Labour's bold commitments on the environment. And the hurdles still to come
It is worth pausing over one of Labour’s policy commitments, which Ed Miliband reiterated last week: decarbonising the UK power sector by 2030. Think about that. That is just over 15 years away – within many of our working lives. And Labour has already set out plans to capitalise on the economic opportunities the transition could bring. The media rarely talk about it but it is one of the most radical and ambitious policies going.
At the same time as domestic environmental policy was being overshadowed in the United Kingdom, the UN secretary general’s pre-summit in New York (in advance of major climate change talks in Paris next year) was being overshadowed by an escalation of events in Iraq and Syria.
Although the general consensus appears to be that very little apart from some extra funding was announced, the summit was preceded by an enormous amount of important research, further clarifying the situation we face: the opportunities as well as the challenges. For me there were two key findings.
The first remains the need for faster progress. PwC’s Low Carbon Economy Index now tells us that the annual average rate of emissions reduction per unit of economic growth (carbon intensity) needs to quintuple from 1.2 per cent to 6.2 per cent between now and 2100 if we are to avoid the disaster scenario of a four degree average temperature rise, let alone the hoped-for cap at two degrees.
The second, less obvious, priority is that we need to find better ways of marshalling capital into sustainable investment. Only seven per cent of investors say they currently receive sustainability information from companies that impacts on their investment decisions, according to the UN Principles of Responsible Investment and Accenture. That is no good.
Put simply, yes, we need regulation to ensure that investors ‘go short’ on environmentally unsustainable securities but we also need to find ways to help them ‘go long’ on sustainable securities. After all, investments do need to generate a return. And it’s no good browbeating investors if they do not have the tools to assess the opportunities.
The problem appears to be one of language (or common metrics). Investors are used to assessing companies on their price/earnings ratios, profit margins etc. But unless you happen to have a working knowledge of the physical sciences (and have taken the trouble to read long sustainability reports) you are unlikely to recognise, say, a 30 per cent fuel efficiency saving as anything more than just a reduction in variable costs. You will probably miss the innovative supply-chain or technical fixes that represent long-term improvements in outlook for that company against its peers. Remember, it does not make any more financial sense than environmental sense to back a company whose use of natural resources is profligate (against competitors) or whose pollution levels expose it to risk.
The good news is that the capital does appear to be there. The massive report from Nicholas Stern, the OECD and others at the New Climate Economy (‘Stern 2.0’) argues that adapting to a sustainable economy would add only $240bn to the $90tn of investment spending needed anyway, in the next 15 years, to accommodate a larger, more urban and more affluent global population.
Meanwhile, Ronald Cohen’s Social Impact Investment Taskforce, says a full $1tn of global capital is already earmarked for social investment but is held back by ‘various legal or regulatory impediments’ like misunderstandings over the fiduciary duty of pension funds, stopping them from considering anything other than financial return when assessing an investment.
The ‘takeaway’ is this. As hard as it will be, securing a deal in Paris will not be enough. Hopefully a Labour government will lead the UK delegation. But as an aspirant centre-left government (with less money to spend) it makes total sense for Labour, and for the Socialists and Democrats in Europe, to be seeking practical ways to assist business in achieving our shared environmental goals. There is no time to lose.