limits on emissions). Citing TESLA’s recent expansion into China, Shue noted that there is no need for the UK to wait until 2040 to get rid of combustible engines. Both Evans and Shue argued for switching to electric cars, while Steinberger made the case for abolishing all cars in cities expect ambulances and special mobility vehicles. Though internal combustion engines are massively inefficient in cars because they need to be portable, in buses they work far more efficiently as they can be made larger. Currently though, the UK is heading in the wrong direction, with 30 million being spent on building on new roads. As Steinberger points out, roads induce demand, which is the opposite of what we need.
Overall, the panel was highly informative, making thoroughly transparent much of what we have been deliberately kept in the dark about. It is clear that though 2020 offers opportunities for positive change, it is vital to stay vigilant in terms of keeping tabs on and calling out the UK government’s action and inaction.
OCS Media and Research Team
The latest in climate science and policy from the OCS team.