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How to get the wolves on our team

Algemeen

14 Feb 2014 | 10:26

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It is an ill wind that blows no one any good.

Besides Dutch Engineering firms, who see ‘tremendous opportunity’ in this week’s flooded UK, some climate activists will seek advantage and use the British flooding disaster to regain momentum in the climate debate.

It is probably impossible to prove a link between climate change and the floodings, but I see no harm at all in scaring the people a little bit. Last month’s IPCC report makes painfully clear that we fail to act to counter a threat that becomes more and more clear.

Why is this? Why is it, that the energy transition is not made? That the investments made are nowhere near what is required?

Economically, it is not that hard to understand. Climate change is still an externality, until the ultimate investors (institutional, for instance) start pricing in its risk. My encounters with institutional investors lead me to believe that they do not, and will not.

I am not sure why exactly they don’t. One could argue that pricing risk is their job. But I am not sure they see it that way.

First of all, they do not want to price a risk if their peers don’t. No one was ever fired for being as stupid as everyone else. Secondly, they are very far removed from the effects of what they do. Just as the invention of guns created more distance between killer and victim and thus made killing easier and more likely, the fact that asset managers’ offices are located thousands of miles from flooded areas or tar sands, makes them less likely to feel part of the problem. And thirdly – and this is the biggest issue of all –  investors and their clients (the pension funds) feel a certain entitlement to return. It is their moral duty to make sure that their client makes at least an average return. There could hardly be any harm in that, now could it?

Let me be clear. These guys are no criminals. They may work on Wall Street, but they certainly are no wolves. Maybe that is part of the problem. The real wolves of Wall Street, the big swingers that call the shots have no interest in saving the planet.  Speaking about Wolves of Wall Street; Leonardo di Caprio’s movie character I guess is amusing. But if you want to learn about the dynamics of financial markets, a better movie (as well as a better movie, period) is Margin Call.

In this movie about a demise of a bank in the credit crisis, modeled after a mixture of Bear Sterns, Lehman and Morgan Stanley, one of my favourite monologues comes from Jeremy Irons (John Tuld in the movie):

It’s all just the same thing over and over; we can’t help ourselves. And you and I can’t control it, or stop it, or even slow it. Or even ever-so-slightly alter it. We just react. And we make a lot money if we get it right. And we get left by the side of the side of the road if we get it wrong. And there have always been and there always will be the same percentage of winners and losers. Happy foxes and sad sacks. Fat cats and starving dogs in this world. Yeah, there may be more of us today than there’s ever been. But the percentages-they stay exactly the same

 

Very interesting.

In essence, there are only two types of people. Winners and losers.

If you see the winners in this game not necessarily as an immoral but rather an a-moral bunch, you wonder if we shouldn’t try to mobilize their ambitions to create some common good.

Their ambition, their Wille zur Macht is an unguided force that makes the world go round. And history will not prove them wrong, because history is written by the winners.

Today, the market for fossil fuels is the biggest market in the world, creating incredible wealth for a small group of people. They are not impressed by IPCC reports, and not afraid of the odd consumer who wants organic, green, or renewable.  One has to be rather naïve to believe that sweet high brow civilians with solar panels and Priuses will derail the most successful money machine ever created.

If we are serious about the survival of this planet, we need the top-1% on our side. There are two strategies to achieve this.

First of all, one could offer them something they do not have. Many money driven people will be sensitive to status. In the past, kings used this to their advantage, by offering them noble titles. Except for the UK, this is no longer common practice, but I could imagine that the Koch brothers may be very flattered if someone offered them the title ‘Prince of Kansas‘ . Of course, they would only receive this title if they ditched their dirty business and converted to the green religion.

Second, we may try focus their attention and ambitions on the industries we wish to grow. To do so, we first have to close of the fossil money machine for them. This is easy to do. Just tax the hell out of it. No need to coordinate this on a global level. Countries should all play catch-as-catch-can. This would generate piles of cash in public coffres, and drives the top-1% to other industries.

Exactly where we want them.

Ebel Kemeling

 

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