Look at Linked In or any corporate website and everything is about Climate Change, sustainability and ESG. There is no longer even any debate about the science, it has, according to the politicians at least, been ‘settled’ even though of course in real life, it has not. But proper application of the scientific method is not required here, the politics has been settled and so the capital allocation by all and any associated with the public sector or big savings business has also, largely, been determined. Expect more ‘news’ and reasons to ‘panic’ this week since, as snowstorms hit the US and Europe, it is time for the the regular 10 day Climate Conference (Cop 25), where the usual Davos crowd jet in to worry about Global Warming – or if it is cold outside, Climate Change.
The 30,000 or so attendees were originally supposed to be in Brazil, but they had political problems, then in Santiago, Chile, but then some rioters put paid to that, so they found somewhere unlikely to have snow (the photos from that Copenhagen summit was rather awkward) and finally settled on Madrid. President Trump won’t be there, but House Speaker Nancy Pelosi and a group of Democrats will, as of course will be the ever present face of 2019, Greta Thurnburg.
To date, the biggest ‘winners’ of the policy of ‘minimising your carbon footprint’ have, perhaps not surprisingly, albeit spectacularly ironically, been the people who popularised the term in the first place; the big Oil and Gas companies. The same people who are supposed to be ‘funding climate deniers’ are actually making a fortune from eliminating their major competitor, coal. When in 2000 BP began referring to itself as ‘Beyond Petroleum’, it was selling its natural gas as an alternative to coal via the notion of a carbon footprint and as a competitive strategy it has been fabulously successful; the proportion of US electricity generated from Coal has collapsed from 52% in 2000 to 27.4% today, almost but not entirely replaced by Natural Gas, which now provides 35% of electricity production. This, again somewhat ironically, has meant that the US has been one of the few countries to reduce its ‘carbon emissions’. We put the latter term in quotation marks because of course it is not carbon that is being measured in terms of what we think of as soot particulates, it is Carbon Di-oxide, which is a harmless, colourless, odourless trace gas. Just one example of clever spin and semantics.
The other winners of course have been assorted elements of the renewables industry who also use curious definitions to help their business, even if the results have highly unfortunate unintended consequences. For example, the companies involved in bio-diesel, leading to corn being turned into fuel in the US causing food prices to rise, or those cutting down rainforests in Indonesia and Borneo to plant Palm Oil. Elsewhere companies are profiting from converting wood into pellets to ship across the Atlantic on diesel ships to to be burned in ‘carbon neutral’ power stations, where the real carbon particulates apparently don’t count because the Carbon di-oxide is offset by new trees being planted (seriously). Meanwhile, manufacturers and installers of wind farms, where again the steel and concrete involved is apparently carbon neutral because of trading some carbon offsets, are doing extremely well and lobbying for further despoiling of the landscape – backed up by very rich landowners extracting cash from poor people via high electricity prices. All of which brings us to the two industries lining up to make the real big money from Climate change; autos and finance.
As two of the biggest industries in the world and arguably most adept at managing the narrative, both are looking to take advantage of this now unstoppable political force. To start with autos, which are particularly important in continental Europe and especially so in Germany. Having been caught out on the emissions tests, the Europeans have been largely forced to abandon diesel, which was being presented as ‘low carbon’, when in fact it was that diesel was lower in carbon di-oxide than petrol. It was of course higher in actual carbon particulates and other pollutants. Once again ironically, they were ultimately caught out by their own semantic trickery.
There was of course a ruthless competitive angle to this from US petrol engine manufacturers, but be that as it may, the reality is that European autos were forced to switch to plan B, which is hybrid and electric. After years of talking down Tesla and other start up EVs, the big European auto companies are now embracing EV technology enthusiastically as their own models come on stream and they are being assisted by a change in industrial strategy from the EU, in particular in supporting Battery manufacturing in Europe. With autos one of the biggest employers in Europe and the battery representing up to 40% of the cost of building an EV, the need to have them made in Europe has become an urgent political priority. In Asia of course, the biggest market, China, has long been focused on reducing pollution rather than Co2 and is effectively concentrating on replacing petrol with electricity, coal fired or otherwise. Electric cars are still more expensive, but because they are ‘saving the planet’ the manufacturers can get government subsidies and squeeze out the competition.
The second area is of course finance. As mentioned in the opening paragraph, almost every large active fund manager is now offering an ESG product, not least because it helps escape from the passive benchmark industry. More importantly though, it has become an article of faith for almost every large pension fund and insurance company to ’embrace sustainability’ and we suspect there is not a single government related investment organisation anywhere on the planet that does not now have a ‘sustainability – for which read climate – policy’. In effect, allocation of institutional savings have been brought under state control. Institutional investment in the west has thus totally bought into “Climate Change’. So far however, selling it to Asian investors is proving a bigger stretch. Individual savers are more concerned about growing wealth and preserving it, rather than following this new western doctrine.
Coming next are the bankers and the traders. It strikes us as no coincidence that the same week we hear that Bank of England Governor Mark Carney is off to the UN as their “Special Envoy on Climate and Finance”, we are also told that Former US Secretary of State John Kerry has put together his celebrity Climate group, World War Zero. Carney, who has stated that “The Financial Sector must be at the heart of tackling climate change” is almost certain to be promoting some form of Cap and Trade agreement, as previously proposed by….John Kerry. When John Kerry last tried, together with Al Gore and assorted Goldman Sachs alumni, he was promoting Carbon Credit trading through a Chicago based Exchange, CTX. Unfortunately, for them, the politicians failed to make Carbon credits obligatory and the market collapsed. Now that we are being told there is ‘A Climate Emergency’ and with Goldman Alumni Carney helping out at the UN, they are presumably hoping to have better luck this time around?
