DISCUSSION Changing the Game

by Yolanda Villafuerte _______20th October 2009
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For “The World as We Want It to Be”  SRI in the Rockies 20th Anniversary

By Hazel Henderson © 2009
www.hazelhenderson.com

Marking the 20th Anniversary of SRI in the Rockies offers more than an opportunity to review the hard-won progress of investors to prove that socially responsible investing is viable and now clearly out-performs traditional mainstream investing.  Since the credit crises of 2008-2009, we can now assert with confidence that investing for long-term sustainability and taking ESG factors as material to asset valuation could have actually helped avert these crises.   We investors are now winning the paradigm battle and cite the evidence to show that the Efficient Market Hypothesis (EMH) is bunk and by the same token show that the Modern Portfolio Theory (MPT), the Capital Asset Pricing Model (CAPM) and, yes, even the sacred tenets of the “rational investor” and the Black-Scholes Merton Options Pricing Model all are part of history.
Thomas Kuhn, told us in 1963 in The Structure of Scientific Revolutions, we often must wait until a generation passes from the scene.  Today, we humans are out of time.  Climate chaos is upon us and our limiting factor is not money – it never was, since money is simply one form of information.  Time is now our limiting factor, as we have until 2020 to keep CO2 and other greenhouse gases, methane, as well as soot, ozone and other pollutants from raising global temperature more than 2°C.   This means that the game of finance must change to address both its internally-generated global crises and the climate crises which finance has and continues to exacerbate with its blindness to ESG factors and its culture of greed, myopia and short-termism.   We were encouraged by our colleague Mindy Lubber’s remarks at the introduction of the statement on September 17th of the Institutional Investors Group on Climate Change (IIGCC): “We are ready and willing to up the ante and finance the transition to a low-carbon economy.
Some 15 years ago, I, Steve Schueth and Wayne Silby began creating the Calvert-Henderson Quality of Life Indicators (www.calvert-henderson.com) in the belief that incorporating ESG factors into asset valuation and corporate accounting at the micro-economic level would be necessary but not sufficient.  We and Calvert CEO Barbara Krumsiek knew that traditional micro-level accounting when aggregated into national accounts such as GDP would inhibit the needed corrections at this macro-economic level.  We knew that GDP would also have to include ESG factors; otherwise, its faulty, narrow, short-term view of national “progress” would drive us closer to environmental collapse, social inequality, disease and conflicts.  Economist Joseph Stiglitz agrees and warned of the dangers of “GDP-fetishism” in his report to France’s President Nicholas Sarkozy.
Today, UN-PRI, CERES and other groups of institutional investors continue to lead in promoting ESG and longer-term asset valuation and the need to address climate change.  Yet too often, these worthy organizations and their institutional investor members are still captive to the discredited paradigms of finance I have mentioned.  Until they change incentives for their asset managers, they will still obsess over benchmarking each others’ performance according to these now destructive criteria and models.
The good news is that today’s confluence of global crises in finance and climate are revealed as crises of human perception: a mirror our mother GAIA is holding up for us to see ourselves and our myopic value-systems.  The Information Age, as I predicted at SRI in the Rockies in 2005 has morphed into the Age of Truth.  Our native American nations and the world’s indigenous peoples have been articulating these truths for centuries now echoed by the President of the UN General Assembly in New York, June 2009.
The movement toward planetary awareness is now worldwide and goes by many names: One Planet, socially responsible investing, sustainability, the Global Green New Deal, the Green Economy Initiative, the Climate Prosperity Alliance, Transition Towns, Green Jobs, Green for All, “green stimulus,” the Global Marshall Plan, the Post-Carbon Society, the State of the World Forum, the Phoenix Economy, Breaking the Climate Deadlock, Climate Bonds, as well as the hundreds of thousands of groups in over a hundred countries calling for new forms of sustainable livelihoods in their own languages.  NGOs are leading and governments are devising responses to protect the most vulnerable populations: women, children, the poor and the least-developed countries from the crises’ impacts.  Connecting all these groups working on these same interlinked crises can achieve their shared vision of “The World as We Want It to Be.”
