Wednesday, September 18, 2019

On board the SS Planet Titanic

Jun 12. 2019
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By Andrew Sheng 
Asia News Network

4,402 Viewed

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 warning we may have only 10 to 15 years to correct our carbon emission trajectory. It is no longer IF climate disaster will happen, only WHEN and how bad.

Rich billionaires like Elon Musk can finance space-travel projects in the hope of migrating when Earth implodes. Meanwhile, the global poor who mostly live in the tropics and are facing rising heat, worsening drought and lack of food and jobs, can choose to migrate northwards to cooler and wealthier places. 

The Middle East and North Africa heat belt has 6 per cent of the world’s population and 1 per cent of the drinkable water resources, but the highest birth rate. The deserts of the Sahara and Middle East are expanding as temperatures rise. 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 populist leaders 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”.

In other words, corporate captains focus on short-term business models driven by quarterly profit reports to satisfy investors, ignoring the need to create long-term value. All the corporate mistakes of Volkswagen on diesel emission, Boeing on aircraft safety, and Facebook on data usage smack 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 the climate are our corporate captains. If they remain unconvinced that we need to change course from short-term profits to long-term survival, then we are all currently sailing on the SS Planet Titanic. 

Like now, the shareholders of the original Titanic thought the ship was unsinkable.

The Forbes list of 2,000 leading global companies accounts for $40 trillion in annual revenue (just under half of global GDP) and $186 trillion in global assets – larger than any single nation. The CDP Carbon Majors Report 2017 estimated that 100 fossil fuel producers account for 52 per cent of global industrial greenhouse gas (GHG) emissions since the Industrial Revolution. Meanwhile 224 companies produced 72 per cent 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 of 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. 

Many pay lip service to climate change in their annual reports. But most have not acted seriously to control their own carbon emissions and help educate their customers in why changing consumption behaviour is in everyone’s best interest. 

The latest CDP report suggested that the top companies are increasingly aware that $1 trillion of their assets are at risk from climate impacts within the next five years, while as much as $250 billion may have to be written off in losses. On the other hand, switching production to green products and services may bring as much as US$1.2 trillion in revenue alone, seven times conversion costs.

Scientists have warned of 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 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. The human population grew form 2 billion in 1900, to 7.6 billion now, with 11 billion projected by the end of the century. If every Chinese and Indian achieves the income level of the average American and consumes resources like them, we will require another earth to support demand.

Economists are particularly blind to the impact of global warming and scarce resources because the originators of mainstream economics – Anglo-Saxons – have never lived under serious resource constraints. The British and the Americans discovered through coal and fossil fuels how 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. 

Ever since we discovered fossil fuels – coal and then oil, gas – economists have treated 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 cost of the tree that you cut down – 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 on a planet that is heating up. The only problem is that we ourselves are providing the carbon emission that is fuelling the heating. Asians understand that the right analogy of this surreal situation is the story of the boiling frog – comfortably numbed by warm water until it gets boiled alive, 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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