Snowballing The Sustainability Agenda

Friday, 11 November 2005

Felix von Geyer overviews the UNEP Finance Initiative roundtable held in New York, 25-26^th October.

Cynics out there, veterans of the 'Battle for Seattle,' who believe that a group of one hundred and seventy asset managers, investment banks, and insurance/reinsurance companies discussing sustainability must be some secret cloak for globalization to subjugate third world governments, let me tell you this: you did not pick up the wrong end of the stick, but the wrong stick altogether. These people believe that human and environmental security must top the international agenda and that we must grow away from fossil fuels, and fast.

Earlier this year, the UNEP FI president, Paul Clements-Hunt, addressed their free rider issue. Effectively, he told the then three hundred or more members if they were to belong to the UNEP FI then they must do something about sustainability or leave. One can imagine the expletives, but nearly half the members left, leaving a dedicated core of intelligent investment community representatives to address the issues of sustainability, water, carbon and climate change with incisive lucidity.

The private sector should sit up and listen. Addressing the role of the corporation, the Heisenberg Principle from physics has been adapted: ' an observed particle behaves differently from an unobserved particle,' the same is true of a corporation. Companies should obey the law and not opt to pay fines when these are deemed cheaper than compliance; that ExxonMobil produces 21 million tonnes more of CO2 than Shell and are 41% more carbon intensive, is all becoming increasingly scrutinized behaviour. Insurance and reinsurance companies are addressing the costs of climate change and wondering how to refuse insurance or charge higher premiums to the big polluters who are doing little to reduce their GHG emissions, perhaps withdraw D&O (Directors' and Officers' public liability insurance) so that they become personally liable in the event of a class action lawsuit. Companies should be forced to 'internalize their externalities.' ExxonMobil's external costs to society are estimated at $5 billion, 27% higher than Shell.

If corporations internalise their externalities, then there will be only one, single, bottom line. Martin Hancock, as Chair of the UNEP FI, was keen to stress that most companies have huge, undisclosed liabilities, on their balance sheets or, as Julie Fox Gorte of Calvert expressed the scenario: "the more 'intangibles' there are add up to make a company really vulnerable." Pension funds are sitting on thirty to forty yearlong liabilities while insurance and reinsurance companies are picking up the bill for companies' externalities. The insurance industry produced figures to show how global GDP had tripled since 1960 while weather related economic loss had increased sevenfold. The predictions for the near future are exponential.

From a sustainability perspective, markets are traditionally myopic and governments have short-term cycles. Consequently, sustainability initiatives must come from within, from the companies and the investment community in order to become 'masters of our own destiny.' Therefore, part of the problem is to acknowledge that the problem exists, after all, evolution occurs only when there is a shock to the system. So, too, does extinction.

Much pioneering work has already been undertaken by the finance community to make CSR or ESG (environmental, social and governance) issues a material factor in corporate behaviour. The Enhanced Analytics Initiative of 2004 is one example, the work of companies such as KLD, Michael Jantsi and Calvert, not to mention Innovest's carbon disclosure project are further examples. There are thirty or so banks who have signed up to the IFC's Equator Principles to ensure that project finance does not happen without proper environmental and social impact assessments. Similarly, the work of the UNEP FI is groundbreaking.

Established since 1994, they have geographic committees as well as sectoral working groups such as the Asset Management Working Group. They work with the GRI to perfect a measurement matrix and reporting mechanism for companies across the environmental, social and financial spheres. The UNEP FI brings together expertise, knowledge, networks and will power, plus resources. They are able to snowball the sustainability agenda, to move it with such momentum that its impetus will be an essential, unavoidable, global force for positive action.

As Leo Johnson of Sustainable Finance summed up at one session: "Levers of power are being assaulted by the big banks."

It was in terms of addressing carbon and climate change that the UNEP FI presented a no-holds barred perspective and sense of urgency. Dr Paul Epstein detailed the hidden costs of climate change: biological systems on all continents are reacting negatively; weather is becoming more extreme; the oceans are changing; changes are occurring in the tropics; Greenland's icecaps melted one metre a year in 2000, now it is ten; 84% of heat lies in the deep oceans and these have now warmed to a depth of 3km in the Atlantic, the same is occurring in all oceans; water vapour is rising; Cancun received five feet of rainfall in forty-eight hours. The health, ecological and economic consequences are seen in the increase of infectious and respiratory diseases due to heat waves and floods; heat waves and droughts in India cause outbreaks of encephalitis; the urban heat-island profile is placing a CO2 dome over cities. The effects are felt in the mountains; there are more mosquitoes, raptors and rodents; there is an increase in malaria, dengue fever and cholera; there is a vast increase in the number of forest fires. He did not say it, but others have and will, climate change is a far greater threat to civilization than terrorism.

In summing up at the final session, Felix Dodds of the Stakeholder Forum highlighted the need for human and environmental security to top the international agenda. Other issues raised for the future are, should we import food from water-stressed states; water is a major issue connected to climate change and the UNEP FI have produced their report on water scarcity. The UNEP FI knows the issues. Let us hope they can invoke the spirit of John F Kennedy 'I dream dreams and ask why not" in providing the solutions. Hopefully they realize that they can snowball the sustainability agenda better than any other social force in the world; that they are the people who can make the production of hydrogen cars a real, affordable prospect, and make it happen fast. They can influence their institutional investors to invest in microcredit and other schemes to alleviate poverty and enable the next phase of scaling-up.

Yet, one may ask, is there one short message to come out of the UNEP FI roundtable? It is this: 'we must decouple our reliance on economic growth away from fossil fuels.' One more assault please on the levers of power, we are all behind you.

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