All our crises are closely related to the dying fossilized paradigm of “economism” and its deadly addiction to continuous economic growth measured in money, whatever the social and environmental costs.   The disparate social  movements of the past 30 years began coming together over the internet and at the World Social Forums, launched in Porto Alegre, Brazil in 1999.  Today, in their statement on reforming finance, they are coalescing over these ever-accumulating threats to life on earth, now culminating in global climate disruption.   The United Nations joined with civil society in calling the financial and climate crises an opportunity to transition to fairer, cleaner, more sustainable forms of human development.
Ever since the UN’s climate agreements in 1997 in Kyoto, Japan, the evidence from the scientific community of this mega-threat to our collective survival has grown stronger and more ominous.   Still the biggest per capita polluter, the USA refused to sign the Kyoto protocols and, with some of its misguided environmental policy makers, forced their “market-based” cap and trade approaches on  successive UN climate conferences.  Their idea of capping carbon emissions was sensible enough, using government targets and regulating continuous reductions.  But instead of backing enforcement of carbon caps and shifting tax burdens from incomes and payrolls to taxes on carbon and all other pollution and waste,  the US “market fundamentalists” demanded that “allowances” to continue emitting carbon be given to polluters to trade with each other.  The disgrace of Wall Street has now made trading carbon derivatives as suspect as the credit default swaps that caused such havoc in financial markets.  Widespread public objections forced governments to agree to auction pollution allowances, but fossil fuel lobbies have kept their give-aways.   INTERPOL, the UN crime-fighting agency, warned of carbon fraud and that carbon-trading could become the white collar crime of the future (www.heatisonline.org).
Bankers, stock market traders and commodity brokers saw carbon as a new trillion dollar “asset class” and profit opportunity.    Yet the “cap and trade” emissions schemes in Europe created proliferating bureaucracies with caps on emissions easily lifted by lobbyists.   Ironically, the very financial players who caused the global financial crisis see carbon trading as their next big profit source.   As carbon markets failed to reduce carbon emissions, this has shown the efficiency of simply taxing carbon.  The Copenhagen conference in December 2009 can include a global price for carbon.
This debate as well as on how to alleviate the impacts of the financial meltdown, meet the UN’s Millennium Development Goals and the Monterrey Consensus of 2002 were  forced into the narrow calculus of costs in money terms.  Economic methods usually favor quantifying costs to incumbent sectors and existing institutions, rather than estimating savings, benefits and revenues from new ways of doing business, new technologies and social policies.  For example, the climate debate focuses on GDP growth “losses.”  Critiques of GDP-measured growth, including my own over the past 30 years, are finally gaining traction, including the Calvert-Henderson Quality of Life Indicators, making headway with the accounting profession and at the European Parliament’s Beyond GDP Conference in 2007 which the European Commission will begin implementing in 2010. ,    Yet the financial sector still dominates US politics: bailing out Wall Street firms was deemed necessary to “restore” the financial system.  Investing in growing the green economy, our children’s health and education for a prosperous future are deemed “too expensive,” even as a BBC-Globescan poll in 20 countries found 72% of their public’s support governments investing in renewable energy and green technology.
At last, focusing on carbon emissions in the obsolete fossil-fueled sectors no longer trumps quantifying the uncounted savings, benefits and avoided costs of investing in a global transition to the green post-carbon economy based on energy efficiency, wind, solar, ocean and geothermal sources. ,    Guy Dauncey, author of Stormy Weather adds up all the estimates of savings so far at $1.7 trillion annually in the USA alone.   McKinsey & Company finds that a $520 billion investment in energy efficiency would yield $1.2trillion by 2020 and reduce US demand by 23%.   Meanwhile, some still view financing for meeting the UN Millennium Development Goals as a cost when in reality, such finance belongs in the investment category.  The “rearview mirror” economism calculations must no longer dominate the financial and climate debates – spreading increasing gloom and fear while governments pour trillions into trying to restore the broken status quo.
