In the Shift

This is the third posting where I’m presenting draft material from my forthcoming book, Business and Sustainability.  Between now and publication day, I will be posting extracts from the manuscript as work in progress.  If you would like to know more about the book – the content, its features, when it will be available, sample materials, etc – please get in touch.

The following is an extract from Chapter 2 which looks as the sustainability challenges business faces in what I’m calling a resource-constrained economy.  This section discusses some of the ways a resource-constrained economy will need to be organised …

A resource constrained economy will be significantly different to anything experienced since the industrial revolution. Unless there is a vast leap in geoengineering that allows us to continue to emit greenhouse gases with impunity, we will have to reduce our carbon intensity at unprecedented rates. Even if there is such a leap – something we have seen is highly unlikely – it may compound other parts of the sustainability riddle such as the water crisis, poverty, and biodiversity. Until now, industrialized society has been organized to enable the exploitation of natural resources for humanity’s benefit. Our laws, economic systems, and political institutions reflect this: we may put limits on who benefits from exploitation and who suffers, but we rarely limit exploitation itself. Governments in liberal economies, for example, prefer demand side policies intended to influence price rather than supply side ones that would require governments to interfere with individual choice or the availability of certain types of resource. Worldwide, many governments currently promote demand for oil through subsidies estimated to be worth US$ 312 billion, or more than five times the government support for renewable energy.[i] Such policies encourage oil demand and the use of oil in transport, and thereby limit the possibility of higher prices that would stimulate investment in alternative energy. This leaves alternative energy having to demonstrate its cost and energy security advantages over conventional resources if it is going to be more attractive from an economic perspective than exploiting new fossil fuel resources such as the oil and gas in the Caspian region.

A RCE is, therefore, something quite different to what we currently know because, barring the kind of innovation and dissemination miracle that is not supported by the evidence presented in this chapter, a prosperous society will need to discover new ways of organizing itself. Governments will need to exercise more political will in interfering with supply side factors, as well as stimulating demand that is sustainability oriented. This was the hope of the ‘green investment packages’ that were part of several countries’ economic stimulus packages in 2008-2009. This is discussed more in Chapter 10, but while countries such as South Korea, China and the USA made significant sums available, the projects were overwhelmingly focused on demand (e.g. mass transit, smart grid, renewable energy), and moreover important economies such as Brazil, India and Russia made no commitments towards a green stimulus.[ii]

According to Barbier, a global green new deal worthy of the name “must encourage the widespread adoption by national government of fiscal measures and other policies in the short-term that will expedite economic recovery and create jobs while being consistent with the medium-term objectives of reducing carbon dependency, environmental deterioration and extreme world poverty” ((Barbier, United Nations Environment Programme. 2010), page 32). However, for all of the talk about the link between a green new deal and growth, governments have proved more concerned about the latter, and shown a lack of consistency or thoroughness in linking economic recovery with sustainability.

This may change: for instance, Germany’s rejection of nuclear power at least in part seems to have been supported by a willingness to take seriously a green growth strategy.[iii] However, government is only one element of organizing society, and the idea that companies fulfill their obligations to society if they abide by the law is not only outmoded but was probably never true (pace Friedman). Many of the social and environmental issues raised in this chapter were initially championed by NGOs, and as the P&G Pur example shows (Snapshot 2.2), many companies now choose to partner with civil society to tackle sustainability challenges. But NGOs have traditionally been focused on single issues such as conservation, poverty alleviation and water, and do not have a track record of dealing with the kind of complex, multi-dimensional problems characteristic of sustainability. These problems often require trade-offs between the vital issues of particular NGOs as mentioned in the section on Poverty (page ?????), and organizing a RCE will present as many challenges for the established model of NGOs as it does for government (Chapter 11).

Companies will typically look to the law in deciding how to act. Governments have been reluctant to enact sustainability-related legislation that would put industries in their jurisdiction at a disadvantage, or that might reduce the private sector’s ability to generate economic growth. This has not been universally welcomed by business, and for example led to the creation of the Corporate Leaders Group on Climate Change through which major companies worldwide are lobbying for new, long-term policies for tackling climate change.[iv] Yet, fundamental legislation pertaining to corporate governance limit how companies can respond to sustainability challenges. Although countries such as the USA and the UK require companies to report on climate change related risks, there are no requirements on other facets of sustainability. More importantly, company law almost without exception gives paramountcy to the interests of the company’s shareholders, and these are measured in terms of share price and dividend payments that are lagging indicators of short-term performance. Time and again in debates about business and sustainability a key barrier to more aggressive corporate action is said to be the clash between this short-term focus and the long-term perspective needed to address issues such as climate change. (See Chapters 3 and 7.)

