Anthony Rowley

TOKYO: As the COVID-19 pandemic subsides (we all hope) in the opening months of 2021, attention will shift to another existential threat facing the world; that of climate change and the danger it brings of fires, floods, droughts, famines, typhoons, pestilences and other natural disasters – or even wars.

The world’s biggest superpower, the US, is taking the threat seriously enough for President elect Joe Biden to appoint a “Climate Czar” in the person of former Secretary of State John Kerry while other big powers from Europe to Japan and China are competing on targets for climate clean up.

This seems reassuring even if the targets they are setting for global warming-reducing carbon (CO2) emissions appear rather modest in some cases and not strict enough to prevent temperatures from rising above levels where life becomes less pleasant or even unbearable in the future

Awareness of the need to Save the Planet and its human or other inhabitants is growing fast, not just among governments and young people like teenage Swedish climate activist Greta Thunberg but also among captains of industry who are largely responsible for emissions that pollute Earth’s atmosphere.

But there are huge question marks hanging over the ability of the world to come up with climate-change solutions before it is too late. Mainly of these have to do with who will pay the multi trillion dollar cost of planet-saving measures,and who will be responsible for implementing such solutions.

It might seem that finance is not an insoluble problem given that there are no less than some U$300 trillion (three hundred thousand billion dollars) of savings under management in the world according to the United Nations. This is equal to  three to four times global gross domestic product (GDP).

Such mind-boggling sums of money should be big enough to buy climate change solutions, you might think. But that would be too simplistic. Much of those savings are in existing investments and,more importantly, money itself does not produce solutions. It needs to find its way into  channels for implementing them.

This “savings-investment gap” is the big unknown (and largely unconsidered) quantity that threatens to undermine or even neutralize efforts to save the planet and the species. People often assume that the situation is being taken care of and is under control when in reality it is not.

It is true that a lot of money finds its way nowadays into Sustainable Investment but that is not the same as saying that it is going into Saving the Planet or into other targets that will ensure the welfare and survival of the Earth and of its peoples and “flora and fauna” into the future.

Before looking at why this is so and at why the sustainable investment movement sometimes seems as much like a device to enrich (already wealthy) financial practitioners as a way to save the planet it is necessary to consider a few relevant facts and figures.

No-one has precisely tallied the cost of saving the planet and nor it is easy to do so.The calculation involves many different goals and not everyone agrees on what they should be.The best attempt so far was by the United Nations in 2015 when it approved 17 Sustainable Development Goals.

These “SDGs (to be achieved by the year 2030) included various types of climate action,infrastructure and industry development, development of sustainable cities and communities, promotion of health and welfare, poverty reduction, education etc in both advanced and developing nations.

Achieving the SDGs were not going to come cheap,the UN cautioned. The total bill could amount to $5 trillion dollars  per year over the 15 year life of the SDG implementation period up to 2030, or around $75 trillion in total.

Even then, the figure almost certainly understated spending needs in areas such as infrastructure alone where estimates suggest financing needs of up to $100 trillion between now and 2040. And that says nothing of required spending in upgrading medical facilities in the wake of the Covid pandemic

One half of the total amount needed for the SDGs was supposed to come from governments and the other half from financial markets, according to the UN. That implied private investor spending of some $2.5 trillion a year or some $38 trillion between 2015 and 2030 or $25 trillion between now and 2030.

Even supposing such huge amounts of private finance can be found, which is far from certain in “market economies” like those of the US and Europe, the colossal exercise of channeling  finance into planet-saving investment is daunting. Only state dominated economies like China’s can guarantee it.

The UN did not address these critical issues when its General Assembly approved the SDGs. It appeared to sidestep the political and ideological issue of how much state intervention might be required to ensure that the job gets done and rely on private sector initiatives instead.

The UN seemed content to go “back to the future” by emphasizing the need for a form of investing promoted originally by Kofi Annan then Secretary General of the 193-member body in 2004 when he contacted heads of  50 global firms urging them to support something called ESG investing.

ESG is an acronym for “Environment, Social and Governance” investment practices and requires companies subscribing to the concept to adhere to  appropriate standards in their business practices, and financial institutions to ensure that the companies they invest in do likewise.

These are worthy objectives and if enough firms and institutions observe them collectively that would have the effect of contributing to “saving the planet.” But they stop well short of a set of policies and mechanisms for ensuring that the Sustainable Development Goals can be met.

Yet a whole industry has sprung up around the ESGs. Hundreds or thousands of ESG investor funds have been launched with a total value anywhere from $5 trillion to $20 trillion (some estimates even suggest $40 trillion) according to definition – earning handsome commissions for fund managers.

These funds are forecast by many analysts (whose companies earn revenues from promoting them) are forecast to go on growing and growing in size and value into the future, especially through what is known as Exchange Traded Fund or ETF investment designed for the masses.

ESG and other forms of Sustainable Investment appeal strongly to growing legions of individual and institutional investors who are anxious to slow climate change and to promote other socioeconomic objectives. But other more direct forms of investment will likely be needed if the planet is to be saved.