I scanned the news this morning and it seems that a story about Prince Andrew is as significant in some media as the report on climate change from the IPCC. I believe that people should be held to account for their actions, but in the grand scheme of things the impending, and now all too apparently rapidly developing climate crisis is the bigger of these two issues. But as yet, the media do not believe it. Without the fires now raging in Greece and Italy I suspect the reaction right now would still be something like “tell me about it when it happens”.
The reality is that climate change is happening. As someone who has been worried about climate change since the 1970s, I have long been aware of this. One of the first ever economics books I ever read, when I was still in the sixth form in about 1975, was E J Mishan's ‘The cost of economic growth'. My copy of ‘Small is beautiful' by E F Schumacher was bought at around the same time. So too, although I can't find my copy now, was the Club of Rome report, ‘The Limits to Growth'. The temptation to say that the catastrophe we now face was predicted long ago is high.
Saying so, however, also entirely relevant. The suggestion made in reports from that era onwards was that global warming could create irreversible changes to the world's atmosphere that might impact the way human's could live in earth in ways that, ultimately, are a threat to our existence, and that of many other species. The science was always real. It's ability to predict the crisis we are now in was horribly uncomfortable.
And now, because the warnings have been ignored we are facing a tipping point. Even Alok Sharma says so, whilst also, incomprehensible, wanting new oil and coalfields.
But why say this now? Simply because this is not tomorrow's news. It is today's, because action is required now.
We must reduce methane, now. That requires massive change in our fuel consumption, with significant impact on our way of life, now. It requires change in agriculture, now. It requires transformation of business, now. It requires the most massive education programmes to provide explanation for this, now. And it requires training for the new world we must live in, now.
The repetition of now is deliberate. The moment for prevarication has gone. The opportunity for delay has ceased to exist. To make it very personal, I thought that at 63 that this was an issue I pursued mainly for my children. Now I know there is a good chance I too will see the catastrophe unfold. We no longer need to say that this is about saving the planet for generations to come; most of those here now have already pushed it to its limits and will see the consequences.
What will sober the world enough to persuade it to address this? Given that we live in a market economy, which most believe the most effective communication mechanism for societal preferences that we have, I persist in the view that putting climate change on the balance sheet of companies the best thing that we can do. I describe this as sustainable cost accounting.
All it does is three things. It demands that a company recognise that we have a crisis, now. It says that in response to that crisis the company must estimate the cost of eliminating harmful emissions from its supply chain, own processes and from the customer chain that it supplies. That does require some estimation of the scale of the emissions, of course, but the focus is on the cost of elimination of the emission, not the cost of the emission itself.
The two are quite different, partly because the cost of the emission is incalculable in a real sense: it is the end of life as we know it. In that case the cost of eliminating the emission is the only viable measure to estimate. And, second, costing the impact of the emission continues to assume that we can buy our way out of this crisis. We cannot. We have to stop it instead. It's the price of stopping the crisis that I want estimated.
Once that price of stopping emissions is known then a company has to, in my suggestion, provide for that cost on its balance sheet, now. That should be a mandatory requirement. And when I say ‘provide' I mean the entire cost should get accounted for now.
There is good accounting reason for this. Accounting requires that when a decision with an unavoidable cost e.g. to close a production line, is incurred, then the company provide for that cost when the decision is taken. Companies have to decided to close their emission production activities now. If they don't this planet cannot continue to function as we want. It is simple as that, so the provision for the cost of stopping emissions has to be made, now.
Then, and only then, will we know whether and which companies might survive this transition, and how they think that might happen. That is because the balance sheet worth of every large company on earth would be reduced in value by this provision. Let's not pretend otherwise. Very clearly that is true. It is ridiculous to pretend that commerce will continue as if climate change is not happening. So we need to know the impact.
In some cases that impact will be manageable out of normal ongoing resources.
In others it will, for example, require that dividends be cut to retain the funds required to pay for the changes.
Other companies are going to need to raise new capital and borrowing, and the scale needs to be known.
And, of course, there will be companies who just cannot make it through this, especially given that the timelines are now really quite short as a consequence of all previous warnings being ignored. They are ‘carbon insolvent' and are going to be amongst the victims of this. We need to face the fact and plan for their demise.
The reality is that this information on business is what we need to know now, because it is business that produces the products that are killing the planet.
It is business then that must stop producing those products.
And it is business that must account for climate change in that case. Not by pretending it is off balance sheet, or that by disclosing emissions it had done enough. Business has to account now for how it is going to stop its emissions. It has to do so or we have no identifiable future. But this is not on the COP26 agenda.
My question is a simple one. Why not?
