(USA) Wall Street’s New Mantra: Green Is Good

Financial Times - Gillian Tett

Bankers once saw tackling climate change as a niche issue. Now it is a chance to fuel future profits. Is it a turning point? 

© Bill Butcher

Author Gillian Tett is chair of the editorial board and editor-at-large of the Financial Times in the USA. In 2014, she was named Columnist of the Year in the British Press Awards. Her upcoming book ‘Anthro-Vision: A New Way to See in Business and Life’ will be published in June.

In August 2019, Larry Fink, co-founder of BlackRock, the world’s largest asset management group, flew out to the remote wilderness of Lake Iliamna in south-west Alaska. 

Fink makes that pilgrimage every summer with friends such as Philipp Hildebrand, the former Swiss central bank governor, who now works at BlackRock, and Mike Corbat, the outgoing head of Citibank. The men engage in fly-fishing, wine-tasting and economic debate amid the mountains’ pristine beauty.

But when Fink’s group landed in 2019, he had a shock: the water levels were low and smoke filled the landscape, obscuring the sun; abnormally high temperatures had sparked wildfires in nearby Siberia. “The tundra was on fire,” Fink told me recently over a video call.

It was not the first time the Wall Street titan had come face to face with the effects of climate change. Two years earlier, he was horrified to discover that salmon had disappeared from his favourite fishing haunt in Idaho; soon after the “boys’ trip” to Alaska, Fink went to Botswana with his wife and saw elephant herds rampaging due to drought. 

BlackRock founder Larry Fink © Getty Images 

During his four-decade-long career, he had worried about the planet in a vaguely do-gooding way: he joined the board of the Nature Conservancy and battled to prevent non-native plants from overrunning an estate he owns in Westchester, New York.

But Fink used to assume that “personal” and “philanthropic” passions should stay out of his profit-seeking business. Fiduciary duty rules in America demand that asset managers focus only on delivering customer returns — and “breaching fiduciary duty is a criminal offence”, he points out.

In any case, BlackRock has exploded in size and power this century by amassing exchange traded funds and “passive” strategies that automatically track mainstream indices, such as the S&P 500 (such strategies represent two-thirds of its $8.6tn assets under management). Mainstream indices include fossil fuels, so BlackRock is heavily exposed to that by default — which prompts fury from environmentalists.

Fink was shocked when high temperatures sparked wildfires in Siberia in 2019 © Getty Images

However, the smoke-filled Alaskan lake caused Fink’s mind to “click”, friends recall. If finance is driven by both fear and greed, then what he saw in Alaska inspired both. The forces causing tundra fires will potentially change asset prices in a way that no fiduciary can ignore. “Climate risk is investment risk,” as Fink baldly stated this week in his annual note to clients.

Greed — or the “profit motive”, to use Wall Street’s preferred euphemism — matters too. Whoever finds tech solutions for climate change and invests in those will be a future winner. Or, as the 2021 “Larry’s Letter” also stressed: “Climate transition presents a historic investment opportunity.”

Fink has seen such moments before. He built his career by spotting, ahead of others, that the then fringe 1970s business of trading mortgage bonds could explode in scale. “This [climate story] reminds me of the formative years when I was a mortgage-backed securities trader,” he tells me. “In five straight years we elevated it to becoming a dominant component of global capital markets. It might take 10 years, not five years, for sustainability. But the underlying potential is huge.” 



That parallel might make some financiers wince. The mortgage bond revolution delivered public benefits early on, cutting homeowners’ borrowing costs. But the innovations went to crazy extremes this century, triggering the 2008 crisis. The danger in green mania is that it might lead to another bubble, given how opaque the sector is and how uneven the transition.

Non-financiers might flinch too. To most people outside Wall Street, climate change is an existential or moral issue, not a tale about money. And the hard-charging Fink is hardly known as a social activist.

I have seven grandchildren and I want to leave the planet better for them
Larry Fink

However, Fink insists that the revolution he is championing will deliver good. “I am 68 years old and have seven grandchildren. I want to leave the planet better for them but I am not doing this for environmental reasons — I am a fiduciary responsible for other people’s money and climate change is affecting their investments.” And whether or not you believe him, the one thing that is clear is that if Fink is steering his $8tn-plus behemoth into green waters, others will follow.

Not least because the new administration of President Joe Biden is poised to unleash a wave of green reforms. And by a happy (non-)coincidence, the chief economic adviser to the White House is none other than Brian Deese — who built BlackRock’s sustainability operations with Hildebrand. If nothing else, that suggests Wall Street and Washington will be aligned this year behind green issues. This week’s news from Biden on drilling indicates the green direction of his administration. So, as the boom intensifies, two key questions arise. Can financiers avoid another bubble? And will this actually deliver meaningful progress on climate change?

