'Green is good'

Bernard Hickey points to a shift in thinking by big global business and investors from 'Greed is good' to 'Green is good'

28th Sep 14, 9:00am by Bernard Hickey

By Bernard Hickey

It's arguably the most famous line in capitalism, even though it was uttered by the fictional and very flawed character of Gordon Gekko in 'Wall St'.

Gekko's logic had a superficially seductive quality to it.

"Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit," Gekko said in arguing for the right to buy up, break up and sell off the fictional 'Teldar Paper.'

Gekko's speech has come to typify everything that is wrong about how investments are made and how companies and economies have been run for decades - always for the short term and always without taking into account the wider costs to investors and taxpayers over the long term.

Good investment decisions analyse the costs of decisions across generations and across all parts of the economy.

Decisions that seem the cheapest and most profitable when viewed through the lens of one company for one quarter, may actually be the most expensive when looked at across decades and across all the arms of government and society as a whole.

Now some of the savviest investors in the world are adopting a new catchphrase -"Green is good" - because over the long run investing in technologies that reduce carbon emissions is cheaper and more profitable.

The political focus this week was on the UN Climate Summit in New York, where Leonardo DiCaprio called for action and Police arrested a protestor dressed in a Polar Bear suit.

But the economic and investing focus was on The Global Commission on the Economy and Climate's release of a 10 point plan recommending ways for investors and governments to accelerate economic growth and address climate change at the same time, often by cutting subsidies and reducing public spending.

"The New Climate Economy report has shown it is possible to have better growth and a better climate. It is possible to create jobs, reduce poverty, and reduce the carbon emissions that threaten our future," said Commission chair and former Mexican President Felipe Calderón.

The Commission is not short of high-powered global corporate types, bankers and investors, who might in previous decades have dismissed such ideas as hippy-dippy Green propaganda. Alongside UN Development Programme Chief Helen Clark, the Commission includes the CEO of Unilever, the CEO of Bloomberg, the CEO of Swiss Re and the Executive Director of the International Energy Agency.

It pointed out that taxpayers globally currently spend US$600 billion a year on subsidies for fossil fuels and that the health costs alone of pollution from coal surpassed the equivalent of 6-11% of GDP per year in countries such as China, Russia and India.

The International Panel on Climate Change has already estimated that a two degrees increase in temperatures by the middle of the century would reduce Global GDP growth by up to 2% per annum.

Big global businesses, fund managers, banks, reinsurers and the biggest Governments are beginning to realise that action to reduce climate change would reduce the immediate costs by reducing subsidies and reduce the long term costs by avoiding the inevitably slowing effects of climate change on global growth.

That was most poignantly illustrated this week when the Rockefeller Brothers fund, which was created from the profits of John D Rockefeller's Standard Oil fortune, announced it was divesting out of fossil fuels as part of a growing group of pension funds selling out of the sector. They hope to focus attention on this issue in a similar way to those funds that pulled out of companies linked to apartheid in the 1980s and 1990s, helping to accelerate its demise.

Even our own New Zealand Superannuation Fund announced this week it was joining with a group of funds with US$1.5 trillion of funds under management to commission a study by Mercer of the investment risks and returns under various climate change scenarios.

"As a long-term, inter-generational investor, we need to understand the investment risks and opportunities associated with climate change," said NZ Super Fund CEO Adrian Orr. "This project will help us calibrate our investment strategies accordingly," he said. Indeed.

Fund managers, bankers and insurers have now moved from warning of the risks to the economy from actions to address climate change such as carbon taxes to warning of the risks to their balance sheets and profits from not addressing climate change.

Rightly, they're beginning to look at the longer term and global effects of their investment decisions and the decisions governments make about taxes, subsidies and spending.

Where once they might have said 'Greed is good', they're now saying 'Green is good.'

That's great.

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A version of this article was originally run in the Herald on Sunday. It is here with permission.

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5 Comments

by prosperopink | 28th Sep 14, 11:56am 1411858566

Greed can be green too Bernard! This week the Chairman of Google, Eric Schmidt, called people who oppose green energy subsidies “liars”. Mr. Schmidt said: “And the people who oppose it (climate change) are really hurting our children and our grandchildren and making the world a much worse place. And so we should not be aligned with such people—they’re just, they’re just literally lying.” Meanwhile, Google uses mostly non-renewable fuel to power its operations, but has “pledged $1.5billion” to fund renewables. It has invested millions into solar panel plants that are “bird-fryers” — literally roasting birds in the sky. These investments mostly occur in states with renewable-mandates, would not survive without taxpayer funding, qualify for tax credits, and require infrastructure (like transmission lines) that electricity consumers or governments have to fund. Wall St Journal Google Kills Birds The mercenary motives behind Eric Schmidt’s appeal to green virtue. “The real charlatans are businesses like Google that use climate change as a pretext for corporate welfare.” … nearly all of Google’s solar and wind farms are located in states with renewable-energy mandates, which create opportunities for politically mediated profit-making. For instance, California requires that renewables make up a third of electricity by 2020. Google has invested about $600 million in California’s solar plants such as the Ivanpah system in California’s Mojave Desert. Ivanpah is the world’s largest solar-thermal project, which is the target of environmentalists. Dozens of federally protected desert tortoises have been displaced or killed. The Center for Biological Diversity estimates that Ivanpah’s “power towers”—which burn natural gas—incinerate about 28,000 birds annually. The death toll is disputed by others, but Google has made taxpayers complicit in its avian-cide. The $2.2 billion bird fryer was funded with a $1.6 billion federal loan, which Google and its business partners plan to repay by applying for a federal grant. The do-no-evil company has invested $157 million in a wind farm in California’s Tehachapi Mountains, which has killed thousands of birds including federally protected golden eagles. Google’s renewable portfolio includes a $275 million investment in two wind farms in Texas that are partly responsible for the construction of $7 billion in new transmission lines. The Texas Public Utility Commission estimates the lines will cost ratepayers on average $72 per year. Google has about $60 billion in cash and short-term investments sitting on its balance sheet. Most of Google’s renewable investments qualify for a federal investment tax credit that covers 30% of the cost. Its $450 million investment in rooftop solar-systems also benefits from state incentives such as “net-metering” laws. This hidden subsidy compensates ratepayers for power they remit to the grid at the retail rate, which can be three times as much as the wholesale price of electricity. Net-metering allows solar companies to charge higher rates to homeowners who lease their panels, and thus for investors like Google to reap larger profits. Read it all: “ALEC provides a forum for sundry businesses to discuss free-market reforms with state lawmakers. Two of its policy targets are renewable-energy mandates and subsidies, which are being exploited by big businesses like Google at the expense of low- and middle-income taxpayers. Google’s real problem with ALEC is a conflict of pecuniary interests.”

