Sometimes stories can take a surreal turn. The plot goes sideways or non sequitur, and one thing just doesn’t lead to the other like it’s meant to, or seems to on the surface.
In 1990, somewhere towards the beginning of the story of the modern climate movement and two years after Dr James Hansen’s testimony to the United States’ Senate on the greenhouse effect and climate change, the International Panel on Climate Change (IPCC) released its First Assessment Report. It served as the basis of the United Nations Framework Convention on Climate Change (UNFCCC). It said that emissions (mostly CO2) caused by human activities were increasing greenhouse gases and warming the Earth’s surface.
Also in 1990, a surrealist American mystery series, ‘Twin Peaks’, co-written and directed by David Lynch, appeared on TV screens. This week, on 24 February, it will be ‘Twin Peaks Day’ in Snoqualmie and North Bend, Washington State, commemorating the date on which the narrative started as the lead character, Detective Cooper, arrived at the scene of a crime.
Twin Peaks springs to mind not just because we are approaching a rather obscure date in the cultural calendar, but looking back at a strange, and perhaps slightly surreal few weeks of news-flow, relating to two – possibly twinned - peaks in the climate story. One is the long-predicted peaking of the use of fossil fuels, although demand for them appears to be scaling new heights, making reports of their decline seem at best premature. The other is the spectacular rise of ESG (environment, social and corporate governance) investing, which some commentators are saying has been peaking and now risks losing altitude, facing headwinds.
To start with the first ‘peak’, the latest numbers on fossil fuels point to it getting higher and further away. Taken together, oil, gas and coal still represent over 80% of the global energy system and 80% of the human made contribution to the excess greenhouse gas emissions causing global warming. So far, after some $6 trillion invested in renewables and $3 trillion in the electric grid over the last two decades, there has been little actual displacement of fossil fuels or reduction in emissions, more addition to the energy supply. Despite nearly 40% of electricity being generated from low carbon sources today, electricity is still only 20% of energy and over a third of it is still generated by coal, with gas in second place at over 20%. Coal use is still rising by 4% per annum – with substantial falls in Europe and the United States being offset by India and China - and fresh records are still being set.
This is bad news for climate anxiety because fossil fuels are responsible for most human-made contributions to climate change (although felling trees and poor agriculture and land management are accomplices to the crime). And the clock is ticking. The United Nations International Panel on Climate Change (IPCC) Sixth Assessment Report (AR6) defined the remaining carbon budget to remain within a 1.5C implied long-term temperature rise limit range at around 400 gigatonnes of Co2 equivalent (GtCO2e) at the beginning of this decade. Assuming a run rate of 40 GtCO2e, it is gone by 2030. We have no time to waste.
What about the second peak? In many ways, it might be expected that the mountain of ESG activity should build up as the ground shifts in reaction to the impact of fossil fuels on the climate, and as the world gears up to do something about it. So, how’s that going recently? At best, it’s non sequitur and can even feel a little surreal.
For example, in the UK, the governor of the Bank of England told a parliamentary committee last week that it is dialling back its work to support the government’s (itself retreating) climate agenda, given that the chancellor knocked climate change off its list of four priorities for its remit, in favour of ‘boosting productive finance’. Readers of my previous Substacks would know that I would embrace this focus on productivity with both arms, if only the UK didn’t waste most of its energy, squandering its finances in the process and, absent efficiency, incurring tremendous opportunity costs in terms of foregone productivity and competitiveness.
Meanwhile, ESG cages were rattled when JPMorgan Asset Management and State Street Global Advisors quit the Climate Action 100+ investor group, while BlackRock is apparently quitting as a corporate member and reducing its participation to its international arm. The group’s plans to shift from calling on investee companies for enhanced disclosures to a “phase 2”, calling on them to reduce greenhouse gas emissions, appears to have been a step too far, particularly against a backdrop of growing Republican backlash against ESG. Indeed, the Financial Times reported that a note from BlackRock had gone as far as to say that it felt that this conflicted with United States laws requiring money managers to act solely in clients’ long term economic interests. This was a plot point anticipated in the Chapter 9 of my book, ‘The Edge’, on ESG and greenwash. The issue was discussed in the context of growing regulatory complexity, which was reported by PwC in January of this year to be a barrier, according to a survey of CEOs, for climate investment.
But now the plot has twisted on the regulatory front too. The UK government’s (and even the opposition’s) row-backs on climate targets and plans have been well documented and be-moaned. However, last week was Germany’s turn to pull the handbrake, shocking the EU by withdrawing support at the last minute from its landmark supply chain law, the Corporate Sustainability Due Diligence directive, which was meant to screen for environmental and human rights abuses. The objection came not from the left or the right, but from the centrist Free Democrats (FDP) on the basis that ‘we don’t want to overburden companies … during a recession’. It didn’t take much to set off a set of dominos. Italy, Bulgaria, and Austria are now reported to have signalled that they would abstain or vote against.
All three examples of cracks in the ESG movement juxtapose economic performance with environmental, social, and corporate governance issues.
It doesn’t need to be this way. Most environmental and commercial sustainability can and should be synonymous with resource efficiency, doing the same or more with less. As I explain in ‘The Edge’, and in my weekly Substacks, in a world that wastes some 75% of its energy, half of its food and a third of its water, there are abundant opportunities to improve economic performance, productivity and competitiveness at national, regional and corporate level.
Indeed, you might say, if it’s not commercial, it’s not sustainable. Rather than sacrificing returns on the altar of sustainability, secure competitive advantage by making better returns using less resources by being more efficient. We need only a fraction of the valuable energy we use. Simply investing more to make more can be expensive. Being more efficient is cheaper.
The biggest and dirtiest secret of the energy market is that most of it is lost in generating, transmitting, distributing, and using it. This can be addressed through a combination of large scale decentralisation - bringing energy closer to the point of use by buildings, industry and transport, so most of it doesn’t get lost on the way, largely as waste heat - and by reducing waste at the point of use by upgrading mechanical and electrical infrastructure. The work that we do and the investments that we make at SDCL Group and the SDCL Energy Efficiency Income Trust plc, which have involved over 50,000 buildings across Europe, the United States and Asia, attest to the fact that profitable projects that deliver cheaper, cleaner, and more reliable energy services where they are needed can be done.
Making the world around us more efficient is one of the greatest economic and commercial opportunities for this generation, and the largest, fastest, cheapest, and cleanest form of greenhouse gas emission reductions, economic productivity gains, and even energy security.
How to navigate in the swirling winds between the twin peaks?
Perhaps ESG needs to move beyond its own established conventions. As the Harvard Business Review and Bloomberg recently put it, ESG ratings too often ‘don’t measure a company’s impact on the Earth and Society. In fact, they gauge the opposite: the potential impact of the world on the company and its shareholders’. While well-meaning, some ESG standard setting runs the risk of promotion of ‘paper decarbonization’, whereby investors avoid high emitters to get a green label rather than engage in real-world efforts to reduce carbon. Look at the Climate Action 100+. Legal challenges to alleged corporate ‘greenwash’ in search of the same green labels has even started a phenomenon of ‘green-hush’, where companies would rather stay quiet about (or even scale back, so called ‘green-stalling’) their activities than risk being sued.
In Twin Peaks, Detective Cooper tells his Sherriff that to remain optimistic, he regularly gifts himself something small. So, to celebrate Twin Peaks Day this week, and to aim higher, how about a special entry for the ESG questionnaire:
How much waste is being generated, at what cost, and what is being done about it?
Picture credit: ChatGPT 4
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