The perfect time to let go of the scorecard mindset?

climate narratives: annotated #1

Photo by Tom Grünbauer on Unsplash

Hello, and thank you for joining the conversation. This is the first edition of climate narratives: annotated, a newsletter about green finance, climate change, podcasting and narrative.

The newsletter partners with my podcast New Climate Capitalism, but it’s also something more. Going out to your inbox once a month, on the 15th, each edition contains:

1. Curated highlights from sustainable and green finance, as well as tips for greening your money

2. Updates and behind the scenes content from the latest podcast episodes, extra resources, readings and unaired musings

3. My thoughts as a former print journalist on producing a podcast and narrative 

I'm based in southwest France right now, and during the 2-month lockdown I've had a chance to see spring unfolding, which is a first for me. I've always lived in cities.

What's really inspired me has been listening to the birds. I come here every summer, but have never seen spring unfold. Watching the trees come into leaf and hearing the birdsong build in volume and intensity every day has been incredible. I don't have the words to even describe this.

So I turned to Dorothy Wordsworth's Journal, "Home at Grasmere", from 1800-1803. Describing a walk she took with her brother, the poet William, in February, she writes:

The wind seemed warm when we came out of our own door. That dear thrush was singing upon the topmost of the smooth branches of the ash tree at the top of the orchard the day through, along with a cheerful undersong made by our winter friends, the robins.

All the while, as I was going for walks and trying to distinguish one bird melody from another, I was working through the podcast learning curve, and uncovering layer upon layer of unforeseen difficulty. When you’re working with voice, it seems, there is nowhere to hide.

This was tremendously humbling. Friends had warned me that the transition from text to audio is not straightforward. “You’ll struggle with creating warmth,” one veteran broadcast journalist warned. 

At the end of April, I launched the podcast, New Climate Capitalism. 

If you missed the first 2 episodes, here’s the summary.

• In episode 1, I talked with Sony Kapoor, Managing Director of the Nordic Institute for Finance, Technology and Sustainability, about Norway's trillion-dollar Oil Fund. In this episode we dive into why the fund’s passive investment strategy has left it exposed to the risks of the energy transition. Sony’s insights have proved eerily prescient as all oil producers are having to test drive a disorderly transition as global demand for oil has collapsed. 

• In episode 2, I talked with Mark Lewis, Head of Climate Change Investment Research at BNP Paribas Asset Management. In this episode, Mark gives us a unique insight into how the financial sector plays a role in the energy transition, and shares his love of Shakespeare and some of his favourite passages for these times of pandemic, climate emergency and economic disruption. We’ve included a few additional Shakespeare passages in this newsletter from that conversation.

More resources and articles from all guests are available via the website climate narratives.co.

Green and sustainable finance highlights

Everyone would agree that it’s too early to “call” the impact of the crisis on sustainable finance. But media headlines and the relentless conditioning to score, rate, pass judgement inevitably kicks in. More than ever, this is a moment to suspend judgement, let go of the “either/or” “success/failure” mindset and have a very open mind as we start to build new internal narratives.

A UNEP report with a suitably vague and non-committal title is a good example of this wait-and-see mindset. It provides a comprehensive round-up of multiple aspects of the big picture, and really captures the scattershot nature of where we’re at.

👉 "Implications of the COVID-19 Pandemic for Global Sustainable Finance: An initial framework for response strategies"

Main takeaways from the report:

ESG (environmental, social, governance) funds have slightly outperformed other funds in the crisis. You may have noticed that a lot of media headlines have passed on the “slightly”.

Evidence shows that ESG-related investments (both funds and indexes) have mildly outperformed benchmarks in the crisis. However, this performance delta is far from universal across all sustainability-related financial instruments, and is contingent on asset allocation, fund structures, and diversification. Bloomberg data suggests that Exchange Traded Funds (ETFs) with a lower-carbon tilt slightly outperformed the S&P 500, while clean energy indexes fell.

Sustainability is largely absent from national policy responses to COVID-19

There is virtually no evidence of consideration of sustainability priorities in first-round measures passed to end-March 2020.

In the US, propositions to introduce climate-related provisions in emergency stimulus packages – for instance, the introduction of emission limits for airlines receiving bailout funding – were ultimately unsuccessful; however, negotiations pertaining to such propositions influenced the inclusion of other measures to support fossil-fuel industries. Throughout April 2020, there has been a few instances of governments attaching emissions reductions conditions to state aid relief for high-carbon sectors – notably in France and Austria.

But, in a promising sign this week, Canada  bucked the trend and announced that companies receiving COVID-19 bailouts must disclose climate-related risks in line with recommendations from the Task Force on Climate-related Financial Disclosures. 

Recipient companies would be required to commit to publish annual climate-related disclosure reports consistent with the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, including how their future operations will support environmental sustainability and national climate goals.

The “S” (social) of ESG has come to the fore, while the “E” (environmental) is taking a back seat. Source: Moody’s Investor Service on Sustainable Finance report from May

An indirect consequence of the global coronavirus outbreak over the past two months has been the heightened focus of sustainable investors on social issues. In a remarkably short period of time, market attention on harnessing the powering of finance to support the necessary recovery from the crisis has placed social and sustainability bonds at the forefront of many market participants' minds.

In a disturbing twist, New Zealand slipped through a low-ambition emissions reduction commitment to the UN, and nobody noticed. 

