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15 January 2020

Big business is finally recognising that the climate crisis could destroy capitalism

The past assumption that markets and technology will find a way to halt environmental breakdown is being openly questioned. 

By Paul Mason

We’re living through a historic moment of climate realism. Australians who grinned and voted for a right-wing government – in the knowledge that it would go on blocking global action on climate change – aren’t grinning anymore. Their country is on fire.

And now BlackRock, which manages $7trn of capital on behalf of global capital, has been forced into a “fundamental reshaping” of its investment strategy. It will pull billions of dollars out of companies which make money out of coal mining, change its risk-management calculations to factor in climate change, and – it says – start voting against boards of companies that don’t take climate change seriously.

The move has been greeted by an outpouring of justified scorn by climate NGOs. It’s too little, too late and takes no responsibility for the billions of tonnes of carbon emitted by firms BlackRock has financed since its foundation in 1988.

But it’s still a significant moment, and to be welcomed. The fund giant’s CEO Larry Fink has basically conceded that there is no capitalism on a dead planet. Read between the lines of his letter to US chief executives and it goes further: there is about to be a “significant reallocation of capital,” says Fink, away from all businesses exposed to the risks of climate change. Even such capitalism as survives on a burning planet might not produce the riches it once did.

Since the science has been clear for at least two decades, Fink’s letter must stand as a tombstone to greed: why weren’t the risk analysis models changed until now? Why wasn’t sustainability placed at the heart of investment strategies at the start of the neoliberal era, before emitting the actual carbon that will tip the earth’s ecosystem into chaos?

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The answer is clear: so that rich people all over the world could buy their SUVs, yachts and ski chalets, and so China, Latin America and India could be industrialised, one coal-fired power station at a time. It may have been Australia’s Scott Morrison who made the historically sick joke in parliament, waving a lump of coal around and telling opponents: “it’s nothing to be frightened of”. But the joke was made on behalf of the entire fund management and investment banking industry.

Even now the risks Fink seems to care about are financial – not the primary risk to the planet, its ecosystem and its species. These, as far as capitalism is concerned, are just a kind of host organism for the real, living parasite, which is self-expanding wealth.

But Fink’s intervention is welcome. BlackRock will join ClimateAction 100+ – a group of super-rich investors who have agreed to pressure companies to align their actions with the goals of the Paris Climate Agreement. It will pull money out of coal and the obvious planet-destroyers.

Long experience of the corporate world’s attitude to social responsibility and greenwash leads me to expect there will be long, self-congratulatory dinners, lunches, awards ceremonies and bonuses paid to all concerned, once a bunch of new, green corporate ESR (Environmental and Social Responsibility) targets are being met.

But here’s why it’s still a turning point. John Maynard Keynes once wrote that “money is a link to the future”. How money behaves today tells you how human beings expect the future to pan out.

Today, money is panicking about the future of capitalism, and with good reason. The core conceit of neoliberal capitalism was the end of history. This didn’t just mean that no better system was possible; it implied that all problems generated within the system were technocratically solvable.

Trace the psychology of climate change complacency among corporations and you will always find this assumption: a combination of markets and technological innovation will find a way to stop catastrophic climate change, and if not, the same eternal remedies will allow us to adapt to it. So in the short term let’s create an emissions trading scheme and in the long term build spacecraft.

Fink, along with central bankers such as the outgoing Bank of England governor Mark Carney, have come to the stark realisation that, given the scale of the problem, markets plus technology might not work. In his letter, Fink attempts to convey the urgency of this new thought to the CEOs whose businesses he is about to bust apart: “Will cities… be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds? What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance? … What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?”

The finance industry has scoured the world’s maths departments to recruit a generation of “quants” – quantitative analysts – to model financial risks down to micropercentage points. Fink’s questions – to which the honest answer is “we don’t know” – and unquantifiable risks raise profound doubts over the future of capitalism itself.

For this, already, is a stagnant and broken system. Growth is being driven by debt and money printing. The world’s $250trn debt pile represents a claim on the future so big that, even if capitalism revived and prospered, it would take half a century to get under control. The $17trn in central bank money printed and given away to the corporate sector is a life support system, without which every new apartment block would not be built, and every new branch of Starbucks would not be opened.

Yet the cure is part of the disease. Money printing has flattened the returns on saving to below zero. There are $11trn worth of government debts in the world that yield negative interest rates: savers get less than nothing from lending to the government.

If capitalism were strong and vibrant, we could be more confident that the animal spirits of rich people might rise to the challenge of the “reallocation” required – to get out of carbon intensive industries and move to sustainable ones.

But the FlyBe fiasco shows what’s more likely to happen. Carbon-guzzling companies like airlines have captured the mindset of most governments. So at the first sign that a regional airline is set to fail, the very tax designed to make flying more expensive, and penalise the industry for the damage they’re doing to our environment, is cut.

If Fink is right, then corporations need to do more than pulling money out of coal producers. They need to pull money and support from parties and politicians like Donald Trump and Boris Johnson, who are abetting the destruction of our planet. They need to stop financing climate-denying media groups like News Corp. 

This week, James Murdoch, son of Rupert, slammed News Corp’s coverage of the Australian bushfires, which have slandered those linking the fires to climate change as “alarmists”. An even braver move would be to resign from NewsCorp’s board, on which James sits. But that’s not how it works among the Davos elite.

For the Fink letter to mean anything, this is what has to happen. Central banks need to issue a stark warning that they will start aggressively guiding asset allocation, to guard against the catastrophic collapse of climate exposed companies. Governments need to embrace state-directed long-term investment in zero-carbon energy and transport systems – aka the Green New Deal – and the media needs to stop attacking climate scientists and campaigners as “eco-loons”. This means, in short, suppressing the market in the name of the ecosystem.

But the corporate world is gripped by inertia for a reason. Its leaders are part of a generation who taught themselves to “live for the now” in a morality and consequence-free present dominated by money-grabbing individualism. They know they will be dead by the time the real climate chaos kicks in – and the most powerful people in finance are always those on the brink of a long retirement in a secure and luxurious place. Whatever they say, until the actions start, it’s rational to conclude they don’t really care.

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