Meanwhile, the greener, sustainable sectors are still growing worldwide, as renewable energy investments by 2008 exceeded investments in coal power plants.   The grassroots movements for sustainability are growing as well.  The Obama administration in the USA and the General Assembly of the United Nations grasped the potential of the shift to the green, sustainable sectors worldwide.   The rigid G-7 and G-20 summits gave ground to the G-192 as all the member countries of the UN came together in New York in June 2009, adopted the Stiglitz Commission Report  and declared their support for the new just, green, sustainable global economy led by UNEP, UNDP and the ILO.
Eighteen other UN agencies also support what is now called the Global Green New Deal.    The European Union’s president called on the USA to make bigger commitments to cut its carbon emissions and assert more leadership on climate.  All now see the meltdown of the global financial casino and the climate crisis as a chance to create a new, more just, green economy promoted for decades by civil society.
Finally, the world can put economism in its place and downsize finance to its limited role facilitating real production.  An efficient financial sector should constitute less than 10% of a country’s GDP.   Britain’s Financial Services Authority head , Lord Adair Turner  revived the many calls for a financial transactions tax , now supported by many governments.  Financial firms not covered by FDIC should pay into a Systemic Financial Risk Insurance Fund (SFRIF)  to protect the world’s taxpayers from future bailouts. ,  As our Chinese friends say, “Markets and money are good servants but bad masters.”
Thirty-four percent of China’s stimulus package and 81% of South Korea’s are focused on investing in solar, wind and green economic growth.   UN Secretary Ban Ki-moon praised China’s President Hu Jintao for these green economy initiatives.   China’s “green technology sector” is expected to grow to 15% of its GDP by 2013.
The spectacle of the US and other central banks printing money on TV helped raise public awareness that money is not real wealth but just a clever invention of humans to track  our promises and intentions  and keep score of our transactions and uses of natural resources.  The many electronic  trading exchanges, such as Entrex  , showcasing  small companies ; peer-to-peer lending sites , Prosper  and  Zopa; barter sites  Craigslist, and  Freecycle that facilitate sharing, recycling;  microloan sites , Microplace and Kiva, and Global Giving , Global Greengrants  for  charitable donating ,  as well as local currencies and LETS systems are flourishing.  Today information-based trading has illustrated that money circuits and markets have been overloaded by political  directives , “quantitative easing,” subsidies , etc. instead of direct , transparent legislative  approaches.  Furthermore, it is now clear that we don’t need Wall Street, the City or any other “financial centers” that have now imploded anyway. The Great Disintermediation away from money circuits  is underway  The 20th century “too big to fail” monsters came to believe that they were “providers of capital” rather than mere intermediaries connecting savers with borrowers and manipulating money issued by banks out of thin air.
This new understanding that money is simply one form of information is helping people realize that, of course, there is enough money to invest in our common future.  Hundreds of towns around the world have issued local currencies to link unemployed workers with needed jobs.   The real constraint has never been money, but rather limited vision and faulty economics.  Human societies’ ten-year window to install a post-carbon, global economy led to the global network, the Climate Prosperity Alliance, which I am honored to serve as a vice-chair.  The Climate Prosperity approach is rooted in ESG accounting and the new Green GDP approaches in Europe, China and here in the USA.  The Climate Prosperity Alliance is promoting a rapid ramp-up of private investments in solar, wind, renewables and energy-efficient infrastructure in developing countries.    Most developing countries can never afford nuclear energy and are unlikely to be able to afford much coal or oil-fired electricity.  Solar, wind, geothermal and small-scale hydro and biomass are their most realistic options.