---

There are many places to start the tale of how green collided with Wall Street fear and greed. One is in the mid-20th century, when scientists and environmental activists created campaigning movements such as Greenpeace. Another is the late 20th century, when some asset managers, such as Swedish pension funds and religious orders, used investment for idealism, selling the shares of “dirty” companies, demanding corporate change at shareholder meetings or financing “impact investing”. (The nuns of the Sisters of Mercy order, for example, have hyperactive activists.)

Or you could start this tale later, in 2004, when Kofi Annan, the then secretary-general of the UN, asked 50 global chief executives to support sustainability causes. It seemed formulaic. But the ensuing conversations launched two novel concepts: “materiality” (the idea that issues such as the environment have “material” impacts on companies and vice versa), and Environmental, Social and Governance (ESG) metrics (to track this “materiality”). Today, these seem unremarkable. But a mere 15 years ago they were radical ideas, since companies used to ringfence “doing good” from their main operations by calling it “charity” or “corporate social responsibility”.

Former governor of the Bank of England Mark Carney speaking at Lloyd’s insurance market in London in 2015 © Getty Images

The best place to begin, however, is probably September 29 2015. That was the day that Mark Carney, the Canadian-born former governor of the Bank of England, gave a speech to a stuffy dinner at Lloyd’s insurance market in London. As a financial journalist, I have covered numerous central bank speeches and know these usually focus on inflation, interest rates and growth. Those were the core of 20th-century economic models; issues such as the environment were “externalities”.

That night, the tuxedo-clad Carney talked about climate change. If the world was going to hit the goals of the 2015 Paris Climate Accord, he declared, “one-fifth and one-third [of the] world’s proven reserves of oil, gas and coal” would become unusable, leaving “the vast majority of reserves “stranded” — ie worthless. And since “the exposure of UK investors, including insurance companies [and banks], to these shifts is potentially huge”, he warned of a potential future market panic if investors suddenly woke up to these risks, or a so-called “Minsky moment” (named after the 20th-century economist Hyman Minsky).

Climate change is the investment opportunity of our generation
Mark Carney

Some stunned listeners accused Carney of abusing his policy brief. However, Carney retorted that the scale of looming shock forced him to speak out. “There were supervisory issues for insurers and others,” he tells me by phone from Ottawa, where he now lives, after leaving the Bank last year (while advising the British government on this year’s COP-26 UN climate change conference).

His remarks triggered soul-searching at many financial groups, not just insurers. Financiers had seen a “Minsky moment” erupt in the 2008 crisis. Nobody wanted that to happen again. And Carney did not just invoke fear, he also stressed the opportunities linked to green. Or, as he now says: “Climate change is the investment opportunity of our generation.”

Better still, evidence was emerging backing this more upbeat view. A decade earlier, David Blood, a former Goldman Sachs banker, had joined forces with Al Gore, the former US vice-president who had made the environmental documentary An Inconvenient Truth, to create an investment group called Generation. Based in Mayfair, it chased green strategies.

Al Gore and David Blood joined forces to create Generation, a sustainability-focused investment group © Shutterstock

Initially, it was presumed that the “Blood ’n’ Gore” team — as wags called them — would have to sacrifice returns if they wanted to be green. But by 2015, Generation was achieving returns higher than the mainstream, or “brown”, investment groups “You don’t have to trade values for value,” Gore told me. “Green can enhance returns.”

---

A couple of years after Carney’s speech, I noticed that my email box was filling up with messages from public relations teams with “ESG” or “sustainability” in the header. Initially, I ignored or deleted these. My journalism training left me suspicious of PR pitches about vague, do-gooding ideas.

But one day I decided to look into why the ESG messaging had exploded. And I realised that a stealthy zeitgeist shift was under way: corporate leaders were talking about “purpose”, not just “profit” (or, as America’s Business Roundtable said in 2019, “stakeholders” instead of just shareholders”); financiers were considering the consequences of investments, not just returns.

Why? I suspect future historians will see this as a reaction to the shock of the 2008 crisis, the explosion of populism, geopolitical instability — and melting ice caps. But in practical terms, what was already clear in 2018 was that ESG motives were changing. Early investor activists, like nuns, campaigned to actively change the world, or at least do it no harm. The new ESG enthusiasts in 2018 were often fending off harm to themselves: trying to avoid reputational risks, retain customers and employees, and sidestep losses. ESG was becoming a tool of risk management as well as activism.



