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For Whom the Bell Tolls

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The time for debate about climate change is over: it’s happening, it’s accelerating, and we are responsible for it. But negative human impacts on the environment go ‘beyond’ climate change. Socio-economic stability is under threat. It could be even worse than the global financial crisis in 2008: a lot worse, in fact.

Besides more frequent hurricanes, extreme flooding and wildfires, biodiversity is declining dramatically: even among the insects, many at the bottom of food chains and others vital for pollination. Habitat loss due to rampant deforestation is one factor.
Another cause is land degradation: topsoil is being lost much faster than it can be replenished. Since the mid-20th century, while the global population has more than doubled, 30 per cent of the world’s arable land has become unproductive due to erosion.  Meanwhile four-fifths of the world’s population lives in areas where demand for water is threatening to outstrip supply.
These risks to our future are highlighted in an alarming new report from the Institute for Public Policy Research (IPPR), “This is a Crisis: Facing up to the Age of Environmental Breakdown”. It pulls together evidence from dozens of published studies to demonstrate the closing window of opportunity to avoid potentially catastrophic outcomes.

One thing affects another: a key lesson I learned when studying ecology decades ago. It is not good news, for example, that a quarter of CO2 emissions dissolve in the oceans, because the resulting acidification plus pollution from agricultural run-off and plastics damages marine ecosystems. Natural systems are highly interdependent, so threats cannot be considered in isolation.
Worse, change is not necessarily a linear process; more and more we see evidence of acceleration amid positive feedback effects. Societies and economies must accelerate efforts to adapt, before we reach tipping points at which abrupt and irreversible changes happen. 

This matters to all of humanity; but especially it should matter to those who can most influence outcomes – and not only policymakers and politicians. Pension schemes collectively hold a great deal of wealth, which can be invested in pretty much anything around the globe.

The watchword surely should be ‘sustainable’. It’s not just about reducing investments in fossil fuel companies. We get that: current consultations from the FCA and the PRA recognise climate risks and the need to manage attendant financial risks.

We need to go further and faster. ESG (Environmental, Social and Governance) should not be a mere ‘overlay’ on investment policy (or worse still, regarded as a ‘nice to have’): it needs to be at the heart of measuring sustainability and impact of investment. ESG criteria should be fundamental to the assessment of risk and return.

These days too, it is much more about what to invest in than what to exclude: investors on the front foot are looking to accentuate the positive. What options are more likely to secure the future? Does the business model look sustainable? Will we need this in ten or twenty years’ time? Index-tracker fund fans might note that only a quarter of companies included in the FTSE 100 at inception in 1984 are still there today.
It’s almost a truism to note that those likely to be worst affected by future environmental breakdown are those with the least influence. Global injustice is mirrored within nation states.
We in the pensions industry should be aware of the generational injustice too. Very few of those who have substantial pension savings, or control pension scheme investment strategy, are millennials; and none were born in this century.

Rather I suggest, it is up to you and me to do what we can, from our undeniably privileged position, to respond with a sense of urgency to this rapidly destabilising world. As the poet John Donne wrote centuries ago, “Send not to know for whom the bell tolls; it tolls for thee”.
Ian Neale
Director, Aries Insight