Whether one is referring to government, civil society, or corporate law, there are questions to be asked about whether our current means for organizing society are fit for purpose in tackling sustainability challenges. This is a potential risk for business because in the current climate of high expectation that business should and can do something about these challenges, inadequacies on the part of others may not be an excuse for private sector inaction, and may well ramp up the demand for more corporate engagement. This is already evident in the retail sector where companies are expected to mediate in the area of consumer behaviour. For example, Home Depot, IKEA, Wal-Mart and Woolworth have all introduced policies to influence customers in areas of sustainability, and as the cases in Chapters 5 and 6 demonstrate, company responsibility for consumer behaviour is part of maintaining a firm’s licence to operate. Yet, this poses all manner of risks for companies that need simultaneously to demonstrate bottom-line growth to maintain their legitimacy with shareholders, to meet the consumption demands of customers, and to maintain their licence to operate with wider society by managing multiple, interconnected sustainability challenges that other social organizations are struggling to address. When Drucker called business the ‘representative institution’ of modern society[v], he was talking about companies having a prominent role in creating wealth in a society that was organized to allow this. Now business retains that image of being the representative institution, but in a society that is not organized to meet the challenges of sustainability, and that in many ways is looking to business to reorganize it in ways congruent with being a prosperous resource constrained economy.

2012 will see the publication of my new text book – Business and Sustainability.  Between now and publication day, I will be posting extracts from the manuscript as work in progress.  If you would like to know more about the book – the content, its features, when it will be available, sample materials, etc – please get in touch.

Here is the opening to Chapter 1: Business and Sustainability Overview …

This chapter provides the basis for thinking about sustainability and its relationship to business. It introduces the concept of sustainability and some of the main arguments about why it matters to business. It reviews scientific theories of sustainability, and how they have been interpreted. It identifies three main areas of sustainability – demography, ecosystems and climate change – and provides the basis for thinking about their importance to business. It discusses doubts about sustainability, and whether they are justified.

Imagine. You have the chance to invest in a government chartered monopoly giving you revenues from 45,000 kilometres of toll roads. The monopoly comes with a nationwide network of 8,000 vending outlets, and there are additional opportunities to establish restaurants, accommodation and refreshment outlets for weary travellers.

Before you contact your broker, however, consider this other opportunity. You have the chance to join Shell and Unilever in investing in the largest supplier of lighting fuel in the world. The company also has patents on key fuel processing technologies, and its strategy of buying up natural resources means it is well hedged against fluctuations in supply.

These seem to be two great opportunities. And if you invested in either you would lose a fortune. The lighting industry opportunity was for the material used in making candles, and the proposition landed on your desk on 26 January 1880, the day before Thomas Edison patented the electric light bulb. The roads in question were toll roads for horse-drawn carriages, and the share offer was made on 26 September 1825, the day before the first steam-hauled passenger train came into service. In both cases, incumbent industries were wiped out almost overnight, turned into historical curiosities just as Gutenberg’s printing press had done to hand-copying previously, and the personal computer would do to typewriters a century further on.

The steam age, harnessing electricity, printing, and the IT revolution are not simply examples of innovation: they are exemplars of Schumpeter’s notion of creative destruction where not only technologies but society as a whole experiences profound change due to radical innovation. Printing allowed the dissemination of ideas as never before, and enabled the spread and interchange of intellectual ideas found in the European Renaissance and Protestant Reformation. Railways were essential to rapid urbanization, industrialization, and the creation of new political powers such as the USA and Bismarck’s Germany.

At one level, sustainability can be seen as the latest example of creative destruction. Global warming in particular is inspiring changes in the way we think about energy production and consumption, transportation, and consumerism that threaten to make incumbent technologies such as coal-fired power plants and the internal combustion engine redundant. During the financial crisis of the later 2000s, countries such as South Korea and China earmarked significant portions of their recovery packages for investment in the needs of a low carbon economy, i.e. one where emissions of carbon dioxide and other greenhouse gases would be much lower than today. The European Union has announced its 20-20-20 targets whereby it aims to reduce greenhouse gas emissions by 20 percent, and produce 20 percent of its energy from renewable sources by 2020. Be it through investment, policy, or regulation, governments around the world are anticipating a major shift in their economies, and these shifts will have a significant impact on business. Industries from aviation to oil palm to coal have come under attack because of their environmental impacts. Away from climate change, the practices of companies such as Coca-Cola, Findus, and IKEA have come under the spotlight because of responsible water, fisheries, and forestry management respectively. Moreover, new industries are emerging to meet the challenges, and companies such as Suzlon (wind power), Sindicatum Carbon Capital (finance), and d.light (solar lighting) all view sustainability challenges as an innovation opportunity.

