When The Fifth Estate held its sustainable finance salon in London in 2015 (see the ebook here), we talked about the “irrepressible Sean Kidney, who flew in straight from Beijing, suitcase in hand, to attend the dinner.”
Kidney, founder, and pretty well sole operator of the Green Bonds Initiative in those days, was full of hope for the power of capital to shift the green agenda. He was right.
Today in London he has 70 people on his staff, green bonds are a $1.2 trillion market, and investors are starved for green deals.
On Sunday afternoon, stuck in Sydney for a few months because of Covid, he was guest of honour at a small event hosted for him by green advocate Maria Atkinson, a co-founder of the Green Building Council of Australia, and now a member and advisor of various companies including the huge Bingo Industries, and Blair Palese who previously ran 350.Org and is now global climate editor of Climate and Capital Media.
In a short address to share his views, Kidney started on a typically positive note.
Covid’s been tough, he said, but, “it’s amazing what governments can do when they have to and it’s amazing how much money you can find when you need to.”
Same with people’s ability to adapt.
But sadly, chillingly, the International Panel on Climate Change says there will a lot more pandemics, he said, in a sober segue.
Add on climate change and you can see there’s a need not just for mitigation but for resilience.
Uncomfortable word for many, perhaps? A little bit flaky; a little bit “we’ve lost the game”.
Not so with Kidney. The big question we need to ask, he said, is how extreme the climate will get.
“The 21st Century will be extreme, the question is how extreme?
“Catastrophic is a world we don’t want our kids to live in; it’s unimaginable.
“But if we make the shift it’s possible we can have some kind of reasonable future and adapt.”
And if we cut emissions by 55 per cent on 1990 levels it gives us a 50:50 chance of avoiding “catastrophic,” Kidney said.
But would you get into your car if you had a 50:50 chance of a catastrophe?
Thing is we need to stop all emissions “tomorrow morning at 9 o’clock.”
But there’s good news. The cavalry, the owners of the mighty trillions of investment dollars who must also be feeling the pinch of wilder weather, stories of the North Pole now gone in summer, mighty chunks of Antarctica peeling off, and people in tee shirts during a recent summer.
But with so much money sloshing around the globe looking for a green home, Kidney says there’s reasons to feel encouraged.
Corporates like the more financially attractive green bonds, and so too do national and regional governments.
France recently announced an extra $US9 billion would go into green programs attracted at the very least by the pricing benefit.
“So it’s pretty cool,” Kidney says.
In the US there are signs of radical change from the government. Blair Palese on Thursday told The Fifth Estate that her sources in the US just to hand, say the new Joe Biden administration is working on a comprehensive almost whole of government recalibration of economic strategy to place climate action and sustainability at the forefront.
The work is ahead of Biden’s climate summit on 22 April to set the agenda for the COP later this year.
Will PM Scott Morrison be invited? It’s on the cards. Will he accept? That could be tricky. If he shows up what will he say? If he holds the line on the old guard, he’d look silly, so it might be best to be “busy” that week.
But the signs are that the PM is shifting ground. There’s plenty of subtle shifts in narrative that tell us that he’ll follow the money, if not the people. For instance, the word coal has pretty much disappeared from the PM’s lexicon.
And we’re tipping gas won’t be far behind.
As Palese said, would any investor watching coal fired power stations close down, choose to put their money in gas?
Probably not a wise choice.
At a recent industry/energy event in the Hunter Valley in NSW attended by Morrison, we heard from senior people that the language on climate continues to shift, noticeably. Unfortunately, the media was preoccupied with more pressing events on how women are treated in Canberra and elsewhere so it wasn’t picked up.
The choice to move away from coal and towards green investment is not necessarily because of a sudden discovery of benevolence from the capital markets for the planet. Changes in value are powerful motivators, so too the pressure of some giants on others.
Kidney says pressure from Japan’s Government Pension Investment Fund, one of the biggest in the world, was one of the reasons BlackRock’s Larry Fink has been issuing his recent climate friendly exhortations to companies he invests in through his early year letters.
Prohibited by law from shifting to a more climate friendly ethical investments GPIF’s chief investments officer decided on another tack, to pressure Fink to pressure his investment destinations to shift on climate. Or lose a very big mandate from GPIF.
“Larry Fink did not write his latest letter because he wanted to, necessarily, it was because his largest investor was GPIF.”
So with all this demand for green deals, willing or unwilling, what’s top of the wish list for investors?
Buildings, he said.
Think about the potential. With all the good work achieved at the top of this most important and impactful of all asset classes there is still a vast array of opportunity to be picked up.
Mainly this comprises the assets of the “80 per cent” of owners who “don’t know, don’t care” and who are still, for the most part, lazily waiting for market to do their value uplift for them. Not efficiency. Not sustainability. And this despite all the efforts of so many enthusiastic people over the years.
You’d think that with all the financial engineering that clever people in the market have invented someone would be able to connect the dots of demand with the dots of opportunity.
Time for government strategy (not necessarily money)
Kidney says it’s now time for governments to step up with “big aggressive state actions… Not necessarily state taxpayer dollars”.
“We’re winning on energy to such an extraordinary extent that green hydrogen in 10 years will be cheaper than natural gas.”
But it’s thanks to state action in places such as Germany and China.
“And that’s the lesson to remember; it was state action, it was not market forces” nor clever R&D in universities.
More than 100 countries around the world have now committed to net zero.
So now “we have the money; isn’t that amazing, that we have the money. We just might be able to do it.”
Not that this is a rational thought, he adds.
“Because rationally you look at this and say, hang on, this looks a bit ugly. But as we know investments are not always driven by rational decision making. It’s animal spirits or sentiment. We saw it in 2008 and we saw it last year. And this is a similar thing. We need to use animal spirits.
“Humans in adversity have extraordinary propensity to rise and change things quickly.”
We’ve never needed those animal spirits more.