To some, this made ESG hypocritical. But as someone who once reported on political uprisings, I know that revolutions usually triumph not when a tiny minority of activists get angry but when the silent majority gets swept along. ESG was nearing that tipping point, although it was hard to see this because the sector (like any new corner of finance) was opaque and fragmented. “The state of ESG now is very similar to what the venture capital industry was like when I started four decades ago,” Sir Ronald Cohen, a man dubbed the “father of venture capital” in Europe, told me.

Or, as Marisa Drew, chief sustainability officer at Credit Suisse, observed: “I started my career doing leveraged loans and other structured finance in the 1990s and early years of the 21st century, and what I see with ESG is very similar.”

Climate activist Greta Thunberg at a rally in February in Bristol, UK © Bloomberg

By 2018, some estimates of the market’s size were as big as $32tn, using the broadest definitions, and suggested it had tripled in a decade. “The growth has been phenomenal,” says Anne Finucane, vice-chair of Bank of America. Indeed, she reckons that “from the $110tn assets that are being professionally managed, we are seeing 40 per cent of global financial assets with an ESG consideration. And that will only increase.”

---

By European standards, BlackRock arrived late to this ESG boom. Perhaps that was no surprise. Raised in California in the era of 1960s protest, Fink was “just another LA kid with long hair and turquoise jewellery” when he arrived on Wall Street. But he quickly gained a clean-cut image, sharp elbows and a ruthless focus on profits.

There is no company whose business model won’t be profoundly affected by the transition to a net zero economy
Larry Fink

In 2012, Fink’s tone subtly changed: he began to call for a focus on “long-term” strategies rather than short-term profit-seeking. The language was vague. But it signalled a wider shift.

Fink has always been obsessive about managing risks at BlackRock; not least because he was pushed out of First Boston in humiliating style after misjudging interest rate risks. Before 2012, he discussed such “risks” in his annual note primarily in economic and financial terms. In an era of populism, he was widening his risk lens, not least because — crucially — he realised his clients’ mindsets were changing.



In 2018, Fink shifted tack further. “Society is demanding that companies, both public and private, serve a social purpose,” he declared, warning that companies flouting this principle would lose their social “licence”. That appalled some fellow capitalists. “I didn’t know Larry Fink had been made God,” said Sam Zell, the billionaire real estate investor, dubbing the letter “extraordinarily hypocritical”.

Green activists howled about hypocrisy too — for different reasons. BlackRock had some of the biggest holdings of fossil fuel stocks in the world, via its passive money management business, and a patchy record of voting at shareholder meetings for climate proposals. Longtime green investors, such as Gore or the hedge fund manager Chris Hohn, sniped and Japan’s Government Pension Investment Fund pulled a mandate, seemingly after it decided that BlackRock’s sustainability record was poor.

But Fink kept going, and this week he doubled down. His 2021 letter to CEOs says that the policy response to climate change will have “dramatic implications for the global economy”, causing a “tectonic shift” in markets, and urges public and private companies to adopt sustainable reporting standards and become net zero carbon emitters by 2050. He also promised to report the climate impact of all his funds, offer customised green index products, build climate risk tracking metrics, launch green funds and use shareholder votes to promote change.



These moves are not as radical as many smaller European rivals have implemented (and green campaigners remain critical). But it is startling, given Wall Street’s history. “Fink was slow to move but now that he has embraced this it is having a big impact,” says Carney.

Will this deliver real green progress? Fink — and other Wall Street enthusiasts — claim so. BlackRock calculates that 81 per cent of sustainable indices outperformed mainstream indices last year and predicts such big future inflows that “green” will eventually become entirely mainstream, not sit in a ringfenced category. “There is no company whose business model won’t be profoundly affected by the transition to a net zero economy,” Fink says. If so, that would echo what happened to tech. Or, to use another example, the mortgage bond business where he started.

Donald Trump and Larry Fink at the White House in 2017 © Getty Images

But can this occur without a bubble and bust? History gives plenty of reasons to be sceptical. Accounting standards remain inconsistent and there is a mismatch between demand and supply for green products, in part because European definitions of what is “green” are narrow. Hence the dizzy valuations of a stock such as Tesla, the eclectic vehicle manufacturer (whose market value is now the same as the entire S&P oil sector.)

Wall Street’s new “green warriors” are scrambling to create more credible reporting standards in an effort to avoid scandals and bubbles. They are also urging governments and companies to create more investible green projects. “We need private capital on a vast scale to fund the transition to net zero. Public money cannot do it,” says Hildebrand. Maybe it will work.