Prime Minister Jacinda Ardern has dazzled the world with her effective and pitch-perfect response to the crisis. But fewer people noticed that New Zealand submitted a climate change pledge to the UN, which has been deemed “insufficient” to hold warming to 2C (let alone 1.5C) by independent watchdog Climate Action Tracker.

Basically New Zealand reaffirmed its existing 2030 climate target, ignored UN injunctions to raise ambition before end-2020, and passed the buck to the newly established independent Climate Change Commission, saying the Commission would recommend in early 2021 on whether and how its climate plan could be changed to make it consistent with the 1.5C goal.

COVID-19 underscores the importance of complex systems thinking.

Here’s how:

Take the Sustainable Development Goals. They were designed as an integrated set of global priorities, and while national policymakers have been tempted to cherry-pick them for their own agendas, the UN always insisted that the framework was an indivisible whole. 

The socio-economic impacts of the coronavirus crisis have made it painfully clear that sustainable development is highly interconnected.

The Moody’s investor service note quotes a recent UN report to highlight this:

The coronavirus outbreak is affecting almost every UN SDG, with potentially severe consequences for a wide array of issues including poverty and food security, health and safety, economic and gender inequality, climate change action and strong institutions. While it remains too early to determine the crisis' ultimate impact on sustainable finance, it is increasingly apparent that recognition of the overlapping nature of environmental and social objectives will remain prominent.

👉 Read the UN report on responding to the socioeconomic impacts of COVID-19

If you’re interested in honing your complex thinking tools, the Santa Fe institute has rolled out a timely course in response to the COVID-19 crisis.

👉 Seeking order in COVID-19 complexity

In summary, nothing is quite what it seems to be in this pandemic. When I worked as a financial journalist at Reuters back in the 1990s, the way we covered markets was always in this binary way. Everything was either Up or Down, Bullish or Bearish. Those reflexes will take a while to unlearn, but if we are successful it will help us craft more meaningful narratives about the collective future that’s unfolding.

Beyond the recording

This is a regular feature where we will share unaired pieces of tape and highlight the resources and readings that informed our understanding of the topics covered in our New Climate Capitalism podcast.

More readings for episode #1:

Episode #1 was about the Norway Oil Fund, and my interview with Sony Kapoor turned out to be a test drive of the COVID-19 chaos that subsequently engulfed the oil and gas sector. Since we talked, the fund has had its worst ever quarterly loss.

A mild degree of divestment has happened from oil and gas. And a slight expansion of the renewables portfolio has happened, but for the most part, the Norwegian oil fund and the Norwegian economy remain heavily overexposed to fossil fuels. 

But this could have been avoided. Read Sony’s 2017 article “No, Norway Isn't Turning Away from Fossil Fuels” and “How Not to Run a Sovereign Wealth Fund”, also from 2017, to learn how the writing has been on the wall for the fund for some time.

Extra content from episode #2:

If you enjoyed the interview with Mark Lewis talking about Shakespeare and climate change, here are some bonus quotes from other plays which didn't make it into the final cut.

A personal aside. I was really inspired by Mark's story of reading only-Shakespeare in his spare moments since the financial crisis of 2008. I picked up a French edition of bilingual Shakespeare at home, and started reading Julius Caesar because I remembered it from school. And boy, it was so much better than I remembered. It was just singing out at me from the pages. I don't even know why we are taught to think that Shakespeare is "difficult" at school. There is a musicality and a physicality about the language that lifts above everything else. Dominic Dromgoole's "Will and Me" is a good companion for re-connecting with the Bard.

1. Shakespeare's Commonwealth and the duty of governments to safeguard the well-being of all

I asked Mark about the COVID-19 crisis, the fact that many people feel their governments have betrayed them, have put economic growth above lives of people, especially the most vulnerable. And what insights Shakespeare might offer on that.

For a world today that is consumed by this dreadful pandemic, it is revealing that we have an awful lot in common, even though we might live on different continents that have different geographical and resource attributes.

He talked about the rigid social hierarchy of that world, and how in the historical plays the onus is on the Kings to do the right thing by the Commonwealth, the idea that the legitimacy of any government lay in its consultation with subjects and the pursuit of the well-being of the entire people.

We have a lot to gain from cooperating with one another. So I would say without picking out an individual quote is this general sense of the Commonwealth that comes through and the need for everybody to do their bit.

2. King Henry IV and how nature revolts when gold becomes her object

The scene where the dying king thinks that Hal, his son, simply wants him out of the way so that he can take the crown as the natural heir to the English throne. And he accuses Hal of having his eyes fixed firmly on the gold of the crown, the golden crown.

How quickly nature falls into revolt when gold becomes her object!

If you think about those words in the context of today, where for the last 200 years, we as a species have exploited nature in this relentless pursuit of fossil fuel powered wealth and power.

3. King Lear and Nature

Mark talked about the idea of nature in Shakespeare - one that predates the Industrial Revolution - that it's an uncontrolled force.

Think, for example, of the scene of King Lear on the heath, that's one of the most famous scenes in Shakespearean literature, and it's man against the elements. Very disturbing scene. And that's often how nature is.

The raw uncontrollable power of nature is a leitmotif that runs right throughout Shakespeare.

Next episode, we're excited to be talking with:

Daniel Klier, Head of Sustainable Finance at HSBC, on impacts of COVID-19 on ESG investing, and driving change in a time of stress.

From the Gers, France,

Denise