Joining the Climate Prosperity movement are many socially responsible investors, charitable endowments, “green” bankers, many unions and NGOs, including WWF, which help fund many climate investment studies.  Tomorrow’s Company, CERES and the UN Principles of Responsible Investing all have issued reports on investing in green companies.  All of this and daily news is reported at www.ethicalmarkets.com from sources, including New Energy News, Responsible Investor, New Energy World Network,  Cleantech, CleanEdge, GreenBiz, Greener Computing, Energy & Capital, Environmental Finance, Green Chip Review, Alt Assets, the American Council for an Energy Efficient Economy (ACEEE), Green Budget News, Germany, China’s Syntao, Brazil’s Mercado Etico and Instituto Ethos and others from India, Japan and Australia.
The last piece of the puzzle to achieve Climate Prosperity within the ten-year window limiting temperature rise to below 2° centigrade are the climate prosperity bonds (see www.ethicalmarkets.com Climate Prosperity Funds).  Socially responsible retail investors are now joining forces with the Network for Sustainable Financial Markets, the Green Economy Initiative of UNDP, UNEP and the ILO and the eighteen other UN departments and many government agencies.   We welcome greater leadership from institutional investors as they shrug off the old EMH and Modern Portfolio Theory nonsense.
The new global effort to fund Climate Prosperity, would invest $10 trillion over the next ten years and plans to double installed renewable energy and efficiency savings each year.  This $10 trillion is less that the $14 trillion spent in the US on Wall Street and other bailouts so far (actual liability is now estimated at $23.7 trillion by the TARP Special Inspector at www.sigtarp.gov). The proposed $10 trillion investment in Climate Prosperity is less than 10% of the $120 trillion of assets in pension funds for beneficiaries’ future security.  Today, climate change is a threat to them and all humanity’s future security.  The British government now estimates the “green” market at £3 trillion worldwide.    What better plan is there than to invest these pensions’ assets now in securing their future in a safe, sustainable green economy?  Climate Prosperity bonds with governments’ guarantees and laddered maturities are geared to the payouts from energy efficiency (the quickest payback) and to expanded efficiencies-of-scale in wind, geothermal and solar.
Such bonds will be attractive to pension fund asset managers as outlined  by Climate Risk, Pty of Sydney, Australia, and the Network for Sustainable Financial Markets.  The Breaking the Climate Deadlock Plan of The Climate Group calls for $1 trillion to achieve a 70% reduction in emissions by 2020 – largely through energy efficiency.  The DESERTEC group of 12 European companies led by Munich Re and ABB plans to invest €450 billion in solar-thermal power plants across North Africa to provide 15% of Europe’s electricity via DC transmission lines under the Mediterranean.   During this ten-year rollout of the new low-carbon economy globally, coal and oil, as well as nuclear, will become even more costly and less competitive (even without accounting for their external costs or the price of carbon).   The faulty logic of economism which sees the problem as a “shortage of money” is exposed by the Climate Prosperity movement which sees the payback on that $10 trillion after 10 years as approximately $30 trillion. This illustrates that the real constraint is time, not money.  After wasting decades, we humans must act now.
The Climate Prosperity movement, together with many groups leading in widening awareness, planetary citizenship and perennial wisdom from indigenous peoples and all faith traditions is succeeding in changing the paradigm   From the dismal economism, money-based scarcity and fear to a vision of abundance through sharing, caring, volunteerism and community revitalization, all built on using the energy freely available from sun, wind, oceans and respect for the Earth and all life.  The 16 Principles of the Earth Charter are now endorsed by thousands of cities, companies and NGOs (www.earthcharter.org).  Copenhagen can host the positive tipping point: a worldwide critical mass of global citizens and their rising eco-aware culture in the emerging information-rich Solar Age.
Hazel Henderson, president of Ethical Markets Media (USA and Brazil), authored The Politics of the Solar Age (1981), Ethical Markets: Growing the Green Economy (2006) and the Calvert-Henderson Quality of Life Indicators, updated regularly at www.calvert-henderson.com.  She can be reached at www.ethicalmarkets.com and www.hazelhenderson.com.

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