However, as with any period of creative destruction, there is much tension, conflict, confusion, and disruption associated with sustainability …

Contact me via the blog if you want to discuss this and any of the other chapters.

Thanks

Mick

Sorry if it seems I’ve been out of action for a while.  The truth is I’ve been writing like crazy and the thought of posting something vaguely worth reading at the end of days at the keyboard … Well it was never likley to happen.

Anyway, now the time spent reading, searching, drafting and typing is startng to pay off.  I’m over two-thirds of the way through my latest book, Business and Sustainability.  It will be my second text book, and as far as my publisher or I can tell, it will be the first book in the business education market to offer a comprehensive overview of understanding and managing business’ relationship with the wide range of sustainability issues on company radar screens.

In the coming months, I will be posting extracts from the manuscript to share with you and to get your thoughts and feedback.

Four years ago co-author Alan Murray and I did something similar about business and corporate responsibility – an objective overview of what was happening in the field, specifically aimed at the needs of the classroom.  The result, Corporate Responsibility: a critical introduction, entered its second edition in 2011.

A short while ago, we found that it had made the shortlist for the Chartered Management Institute/British Library’s business book of the year.  We will find out the results in February 2012, but it was great to be recognised by our peers.

I hope that Business and Sustainability will do as well in terms of sales and impact.  If it does, 2012 will be a busy year.

For the next few months, the In the Shift blog will be dedicated to discussing and testing materials for my forthcoming book, Business and Sustainability. The first post will be in early January 2012.

Yesterday saw pledges of $2.3 billion made at a conference for GAVI, the Global Alliance for Vaccines and Immunisation. Saving lives and improving productivity are self-evident goods said UNICEF director, Anthony Lake. Scanning the press and the vox pops this was greeted in different quarters as an act of great generosity, a slap in the face for the recession hit poor in the richer countries, a morally courageous leap, and a boost to the global economy.

Clearly helping poor people is a moral act.  But given how over-population and demographic change are all part of the climate change equation, is alleviating poverty fundamentally at odds with what is needed to meet the various challenges around sustainability?

Coincidentally, I was writing a section on this for a new book I’m working on. The big question is whether or not tackling poverty is a sustainability issue.  Here are some thoughts …

We have seen how sustainability challenges affect poor people differently to others. In affluent societies, the energy challenge is about the type and amount of energy consumed, but for the poor it is about getting access to more reliable, affordable, safer forms of energy. In the richest countries, the mobility challenge is about reducing the impact of transport; for the poor it is about experiencing the benefits of mobility in the first place. Similarly, in poor regions overuse of water is much less of an issue than access to clean water. The sustainability challenges of the poor also differ depending on where one lives, so that in richer countries the poor are confronted by obesity due to their diet whereas in poorer ones the issue is one of hunger. For many, the challenge of sustainability is how to address these various facets while narrowing the gap between rich and poor.[i]

This gives rise to all manner of ethical questions about the consequences of tackling sustainability challenges. Should poor countries be given special treatment because of ‘ecological debt’, i.e. the poor should not suffer today because of the historical behaviour of the wealthy in the past? Is it fair that the poorest billion people who account for about three percent of GHG emissions should be amongst the ones most affected by climate change?[ii] Do the poor have the right to rapid economic growth even if that leads to increased GHG emissions and exacerbates food and water challenges? Is it acceptable for wealthy economies to ‘outsource’ their emissions to poorer ones by encouraging manufacturing overseas? Do all people have the right to a comparable standard of living?

It is a fact that global society is highly inequitable with about half of the world living in extreme poverty, and estimates that even as emerging economies such as South Africa and the Philippines reach middle income status, they will still have ten percent of their populations living on less than two dollars a day.[iii] Theorists of different moral positions such as Sen, Rawls and Singer[iv] agree that poverty represents an injustice, and if sustainability were simply an ethical issue, addressing poverty would clearly be amongst the challenges. Furthermore, from both a moral and instrumental perspective, there can be good reasons for business to engage in tackling poverty.[v]