by dh | 28th Sep 14, 12:59pm 1411862356

this is part of the push back from ALEC against Google, there may well be a similar piece about problems with Facebook next week, as all the major tech companies are disassociating themselves from ALEC (an organisation for cultivating special relationships between companies and right wing politicians). Of course ALEC, and the quarter of congress that belong to it, are a bit offended by Google going public in its leaving, rather than leaving quietly like the other companies.

As a sanity test- Google are investing in renewable energy, is it a sound business decision to concentrate those investments in States that have a tax incentive for doing so. You can also tell that it is a Google hit piece because it is attacking the tax incentives Google is getting for renewables without contrasting the government support for fossil fuel.

by steven | 28th Sep 14, 1:46pm 1411865206

ALEC is a bought mouth piece for the likes of the Kock brothers and other oil / coal interests. Quite why you feel the need to try and justify your point of view with a vested interst mouth piece is a wonder, or maybe not.

Google has recently decided to stop supporting ALEC btw, as are many corporates. So a lash out by ALEC or its vested interest backers.

Corporate welfare? yet there are massive coal and oil subsidies.

The bird "fryer" is an unusual solar design (though quite old in concept), most are not so intense. Besides which what is the damage done to the environemnt by CO2 emitters? quite large.

"The effects of wind turbines on birds, which research suggests kill far fewer birds per megawatt hour than do fossil fuel plants, have long been a source of consternation for many environmentalists."

What is the damage being done to the bees by pesticides? quite large. Damage to native forrests by illegal logging and clearance for humans? huge.

So meanwhile "on the other side" a few birds may be being scorched.

"has killed thousands of birds" or maybe 233, sure some more than that.

"It was one of 233 birds recovered from the sites of three Californian desert solar power plants as part of a federal investigation."

http://www.scientificamerican.com/article/solar-farms-threaten-birds/

How many species have us humans sent extinct? and will send extinct? Me thinks though are ignoring some realities.

"low and middle-income" yet these are the very people who are being crippled financially by rising fossil fuel prices, and worse its going to get if we continue on this path.

regards

by cowboy | 28th Sep 14, 12:56pm 1411862213

"Green is good" is just as shortsighted as Greed".

"Decisions that seem the cheapest and most profitable when viewed through the lens of one company for one quarter, may actually be the most expensive when looked at across decades and across all the arms of government and society as a whole."

Then the process is simple - arms of government and society must be prepared to pay for what they want, rather than expecting it free ..

It is government and society expecting something for nothing that creates the problems we see... (after all how many rich people you see deliberately living in slums and driving junkers)

by waymad | 28th Sep 14, 5:34pm 1411878865

Thoughtful piece, Bernard.

In one sense, it returns capitalism to its roots. It was conceived in a time when religious values were the only game in town: roughly, the century after the Glorious Revolution (1688) and the soon-to-be very-disappointing-indeed French Revolution.

In that era to pursue ends that were not compatible with a long-term view of life, the universe and everyt'ing was almost literally a Sin, and the new Green religion is about nothing if not Deadly Sins, Hair Shirts, and an awful lotta Preaching complete with Finger-wagging. Very Scottish 17th century Calvinist....

In fact, there's a nice French phrase to describe all this: plus ça change plus c'est la même chose.

More seriously, companies finally grow by aligning their customers' values with their corporate direction. Thus retaining them, and their luvverly munny, and hanging on to their ebitda. (Theirs', not the aforesaid Customers').

What you've spotted is the age-old process of companies manoeuvring their positioning, products, all of them P's taught in every Marketing 101 course on Gaia's Good Earth, so as to be at least On the bandwagon-du-jour, if not actually in front of it.

Of course, Gaia will have the final word on some of the more shall we say currently excitable pronouncements. But the general direction: of thinking a leetle more about the Long Term, is to be encouraged.

However, one of the Rocks in the Path Forward, is the irrationality exhibited by increasingly large fractions of the potential consumer population: as Spengler notes in 'How Civilisations Die', when one is faced by certain cutltural extinction, there can be a grim satisfaction in taking a whole buncha folks along for the ride.

And companies, economics and general practise don't have too many answers about irrationality.....especially in the short term.