But in the meantime, a debate rages in green circles: is Fink an unlikely hero? An opportunist? A symbol of our age? Or a catalyst for change? I suspect the answer is a mixture of all these. But what is clear is that 2021 is likely to be the year that green meets Wall Street greed and fear. Finance sometimes moves in strange lines.

Links 

• Gillian Tett: Olive is the new green in fighting climate change
• How the race for renewable energy is reshaping global politics
• BlackRock pushes companies to adopt 2050 net zero emissions goal
• EU carbon price soars to record highs
• Big Oil hit by record losses from pandemic and clean fuel
• How Government Can Fuel a Green Recovery
• Climate change’s bogeyman isn’t only big oil
• (USA) Bezos Makes First Donations From $10 Billion Earth Fund For Fighting Climate Change
• The Secret Club For Billionaires Who Care About Climate Change
• Climate Change Poses 'Profound Threat' To Global Growth - IMF Chief

(Fr.) Court Convicts French State For Failure To Address Climate Crisis

The Guardian - Kim Willsher

State found guilty of ‘non-respect of its engagements’ aimed at fighting global warming

Environmental activists stage a protest in Paris in January before the first hearing in the case against the French state over climate inaction. Photograph: Thomas Samson/AFP/Getty Images

A Paris court has convicted the French state of failing to address the climate crisis and not keeping its promises to tackle greenhouse gas emissions. In what has been hailed as a historic ruling, the court found the state guilty of “non-respect of its engagements” aimed at combating global warming.

Billed the “affair of the century”, the legal case was brought by four French environmental groups after a petition signed by 2.3 million people.

“This is an historic win for climate justice. The decision not only takes into consideration what scientists say and what people want from French public policies, but it should also inspire people all over the world to hold their governments accountable for climate change in their courts,” said Jean-François Julliard, the executive director of Greenpeace France, one of the plaintiffs.

He said the judgment would be used to push the French state to act against the climate emergency. “No more blah blah,” he added.

Cécilia Rinaudo, the director of Notre Affaire à Tous (It’s Everyone’s Business), another plaintiff, said it was an “immense victory” for climate activists around the world.

“It’s a victory for all the people who are already facing the devastating impact of the climate crisis that our leaders fail to tackle. The time has come for justice,” Rinaudo said.

“This legal action has brought millions of people together in a common fight: the fight for our future. The judge’s landmark decision proves that France’s climate inaction is no longer tolerable, it is illegal. But the fight is not over. Recognising the state’s inaction is only a first step towards the implementation of concrete and efficient measures to combat climate change.”

The court ruled that compensation for “ecological damage” was admissible, and declared the state “should be held liable for part of this damage if it had failed to meet its commitments to reduce greenhouse gas emissions”.

It did not uphold a claim for symbolic compensation, saying compensation should be made “in kind”, with damages awarded “only if the reparation measures were impossible or insufficient”.

However, the court ruled that the applicants were entitled to seek compensation in kind for the “ecological damage caused by France’s failure to comply with the targets it had set for reducing greenhouse gas emissions. It said this needed further investigation and gave the state two months to respond.

It awarded each organisation a symbolic €1 for “moral prejudice”, saying the state’s failure to honour its climate commitments was “detrimental to the collective interest”.

Wednesday’s judgment was hailed as “revolutionary” by the four NGOs – including Greenpeace France and Oxfam France – that lodged the formal complaint with the French prime minister’s office in December 2018. When they received what they considered an inadequate response, they filed a legal case in March 2019.

The Paris agreement signed five years ago aimed to limit global warming to less than 2C above pre-industrial levels. Donald Trump pulled the US out of the deal in 2017, though Joe Biden plans to rejoin. Environmental experts say governments, including the French administration, have failed to meet their commitments.

The French government has pledged to reduce the country’s greenhouse gas emissions by 40% by 2030 and reach carbon neutrality by 2050.

NGOs say the state is exceeding its carbon budgets and is not moving quickly enough to renovate buildings to make them energy efficient, or to develop renewable energy. They claim this is having a serious impact on the daily quality of life and health of people in France.

In a report last July, France’s High Council for the Climate severely criticised government policies. “Climate action is not up to the challenges and objectives,” it said.

France’s greenhouse gas emission dropped by 0.9% in 2018-19, when the annual drop needed to reach its targets is 1.5% until 2025 and 3.2% afterwards.