However, the insistence of some that sustainability and poverty alleviation are inextricably linked and one cannot be achieved without the other[vi], gives the impression that poverty itself is a sustainability challenge. This is debatable because poverty is ultimately an ethical issue (is it right that wealth is distributed inequitably), whereas sustainability is viewed by some as an existential issue concerning the maintenance of the Earth in ways that allows society to exist. Environmental and human ethicists do not agree with this, but one does not need to take a particular ethical stance to make a compelling case for sustainability, even though, as noted, there are clear ethical dimensions to sustainability. Poverty has been a feature of the human condition since time immemorial, and hence one can argue that it is quite sustainable. It is quite possible to imagine scenarios where sustainability challenges are met, and the rich benefit while the poor do not. There may be even be a business case for taking this direction, mirroring Ajay Kapur’s idea of ‘plutonomy’ where companies are encouraged to target the rich as a market because 40 percent of household wealth lies with one percent of the world’s population.[vii] Unmitigated climate change may be incompatible with sustainable development for the poor as it is currently defined ({{1870 World Bank 2010}}: 39), but how viable is that development model in the context of a RCE? From a sustainability perspective, it is valid to ask if and under what conditions the accepted model of sustainable development (including the central role given to economic growth) is compatible with mitigating or adapting to climate change. Indeed, some of the objections to tackling climate change (Chapter 1) are rooted in the express or implicit belief that the means of doing this would infringe upon individuals’ moral right to choose and achieve their own level of well-being.

Again, this is not to deny that there are ethical questions relating to sustainability challenges as outlined above. However, none of these questions leads us to conclude that in the sustainability context tackling poverty is an ethical imperative. Indeed, it might be argued that an insistence on treating poverty as a moral dimension to what are otherwise the instrumental crises of sustainability is hindering our effectiveness in dealing with either.[viii] A major World Bank report on poverty and climate change makes only three mentions of population growth, and the USA, the largest international development donor, does not fund family planning.[ix] Both cases highlight how aspects of poverty are treated as ethical issues, something that prevents their consequences for sustainability being addressed adequately. Yet it is exactly this kind of issue that constrains how we tackle sustainability challenges such as water, food, and energy.

In the context of business and sustainability, therefore, the question is not whether poverty is a moral issue, but to what degree a failure to address poverty will exacerbate other sustainability challenges. As discussed in Chapter 1, population growth is a major factor in natural resource exploitation, and most of this growth is happening in poorer countries. Companies could benefit from this growth if it leads to new markets, a better workforce, and more investment. They will equally be at risk if the growth is unequal, and the new markets come to be characterized as exploitative as happened, for instance, in the 1990s with labour rights in Asian factories. Absence of growth could also present a threat if it leads to more migration to richer countries and the accompanying political instability as citizens fear for their jobs and call for protectionism. More likely, though less discussed, it will lead to migration into neighbouring countries with similar political consequences.

With mass migration come increased health problems as health services, social services, and sanitation providers struggle to meet unanticipated demand. The health risks to the poor of climate change could also be material to business. Climate change is already associated with ill health and mortality due to increased incidents of malaria, flood-related accidents, diarrhoea, and food shortages. It is reckoned that relatively slight changes in the risk for climate-sensitive health conditions such as diarrhoea and malnutrition will significantly increase the overall disease burden.[x] Changes in food availability and yields will affect nutrition amongst the poor, and inland flooding will bring its own fatalities unless the vulnerable are equipped to deal with water run-off and landslides. All told, insofar as poverty is an obstacle to business prosperity as the likes of Hart and Easterly claim[xi], sustainability challenges worsen that situation. However, it remains debatable how and in what ways poverty has to be addressed to resolve those challenges.

DON'T CELEBRATE THAT

I’ve stayed clear of the In the Shift blog for a few weeks.  Partly that’s because I’m doing research for a new book and can’t face spending more time at the computer.  Mostly it’s because it seems like the only news has been bad news, culminating in the symbolic catastrophe of the Royal Wedding.  The Prince of Wales – who has done a lot over the years to tackle real climate change issues – hosts a wedding for one of his sons, and it’s like a high carbon mega-fest, from guests zooming in on private jets to petrol guzzling monster vehicles.

What a waste of an opportunity.  Imagine the impact a green wedding rather than a black wedding would have had around the world.  Charles, you blew it.  I hate it when events turn me into a grumpy old man.

CELEBRATE THIS

But today, time to celebrate at last.  The Liberal party got trashed at the May local elections in the UK.  And the result is the UK announces genuinely tough, potentially transformational carbon emissions target.  50% below 1990 levels by 2025.  60% reductions by 2030.  These are the real deal.  They are stretch targets, and if Britain takes serious strides to meet them, the knock on effects will be huge:

Hurrah!  Hurrah!

And what’s this about the Liberals and the beating they took at the elections?

Well, the lesson they too away from that day was that they needed to stand up to their coalition partners, the Conservatives, and the first real opportunity to put some clear blue water between the two parties appears to have been the new carbon budget – when the government sets out its carbon emissions targets for the coming years.

So hurrah for all those who voted Conservative and avoided the Liberals in droves.  The upshot is that climate change has nosed its ways back onto the UK government’s agenda – finally.

