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Sustainable Investing in the Anthropocene State of Missouri Pension Funds June 12, 2012 http://pricetags.files.wordpress.com/2008/04/800px-london_millenium_wobbly_bridge1.jpg
1. Context: Not your grandmother’s SRI/ESG talk 2. Long View Implication: This time IS different
Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist. - Kenneth Boulding, Economist, Quaker, Co-Creator of General Systems Theory
The most powerful force in the universe is compoundinterest. - Albert Einstein*
Exponential growth leads to ecosystem crisis ”Safe Operating Space”, J. Rockstrom, National Center for Ecological Analysis and Synthesis
Ecological Overshoot: We use 1.5 planets ”Footprint Network.org
GDP growth does not equal well-being Source: Redefining Progress
We know what sustainability looks like Optimum Sustainability 100% Collapse of Financial System 0% Resilience Efficiency Source: Lietaer, Ulanowicz, Goerner 2008
Desired Outcome What’s wrong with this picture? Economic Efficiency Finance Planet Economy
Lost in finance: So clever, so ignorant Our economy has become an anti-economy, a financial system without a sound economic basis and without economic virtues. - Wendell Berry
Money, Banking, Finance & Investment: Designed for growth • Debt-based private money system • Debt-financed economy • Debt-financed government • Endowment-funded institutions • - Pensions, universities, foundations
Stranded Assets: our $20 T “Big Choice” • 2 degree warming limit: 565 GtC02 • “Proved Reserves” have 5X this amount • 74% owned by States, 24% by companies • At current market value, $20 trillion choice • Source: Potsdam Institute and “Unburnable Carbon”, Carbon Tracker Report
Ecological overshoot = Financial Overshoot What’s the off balance sheet ecological debt? What’s the P/E of a “steady state” economy? What’s the debt capacity of the steady state? What’s the unfunded pension liability of a SS?
Financial reform: Rearranging deckchairs May 26, 2011
1. Context: Not your grandmother’s SRI/ESG talk 2. Long View Implications: This time IS different
The situation is hopeless, but I could be wrong. - Ted Turner, quoting his former Foundation head.
Towards a Regenerative Economy • Holistic frame: nature as model • Redefine wealth: natural/social capital • The humble retreat of finance • Public interest in capital investment – an opportunity for leadership
A unique moment in history for Fiduciaries Years of focus on fiduciary duty of prudence has generated myopic investment herding behaviors, undermined intergenerational pension equity… - “Reclaming Fiduciary Duty”, James Hawley, Keith Johnson, Ed Waitzer
What’s different this time • Cycles within seismic shift -- downside shock bias • Caution: Steady state = revaluation • Long run not sum of short runs • Uncertainty different than risk • There is “no sideline”
What’s different this time • Schumpeter’s “creative destruction” on steroids • MPT built on flawed assumptions • Index benchmarking and tracking strategies exposed • Asset class diversification a mirage
ESG framework: Integrated reporting Unparalleled Leadership: Jochen Zeitz 2010 Earnings: Euro 202mm 2010 “E P&L”: (Euro 145 mm)
Investment themes for the Anthropocene • Reassert owner responsibility: Active concentrated ownership of resilient cash flow/dividends • Diversify systemic risks
Investment themes for the Anthropocene • Low carbon energy infrastructure • Ecosystem regeneration • Technology • Emerging markets • Distress/opportunistic
Investment is the bridge to the economy we need. And the steering wheel. We are called to be the architects of the future, not its victims. - R. Buckminster Fuller
Thank you www.capitalinstitute.org Future of Finance Blog