In a written defence, the French government rejected accusations of inaction and asked the court to throw out any claim for compensation. It argued that the state could not be held uniquely responsible for climate change when it was not responsible for all global emissions.

Links

• Lethal Heating: Legal Posts
• Global ice loss accelerating at record rate, study finds
• Helping poorest tackle climate crisis will boost global growth, says IMF head
• Countries adapting too slowly to climate breakdown, UN warns
• UN secretary general urges all countries to declare climate emergencies
• UK to stop funding overseas fossil fuel projects
• Global citizens' assembly planned to address climate crisis
• Sea level rise could be worse than feared, warn researchers
• Plant-based diets crucial to saving global wildlife, says report
• Electric vehicles close to ‘tipping point’ of mass adoption
• Economics' failure over destruction of nature presents ‘extreme risks’
• Tennis-court sized scrap of Bristol to become 'tiny forest'

POWERPASTE, A High-Density, Safe, And Easily Transportable Hydrogen Energy Fuel

Inceptive Mind - Amit Malewar

POWERPASTE, a high-density, safe and easily transportable hydrogen energy fuel. Credit: Fraunhofer IFAM

The future car could be powered by a hydrogen fuel cell, one of the most promising alternatives to replace gasoline and other hydrocarbon-based fuels.

However, hydrogen for fuel cells is extremely volatile and therefore difficult to store and transport. Thus, before hydrogen technology can be widely used, various obstacles must be overcome. And one of the most difficult is hydrogen storage.

Researchers have now succeeded in turning the gas into an easy-to-use paste.

A team from the Fraunhofer Institute for Manufacturing Technology and Advanced Materials IFAM in Dresden has developed a hydrogen-containing paste that stores hydrogen energy at ten times the lithium battery‘s density. 

The hydrogen-based fuel that is ideal for small vehicles: POWERPASTE, is based on solid magnesium hydride, making it easier to store and use.

Magnesium hydride paste stores hydrogen in the chemical form at room temperature and atmospheric pressure, which is easily released on demand. And given that the POWERPASTE begins to decompose only at temperatures around 250 °C, it remains safe, even when the vehicle stands for hours in the scorching sun. 

Plus, refueling is extremely simple. Instead of heading to the filling station, riders can replace an empty cartridge with a new one and then refill the tank with mains water. This can be done easily at home or on the go.

TRL 5 demonstrator of a power generator with a POWERPASTE cartridge and a 100 watt PEM fuel cell. Credit: Fraunhofer IFAM

The starting material for POWERPASTE is magnesium, one of the most abundant elements and, therefore, an easily available raw material. Magnesium powder combines with hydrogen to form magnesium hydride in a process at 350 °C and five to six times atmospheric pressure. An ester and a metal salt are then added to form the finished product. 

Onboard the vehicle, the paste is released from the cartridge using a plunger. When water is added from the tank, the reaction produces hydrogen gas in a quantity that can vary according to the actual requirements of the fuel cell.

In fact, only half of the hydrogen originates from the POWERPASTE; the rest comes from the added water. 

The POWERPASTE has a high energy storage density. Scientists claim that this is significantly higher than that of a 700 bar high-pressure tank, and compared to batteries, it has ten times the energy storage density. This means that this unique composition has an energy density comparable to or even better than gasoline.

Due to its high energy storage density, the POWERPASTE is a promising option for hydrogen fuel cell vehicles that can significantly increase the range of a battery-powered electric vehicle. 

 Likewise, it could dramatically increase the flight times of large, clean fuel drones that can fly for several hours rather than a mere 20 minutes. 

Another plus point is – unlike gaseous hydrogen, it does not require a costly infrastructure. 

In places where there are no hydrogen stations, regular filling stations could therefore sell POWERPASTE in cartridges or canisters instead. 

POWERPASTE is also cheap to transport since no costly high-pressure tanks are involved nor the use of extremely cold liquid hydrogen.

The first POWERPASTE factory is scheduled to start operating in 2021. Four tons of the energy cream will initially be produced there annually.

Links

• (POWERPASTE) Hydrogen-powered drives for e-scooters
• (AU) Australian invented hydrogen storage for homes and businesses hits the market
• (AU) Australian invented ‘catalyst’ may be key to creating a global hydrogen economy
• What Is Green Hydrogen And Will It Power The Future? (video)
• (AU) Hydrogen buses to hit the roads soon
• (AU) Electric bus that runs on sunlight to power through testing in Brisbane
• (AU) Embrace hydrogen-fuelled trains and buses
• Solar-powered hydropanel harvests up to 10 liters of drinking water per day from air