AND A QUICK PS

A day after I posted this, and it seems that the Carbon Budget has been knocked off the front pages by the behaviour of its godfather in parliament, Chris Huhne.  Huhne is accused of a driving crime and that’s bad news for him.  But it may not be bad news for the budget because it’s also keeping the critics of the budget out of the headlines too.  So much good news out of bad – must be an omen!

A few weeks ago I talked about the average Joe’s twin role in combating climate change – as a consumer and as a saver.  The picture was pretty bleak, especially when it comes to savings because everything is working against encouraging the person in the street to invest in transformation to a low carbon economy.  If you want to see what I’m getting at, take a look at this summary of a recent report on pension by the Chatham House think tank – there’s not a single mention of climate change, but silence alone says a lot about how the reality of the average investor’s lot conspires against tackling low carbon transformation.

And yet the climate change debate persists in ignoring investors as a complex group with all manner of worries,goals and aspirations.  Yet climate change thinkers too often treat investors the way old school communists treated the working man – replace the lumpen proletariat with the lumpen investorati.  Take for instance this new report, A New Growth Path for Europe, which wants to demonstrate how investing in climate change adaptation and mediation will revitalise European society and its economy.  The report is worth looking at because it is gaining traction as a feel good, new deal story of how transformation can and will take place with a few gentle prods.  But one of those prods is that investors – not international investors, but just European investors by themselves – will take the risk of investing in new technologies and infrastructure.  And they will do this at a time when politicians want them to spend and save simultaneously, when venture capital is falling through the floor, and when the bulk of investors (pension and insurance fund members) are having one of their stormiest times ever.  If other countries are anything like the UK, the government will be beating some of them mercilessly because people like those in the public sector and academia have ‘gold plated pensions’ – one of the reasons behind the mass anti-government protests in London at the end of March, and for the university strike action that same week.

But governments should be glad someone has a gold plated pension because the low carbon economy needs that funding.  But investors would be going against all of the principles of portfolio investment theory if they bet all their money on that sector of the economy.  Sustainable Investment funds have done okay, but they didn’t prove resilient during the financial crisis and at best they should be part of a balanced portfolio.  Yet climate change economists of the kind writing A New Growth Path for Europe don’t think of investors as individuals; they think investment is a mass movement, and in doing so they miss one of the main reasons their ideas are another limping step in the Green Business As Usual model of low carbon transformation failure highlighted during the Incongruence seminars in 2010.

The last two posts – how my life as a consumer and my life as an investor can or more likely does not help the transformation to a low carbon economy – got me thinking again about big impact options for tackling climate change.  Anyone who looked at the Incongruence seminars Leo Johnson and I presented in Autumn 2010 will know that one of my interests is what I’ve variously called good growth, green growth and wise growth.  Leo and I will be presenting on that again in London in April and May this year, so contact me if you’d like details about those events.

Good growth is in many ways a response to the consumption fetishism that has become a characteristic of modern life, an essential ingredient in the drive for economic growth that politicians and economists around the world are addicted to.  Unlike people like Tim Jackson who are hunting for prosperity without growth, Good Growth recognises that kicking the growth addiction is too hard, too risky, and too long-term a goal to offer anything but marginal benefits for low carbon transformation.  But Leo and I are the first to admit that while we have a good understanding of the need for Good Growth, we are still at the early stages of figuring out what it means in practice.

So I was quite excited to read Robert Frank’s book Luxury Fever.  Written in 1999, it isn’t specifically about consumption and sustainability, and could be mistakenly lumped together with books such as The Story of Stuff or Cheap that tend to treat consumption as a spiritual defect.  But there are three things that stand out about Frank’s analysis that make the book a must read for those looking for game changing ideas.

First, Frank brings together both psychological and economic evidence to argue that are current obsession with consumption is not leading to an increase in mental or even financial well-being.  Second, he takes on two very different shibboleths in the consumption debate.  He takes the argument straight to neo-liberal economists that an obsession with individual choice and the freedom to consume as much as one can afford is beneficial to society, or is even able to deliver the liberty, progress and opportunity that neo-liberals proclaim.  He also takes on those who almost since the dawn of capitalism have objected to consumption in principle,  Kotler and Visser are the latest of a long tradition appealing for a more spiritual element to capitalism – interesting stuff but ultimately begging business to be something that it is not, and expressing a disturbing attitude towards what is wrong and right behaviour.

But third and the most interesting part of Frank’s argument is that we can remain as prosperous and perhaps more so, and at the same time address a lot of the consumption and investment problems I talked about in previous blogs, if we tax consumption.  This is a very simple and well rehearsed idea – and Frank explains at length why it has failed to get political support – but it is one that is very significant when we are talking about behavioural transformation.  Rather than tax incomes and indeed corporate profits as we do now, we should tax consumption – or at least particular forms of consumption that have a demonstrably negative impact on reaching a low carbon society.

