Hugh Wheelan: What I did on my holidays, tipping points and other tales

I took a long winter break in Chile, trekking, kayaking and drinking Pisco Sours in a number of the wondrous national parks in Northern Patagonia bought secretly in the 1990s by Doug Tompkins, the US eco-philanthropist (founder of The North Face), and then handed over to the Chilean people with long-term, ecological protection embedded in their future. Tompkins died tragically back in 2015 in a kayaking accident, but his wilderness preservation achievements are a breathtaking legacy, and the work continues via his wife, Kris.

I’ve been interested for a few years in his adherence to the deep ecology thinking of Arne Næss and others.
It’s a serious pang of CO2 guilt to fly to the other side of the world, but the plane was going whether or not I was on it. Even Tompkins flew his personal plane all over Chile. The personal is political, but whether it’s systemic is a moot point.

Our guiding belief at Responsible Investor is that broad economic and financial change is necessary and possible through major overhauls of political, corporate and investment behaviour and influence (both of which will have to be radically different than they are today). I had some good discussions with environmentalist friends in Chile – some of whom worked with Tompkins – on whether that’s achievable. I remain hopeful. The short-term v long-term investment debate is not an academic discussion for investment professionals; it’s of paramount financial and societal importance. I’ve yet to see evidence of a credible alternative that could foster the wholesale environmental changes required to meet the 2015 Paris Accord, unless – like Tompkins

– the world’s philanthropists work with governments and donate all their money to protecting nature, sequestering CO2 on a massive scale, and developing holistic, sustainable economic projects. And that’s before we start speaking about the very real global social and governance issues that are equally important to achieving widespread sustainability.
To take one example: necessary, real emissions reductions will not be slowed dramatically without pushing for a just environmental transition that incorporates employment creation and economic equity; we live in a world of massive, nefarious lobbying for fossil fuel companies (among others) that needs a palatable potent political counterweight (more of which later).

It’s heartening then to return to the office and see a couple of papers lightening the in-box load by thought leaders (individual and organisational) that cut to the heart of the sustainable finance matter.

The latest client letter by Keith Ambachtsheer, one of the world’s best-known advisors to pension funds globally on scheme design, governance, and investment makes a strong case for why ‘pension funds’ as well as corporates should be adopting ‘integrated reporting’ on the grounds that it is good for equitable pension scheme structures, high quality governance, value for money, investment returns and societal benefit.

An example of work-in-progress on this is the newly issued responsible investment policy of Northern LGPS, the £40bn pension pool for the north of England local government authorities. Northern is doing integrated sustainability action and reporting. Notably, the fund says it now has a decarbonisation programme to align the emissions in its portfolios with the aims of the Paris Agreement. The policy says: “The Northern LGPS’s long-term goal is for 100% of assets to be compatible with the net zero-emissions ambition by c.2050 in line with the Paris agreement. This decarbonisation goal will be regularly evaluated in line with our objective of maintaining long-term financial performance.”

A final optimistic reality check comes from the latest report by Carbon Tracker, titled The political tipping point: why the politics of energy will follow the economics. It argues that we are now in a period of rapid societal chain reaction as dramatically reduced costs for renewables, the solving of feasibility issues and a switch in public perception (note the rise in the debate on air pollution) between fossil fuels and clean energy begins to tip the brown to green. They’re right: just look at the Wall Street Journal – the traditional liberal finance paper – recently labelling utility firm PG&E’s collapse as the first ‘climate change bankruptcy’, because of the liability of California wildfire damage.

Carbon Tracker notes that the critical price of battery storage has fallen almost to a level where electric vehicles can compete with conventional cars.

Significantly for investors, it points to new energy technology plays that have serious investment potential right now in electricity (43% of primary energy demand) and light transport (10% of primary energy demand), where the “ceiling of economically reasonable technical opportunity lies far above the reality of what has been done in most countries.” Country variations are enormous. But as change occurs quickly in peer markets, the holy investment triumvirate of price, politics and public sentiment should lead to tectonic tech shifts in energy and transportation across geographies. This is the joined-up thinking that make Ambachtsheer’s recommendations and the start of the Northern LGPSclimate policy the economically and societally ‘right thing to do’. The macro picture will move in lockstep. Chile is a case in point. As a result of large low cost renewable resources, 17% of national electricity generation is now green. As the tech in domestic electricity and transportation transforms, that figure should balloon. Chile should start to enjoy the best of both worlds: pristine, protected national parks and a swift shift in sustainability economics.