World Environment Day (June 5) was a good time to reflect on the existential threat of climate change.
After five of the hottest years in living history, there is little doubt that climate change is moving centre stage in the global agenda. The UN has warned that a million species are in danger of becoming extinct, with climate scientists claiming that we may have less than 10 years to 15 years to correct our carbon emission trajectory. It is no longer IF climate disaster will happen, only WHEN and how bad.
The rich and famous billionaires like Elon Musk can finance space travel projects on the hope they can migrate to outer space when Earth implodes. But most of the poor living in the tropics who are facing the rising heat, worsening drought and lack of food and jobs can choose to migrate northwards to cooler and richer places.
The Middle East and North Africa heat belt has 6% of the world’s population and 1% of the drinkable water resources, but the highest population birth rate. The desert area in Sahara and Middle East are expanding under the growing heat. By 2050 the Middle East and Africa will have 3.4 billion people, more than the populations of China and India combined.
Small wonder that populists in Britain, US and Europe are terrified of being overwhelmed by migrants.
How did we not see all this coming? Sustainable investors (those who think they can make money out of investing in green projects) have a cute phrase - “we are long on short and short on long.”
What this means simply is that under the philosophy of creating shareholder value, corporate captains basically focus on short-term business models driven by quarterly profit reporting, thereby completely losing the plot on creating long term value. All the corporate mistakes of Volkswagen on diesel emission, Boeing on aircraft safety, Facebook on data usage, smell of corporate governance failures to address long-term trust and reputation issues.
Most climate scientists think that governments must do more to stop climate change. But actually, both the culprits and possible saviours of global warming are our corporate captains. If the corporate captains are not convinced that they need to change the course from short-term profits to long-term survival, then we are all on the SS Planet Titanic.
After all, the shareholders of the original Titanic thought the ship was unsinkable.
The Forbes list of 2000 leading global companies account for US$40 trillion in annual revenue (just under half of global GDP) and US$186 trillion in global assets, larger than any single nation. The CDP Carbon Majors Report 2017 estimated that 100 fossil fuel producers (including some no longer in existent) account for 52% of global industrial greenhouse gas (GHG) emissions since the Industrial Revolution. 224 companies produced 72% of annual global industrial GHG emissions in 2015. Collectively, these multinationals run the global supply change and also shape the demand for consumer goods through their control over advertising, social media and product design. If they truly care about climate change and social inclusivity, they (more than governments) can make a real difference.
So far, many pay lip service to climate change and do so glibly in their annual reports plus a bit for corporate charity. But most have not acted seriously in changing their own controls on carbon emissions and helping to educate their customers in why changing consumption behavior is in everyone’s best interest.
The latest CDP report suggested that the top companies are increasingly aware that US$1 trillion of their assets are at risk from climate impacts within the next 5 years, whilst as much as US$250bil may have to be written off in losses. On the other hand, just the conversion of production to green products and services may bring as much as US$1.2 trillion in revenue, 7 times conversion costs.
The climate scientists have warned about climate disaster for quite some time, but it took them over 30 years to realise that the problem was not the science. What they needed to do most was to convince the economists and the policymakers (who are mostly economists or lawyers) that the issue is deadly serious. Unfortunately, many mainstream macro-economists remain convinced that carbon emissions are a “big externality” (market anomaly outside their main models), because growth and technology will somehow find the right solution.
The simple arithmetic is often ignored. Human population was 2 billion in 1900, and now 7.6 billion, growing to perhaps 11 billion by the end of the century. If every Chinese and Indian achieve the income level of the average American and consume resources like them per capita, there will be another earth required.
Economists are particularly blind to the impact of global warming and scarce resources because the originators of mainstream economics - Anglo-Saxons – never lived under serious resource constraints. The British and then the Americans discovered through coal and fossil fuels to power the Industrial Revolution. After all, globalisation meant that labour, land and then oil and gas resources could be taken from colonies and then imported from the rest of the non-Caucasian world. You can always pay for these non-renewable resources by printing money.
Since technology discovered fossil fuels – coal and then oil, gas – economists treat mother earth as a cost which does not need to be factored into GDP – the metric that measures “progress”. The GDP number does not include the irreplaceable cost of the tree that you cut down, the damage to the environment, only the cost of capital and labour to cut down the tree! Planet and People are sacrificed in the name of Profits.
World Environment Day reminds us that we live collectively in a Planet that is heating up until we are all boiled. The only problem is that we ourselves are providing the carbon emission that is fueling the heating. Asians understand that the right analogy of this surreal situation is the case of the Boiling Frog – comfortable in warm water until it gets boiled completely, even though it can jump out if it really wants to. The Steve Bannons of this world think the solution to the current situation is to fight other frogs.
Can someone switch off the White House Reality Show channel and get on with the serious job of turning around SS Planet Titanic?
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