How do we do this?  We declare how much we earn – just as we do now with income tax.  Then we declare how much we have invested or saved.  The difference between what is earned and what is saved is assumed to be what we have consumed, and that is what gets taxed.  Consumption tax.  According to Frank, saving is considered good because it generates capital to invest in society’s development be that through education, health care, and presumably clean technology, an alternative energy infrastructure, low carbon mobility systems etc.  As noted in the Incongruence seminar series, at present there is a dire shortage of capital to invest in transformation, and as my last post pointed out that situation is getting worse because of the financial crisis.  A consumption tax would encourage saving and presumably help solve that problem.

Of course, you don’t have to save.  The beauty of the consumption tax is that if you don’t want to save, and want to consume like the clappers, you can – but it will cost you because the consumption tax on things that aren’t essential will be a major source of government revenue.

If you want to argue with your political representatives about why they are so silent on what seems like a very practicable option, Frank gives you material to explain what politicians likely answers will be.  Personally I came away from the book wondering why this isn’t top of the economic innovation agenda.  Hopefully if more people get inspired by Frank, the agenda will start to change.

In my last post I explained why I, the consumer, was such a failure in terms of contributing to the low carbon economy.  Given how I, along with the public in general, is being constantly cajoled to help spend our way to economic recovery, this was disappointing news.

In this post, I turn to the other role that government policy makers and that amorphous mass known as the economists have assigned to me – the investor.

Here is the logic.  The British government – like those in a lot of other developed economies – has taken on private debt and transferred it to the state treasury.  In other words, it bailed out the banks – in Britain’s case to the tune of over £851 billion.  There are three main ways to pay off that debt : first, cut public spending; second, grow the economy; third, get people to buy the debt.

Cutting public spending and growing the economy both rely on me as a consumer, and as I said in the last post, it’s nigh on impossible to consume in a way that helps transform to a low carbon economy.  In contrast, getting people to buy the debt is appealing to me as an investor: the question is whether as an investor I’m more likely to make a worthwhile contribution.

First off, there seems a contradiction between asking me to spend and asking me to save.  If I was very rich, then high levels of saving wouldn’t affect my levels of consumption – and a feature of the wealthy is that they save a lot more than the majority.  But I’m not vey rich: I’m above the average, and I’m doing okay, but every pound I save limits what I have left to spend.  In other words, investment decisions affect my consumption.

I have no idea whether acts of spending are more or less beneficial to a low carbon economy than acts of saving – and as far as I can see nobody else does either.  Government policy seems very keen that I do both with equal zeal.  In reality, though, as someone who is fairly cautious and pays attention to his family’s future, the pressure to invest is pretty strong for reasons I’ll explain.  The bigger question is whether these investments are helpful in climate change transformation.

Here are some of the reasons I would want to invest rather than consume.  House prices are falling so if I was expecting to turn my property into a nest egg for my retirement, that seems a risky option – so I’ve got to pay the mortgage AND save for my pension etc.  But pensions are troubled things in themselves.  If you are my age, the best pensions are ones that guarantee you a proportion of your final salary when you retire (defined benefit plans), and not ones where you rely on building up a lump sum and living off the interest in your golden years (defined contribution plans).  The private sector and increasingly the public sector too are getting rid of defined benefit plans and replacing them with the more risky defined contribution ones.  The argument is that people are living too long, and the former have become too costly.  That makes sense if you are a company that wants to transfer risk to the employee – ie if the pension plan underperforms, the worker not the firm takes the liability.  But it doesn’t make sense from a savings or a low carbon perspective.

Why?  First, because to offset the insecurity people feel about defined contribution plans, they want better returns for each pound the invest.  Just think of the returns people whose shares were trashed during the financial crisis of 2008-2009 now want to restore the value of their pension pots.  Better returns means signfiicantly outperforming the national trend in GDP growth which historically in developed countries rarely exceeds 3%.  So if I lost 10% in 2008-2009, I now want to make up that 10% plus another 3% on top.  And inflation is rising too – 5% in the UK – so I want to add that.  In other words, I would be looking at 18% return on investment depending on how quickly I needed to make up for that hit in 2008-2009.

If you were a top flight investor you’d be delighted to get that sort of return.  If you were the average Joe and were pleased to keep up with the average price on the London Stock Exchange (something a lot of professional investors find hard to do, never mind people whose lives are dominated by kids, day jobs, traffic jams, burst pipes and elderly parents) then that target is a dream.  What’s more, if you wanted to invest in a low carbon economy in some way, you might as well kiss your investment goals goodbye.