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I like the idea of sustainable cost accounting.
I’d go further and add labels on every good and service that are like the coloured labels on fridges which go from A++ to F telling you how polluting your fridge is. So a packet of Pringles or a cappucino would have a label on it telling people at a glance how polluting they’re being.
This label system would need a robust system of sustainable cost accounting otherwise it would get horribly gamed by lobbyists explaining why it’s not fair to treat their client’s product as polluting for whatever reason.
We also need to take back control of our pensions so that it’s the pension holder, not the fund manager, who decides where the money is invested.
I like that a lot – and confess I borrowed it
Thank you
Good question, why not indeed?
I keep reading (and even saw as an answer on a popular TV quiz show the other night) that just 100 companies are responsible for 71% of emissions. I wonder how much lobby power those 100 have compared with others?
A great deal
“Why not?”
Denial of the problem, I think. Coupled with a strong affection (vested interest) in maintaining the financial/economic status quo and a naive belief that we will ‘muddle through’.
Add to this the failure to see the vast economic benefits of ‘going green’.
This is such a brilliant (if ‘obvious’?) proposal. Internalising external costs – absolutely. Is there any way we could try to get it on the COP agenda?
(A brief check on the COP26 website suggests possible scope to introduce it under one of the main headings for discussion/decision – ‘finance etc?) and to be part of the negotiations/discussions – maybe attached to an NGO (Greenpeace etc…?). But that would be a lot of work.)
We are so far away from doing what should be done. This govt. seems to have no year to year programme to achieve its much trumpeted ten and twenty year targets – seems to be doing next to nothing. Even John Gummer says so.
Terrifying tipping points – Siberia and the Amazon could be already becoming net emitters. Could make climate change irreversible?
If only people could carry in their minds a picture of that tiny , fragile vanishingly thin layer (just one thousandth of the planet’s radius) that is the breathable atmosphere, instead of comforting themselves with the vaste endless sky that we see when we look upwards.
Greenpeace has shown no interest
Too complicated
Deeply disappointing
Unfortunately my experience of Greenpeace has been similar. Firstly when researching the decision making around a major wind farm in Scotland. Greenpeace were campaigning against using dubious and what we’d now term fake information. When I politely approached them to get their view they were arrogant and rude. In contrast the developers were remarkably open. I cancelled my sub to Greenpeace.
Subsequently when working for WWF, I picked up the same perspective from inside the environmental world unfortunately. WWF’s Living Planet report has of course been arguing the case around planetary boundaries for years. They have also tried to engage with business. Contrary to what is sometimes written here, not all businesses are the spawn of Satan and there are enough, large and small, who show what is possible. Not enough to make the difference we need but the example made by the leaders needs promoting to encourage (and disparage) the laggards. Just dumping on all business is not helpful.
Last very much agreed
I think you have covered the situation where a company, by its very nature such as a steel forge or cement manufacturer, will consume enormous amounts of energy and will have to go by the board? I know that renewable sources can provide that energy but the industrial process is fixed by physics.
So what do we do about these examples? We will always need steel and building if only they would last. Furthermore, if anything is wasteful seeing how frequently industrial buildings are demolished and replaced must be a good starting point to save energy. Having worked for over 50 years, I can actually witness the lifecycle on an industrial estate seeing them put up in the 70s then seeing them taken down recently. I never understood the economics of that.
Anyway, can I post this interesting link from the UN environment programme ‘Six sector Solution’?
https://www.unep.org/interactive/six-sector-solution-climate-change/
Yes, it hasn’t taken the media long (less then a day!) to divert our attention from the biggest crisis ever to face humanity. True, royal peadophilia deserves some coverage but not to the extent of blanking out even greater crimes such as government and multinational companies ignoring or denigrating climate science for well over 30 years. The facts in the IPCC report were well known when the Rio summit was held in the early 90s – why are we in such a state now?!!!!!!!!!!!!!!
Helen says she was surprised that the Alpaca story did not come out on top!
I imagine some of the reluctance will be the potential impact on some of those polluters’ status as going concerns…..one of the issues we’ve discussed in the http://www.deepadaptation.info Business and Finance group is the tricky one of sunsetting those businesses and industries which have no place in a sustainable world. There are of course also collateral impacts if that sunsetting isn’t done gracefully – ie collapse in share prices, impacts on pension funds, etc. All of which is not to say that sunsetting doesn’t need to happen – clearly it does, as would become apparent if the type of accounting you propose were in place.
Cat
The interesting thing is that it is institutional investors who seem to like my idea: they want the data it can provide precisely because it tells them who is in the sunset stage
Watch this space
Richard