There is a lot of talk about socially responsible investment funds and sustainable investment approaches outperforming the market.  If you look at Chapter 10 in my book on Corporate Responsibility you will see factoring sustainability issues into investment decisions doesn’t necessarily harm performance, but it’s no a guarantee of better performance.  Look at the two graphs below.  The first is the good news story showing how one of the most well-established green funds, the Winslow Green Growth Fund (WGGFX) outperformed the Dow Jones Index from 2005 til 2008.

The second graph is the bad news story, showing how the Winslow fund underformed DJI after the financial crisis.  In other words, despite the claims that investing in sustainability equates with investing in less risky businesses with better long-term returns, there is no guarantee that this is what happens.

So, investing in a low carbon economy is no guarantee that I’m going to beef up my pension fund.  That’s bad news for me as someone who wants to help the transformation process.  And it’s bad news for all of those green entrepreneurs who are offering all manner of investment opportunities.  Because in order to make their investments attractive, they are going to have to offer very large returns on investment or else they won’t attract investors in the first place – especially institutional investors who hold most of the money and are needed to take smart ideas and scale them up to the point where they have an impact on the wider economy.

But that’s just the first part of the bad news.  Fears for my pension mean that I’m going to pursue a more aggressive investment strategy than I would have done before (or acccept a lower standard of living which multiplied a few million times means a declining national standard of living, less consumption and less growth) – more money invested in the promise of higher returns.  But on top of that, the removal of public services means I face another investment choice – less welfare or higher savings in the form of insurance to make up for what the public sector used to provide.  Off the top of my head, I am already paying directly or through some kind of private insurance for dentistry, child care, home care, medical support, special needs tuition, physiotherapy – and that seems likely to increase.  Maybe I’ll get that back when the government lowers taxes because it no longer provides services (THEY WILL DO THAT, WON’T THEY?), but in the meantime, an increasing amount of my income is going into investments to offset risks to my family’s welfare.

And none of that savings and investment seems at all beneficial to achieving climate change transformation.

So, here I am, a relatively well-off person with no obvious way that the bulk of consumption and investment decisions can contribute significantly towards transforming to a prosperous low carbon economy.  I could do more, but only by directly jeopardising my family’s well-being.  Ah, I hear you say, but what about future generations of my family who will suffer the consequences of climate change?  Fair question, and as I said in the post on consumption, there are activities at the margins that I can change that will be beneficial.  But when it comes to the big decisions with the big consequences, there are  things I could do to put my family at risk within my lifetime, and few things I could do to alleviate the climate risk to those whom I know and care for.

All that’s left is a relatively small amount of discretionary income that could be spent on green consumption or green savings.  Perhaps I’ll do that in the same way as I give a certain amount of income to charity each year.  But the fact remains that whether as a consumer or as an investor, the big decisions in my life are as likely to harm as they are to benefit sustainability – and as far as I can see government policy, business behaviour and the advocacy of NGOs seems totally oblivious to this.

While waiting to hear about new projects, I’ve been spending time thinking about my personal relationship to two things: first, the attempts to recover from economic recession, and second, how that recovery links to climate change transformation.  Once upon a time there was talk that the financial crisis was a blessing in disguise because it would allow us – governments, companies, consumers, investors – to escape from the rat race and take a fresh look at te way our economy functions.

That didn’t happen.  My favourite anecdote of late has been the colleague who asks every finance professor he meets how much they have changed their curriculum since the financial meltdown.   None of them has.  Not one.  And likewise with the economy more generally: climate change is not seen as an integral element of the recovery but as something that pretty much has to be put on the backbrunder until the recovery is in full swing.

So in the next two entries, I’m going to look at how I fit into this recovery, and how much my role can be considered a step in the right direction towards a low carbon economy.

PART ONE: I THE CONSUMER

Governments in the West seem to have pretty much given up on climate change – at least in the short term.  Of course there are plenty of initiatives, and advances are being made even at the international level – witness the highlights from the climate change conference in Cancun.  But while Cancun recommits governments to keeping global warming to 2°C or less, the money and actions on offer won’t achieve that as Leo Johnson and mine’s recent four part seminar series on Incongruence showed.  We are too far over the  carbon budget we set ourselves a decade ago for the kind of investment and solutions on offer so far to deliver the outcomes governments are committed too.

The biggest immediate barrier – the greatest site of Incongruence right now – is growth.  What David Cameron, Britain’s prime minister, has called his forensic, relentless commitment to growth.  He needs growth:  politicians throughout his lifetime have defined their success  in terms of creating the conditions for economic growth.  It isn’t just Bill Clinton who feels the economy is the biggest thing in politics.  No politician can afford to stand in front of the cameras and say the economy is shrinking, and I’m happy!  What’s more, Cameron is under assault from the likes of the Confederation of British Industry’s Richard Lambert for letting political ideology get in the way of policies that will bring growth.

And yet, as Tim Jackson and others have made clear, growth seems to be at odds with a prosperous low carbon society.

I’ll let others debate whether current government policies will deliver satisfactory levels of growth.  My concern is whether there’s anything in those policies that is congruent with transforming to a low carbon society.  And rather than go into macro policy, I want to answer that question by looking at my own life, and the decisions and options that are in play.

Some context.  I am 53 – still got dependent kids, but old enough to factor retirement into my decisions.  My wife and I both work: fairly long hours but not crazily so.  We earn well above the national average, but don’t feel it’s enough.  We are just buying a house and we’d like it to be as green as possible, but any decisions will need to factor in the reality of lives constrained by time, money and not wanting home-making to dominate everything we do.  We’ve both got elderly, infirm parents – one in another part of Britain, the other in the USA.  I’m sure there’s other stuff I’ll think of as I progress with this strand of thought.

YOUR COUNTRY NEEDS YOUR CONSUMPTION

Okay, so here is one message I’m hearing from the government.  In order for the country’s economy to get back on its feet, we need to regain the trust of consumers (ie get me out there shopping for stuff).  It isn’t obvious to me what I should be consuming – big ticket items like houses and yachts or necessities like food or luxuries or what.  I was lucky when it came to the house because I was able to get a mortgage when prices were falling.  Buying a house will save me money: the mortgage repayments are  less than I was paying for rent, and given current inflation trends and low returns for savers, I calculate that house prices would need to fall 20% in 5 years before I lost any money.

House buying will mean that much of my day to day spending for the next six months will go on big and little things for the house.  I don’t know how that will break down, but a fair bit of that will go to producers overseas.  Nonetheless, fixing a house is relatively speaking a good way to put money into the British economy because there will be British construction workers, retailers and manufacturers who get a share.  A bigger share than if I spent it on clothes and hi-fi when only British retailers would get a glimpse of the money before it whizzed off to Asia.

So, even though I have never seen any advice about what kind of consumption is the right kind of consumption to generate economic growth, I feel I’m doing my bit as a consumer.

But this loyal consumer is worried when it comes to doing his bit to help meet Britain’s climate change targets.  The only overtly green option in all of my immediate consumer decisions is where to source my electricity from.  I’ve gone with a firm called Ecotricity who promise to focus on getting as much energy as possible from green energy sources, and ploughing the  proceeds back into new energy investments.  The wood I need for a few small construction jobs is from responsibly managed forests, and I am an inveterate skip surfer, constantly bringing back materials from the roadside.  Beyond that I guess I could look into ‘green’ paints but there’s very little ready information about why they are green  and what impact I will have by buying them.

I’m quite keen to rent out my roof to a solar energy company such as Isis.  It seems a cost effective way to get solar energy although so far getting the company to respond to my initial enquiry has proved a challenge.

But a lot of the time a green option isn’t available.  I don’t need a new boiler, washing machine, cooker, or car, so even if I could afford to replace the perfectly serviceable items I already have, the relatively lower carbon intensity of new items wouldn’t offset the embedded cost of dumping what I own.

My other big ticket consumer items will be a mattress (no idea what a carbon friendly mattress is) and moving house itself – no green options to a diesel lorry and removal men.  Probably the biggest impact the move will have is that I will no longer have a power shower, and a few seconds of power shower is the equivalent in power use terms of leaving the TV on standby for a month.

So at the end of my move – one of the biggest spends I’m likely to make in my life – my contribution to the British economy will be quite large, but my contribution to a low carbon economy will be negligible, and despite my best efforts will probably be negative.  there are things in my life that I can still change – fly less, drive less, dump my fascination with steam trains – but none of that is affected by the house move, and none of it is part of the government’s sustainability policy.

Before the financial crisis I consumed too much and not much has changed now.  I’m paying more in VAT now than a year ago and the government hopes that I will continue to consume but give the exchequer more than before.  The reality is hard to tell: I carry on buying some things, I probably look a bit more for secondhand stuff, and I will probably do more shopping overseas on trips.  In any case the VAT increase was not intended to curtail spending but to increase government revenues.  I am in some ways disloyal to actively seek out ways of avoiding VAT even though I am being loyal trough the act of continued consumption.  But what I am not being – and what in no sense of the word am I being encouraged to be – is a ‘green’ consumer in any meaningful way because economic policy is geared to stimulating an economic recovery and not a low carbon economy.

Why is that?  One reason is that the government says we can’t afford to be low carbon until we are once again prosperous.  Well, the other way I might be able to help is by being a saver, sharing some of my wealth so that investors can make the capital investments a low carbon economy needs.  So, in the next post, that’s what I’ll look at – I the saver.