The Green Transition: Why the markets won't fix the climate crisis
The Green Transition: Why the markets won't fix the climate crisis
Weekly analysis of the shift towards a new economy.
Dear Readers,
Happy Friday from the Spotlight on Policy team. As ever, find our coverage here.
Good climate news from China this week – its emissions are predicted to go into “structural decline” next year, thanks in large part to huge levels of Chinese government investment in renewables. Our guest author, Will Dunn, the New Statesman’s business editor, has all that and more in a great piece below. Follow him on X.
Meanwhile, back in Blighty, a cabinet reshuffle saw the return of one David Cameron to frontline politics. That’s the former PM said to have “detoxified” his party’s brand by hugging hoodies, befriending huskies, and changing the Tory logo to a crayon green tree. This was truly inspirational signalling from the former PR man who appointed the climate-sceptic Owen Paterson as Environment Secretary, banned onshore wind development, and famously delighted in “cutting the green crap” (ie: solar subsidies and home insulation schemes).
Let’s hope we’ll see more of this top notch policymaking as he joins the Foreign Office.
Anyway, rant over. Let’s get into it.
Bond Villains: Why the markets won't fix the climate crisis
As the CEO of BlackRock, the world’s largest asset manager, Larry Fink directs the investment of more than nine trillion dollars of other people’s money. Each year, Fink writes a letter to the CEOs of all the companies in which BlackRock invests. In 2020 he wrote that he had foreseen “a fundamental reshaping of finance”, which would usher in “changes in capital allocation more quickly than we see changes to the climate itself”. Or at least that was the theory.
The reality, according to a new analysis published today by the think tank Common Wealth, is that institutional investors such as BlackRock continue to pour money into fossil fuel companies, which have themselves issued $1.9tn in corporate bonds since the Paris Agreement. Since the agreement became legally binding in 2016, the amount of fossil-fuel debt issued to financial markets has almost tripled, and the biggest asset managers collectively hold more than $149.3bn in coal, oil and gas bonds. BlackRock’s own holdings of these “toxic bonds” amount to $28bn, making them and Vanguard, another investment giant, the biggest holders of these assets.
To be fair, Vanguard and BlackRock are statistically likely to be the biggest investors in a lot of things because they have more than $17tn in assets under management between them. The cumulative spending of the British government last year was around a trillion pounds – a record high – so the value of BlackRock and Vanguard’s assets is enough to finance the entirety of UK public spending for a generation. That money’s got to go somewhere, and BlackRock’s environmental concerns have not yet resulted in divestment in its fossil-fuel assets. Nevertheless, Fink’s climate-positive 2020 annual letter to CEOs was an affront to the American right. By 2021 BlackRock was reassuring Texans that it would “continue to invest in and support fossil fuel companies”.
This time last year, when the MPs of the Environmental Audit Committee asked BlackRock if it would support the International Energy Agency’s assertion that no new investment in fossil fuels was necessary, the company replied: “No.”
In less than two weeks, Larry Fink will head to Dubai to sit on the advisory committee of Cop28, an event which increasingly resembles a trade show for the oil and gas industry. Fink will be joined on the committee by Bob Dudley, who was CEO of BP when the oil and gas major was the world’s biggest lobbyist against climate legislation (Dudley was also on the board of Rosneft, one of Russia’s three oil giants, until the invasion of Ukraine in March 2022). Cop28 itself will be chaired, for the first time, by a businessman: Sultan Ahmed Al Jaber, the CEO of the Abu Dhabi National Oil Company. The United Arab Emirates is planning to continue exploiting its oil and gas reserves until at least 2085; Energy Monitor recently estimated the total planned extraction to be the equivalent of 38 billion barrels of oil – or around twenty times all the estimated North Sea reserves, just from this tiny Gulf state.
The planned highlight of Cop28 is the first ever “global stocktake” of progress towards climate goals, but the truth is that financial institutions have their own targets and measure their progress towards them differently. Some count absolute emissions, some count intensity, some measure the financing of new wind and solar, some measure debt issued on existing assets. Most of them conclude that they’re doing a great job, which tends to happen when you let people mark their own homework.
At the same time, there is no getting around the fact that the global petrochemical infrastructure represents trillions of dollars in assets that are owned by companies and people (maybe you, through your pension), and it provides huge profits in a way that renewables won’t. That is the lesson of the government’s last auction of contracts for difference, which failed to attract a single bid for new offshore wind development. And that’s why the government yesterday had to hike the amount that those contracts allow companies to charge for energy by 66 per cent: if it’s not as profitable to build wind turbines as it is to pump gas, the investment won’t materialise.
Further evidence of the market’s indifference to climate change can be found in warehouses across Europe, where solar panels adding up to more than 80GW in capacity are gathering dust in storage. (The UK’s total solar energy capacity is around 15GW.) European solar manufacturers have warned the European Commission that without help, they face being driven out of business by the oversupply of cheap solar panels from China (which invested $546bn in renewable energy last year, comprising almost half of global spending on the energy transition).
The good news is that thanks largely to that enormous investment by China, emissions from energy production are thought to have peaked this year. A rapid descent from this peak will require sustained and very considerable intervention. Financial institutions appear to have concluded that their fiduciary duty to their clients and their ability to effect a transition to net zero are not the same thing. The problem for the rest of us is, they’re right.
In brief
Common Villainy: Here is the link to Common Wealth’s full report into “how the bond markets fan the flames of the fossil fuel industry”. Replete with some great data visualisations, this one will get you in the mood for building some barricades and joining your friendly local anti-capitalist cell.
Coming up for clean air: Our sustainability correspondent Megan Kenyon has this run-down of the Institute for Public Policy Research’s report on the UK’s appalling record on air pollution and how it can be cleaned up.
The Chinese miracle?: Carbon Brief have produced detailed analysis of the predicted fall in Chinese carbon emissions next year.
See you next week.
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The Green Transition is produced by Spotlight, the New Statesman's online policy section and print supplement. Spotlight reports on policy for the people who shape it and the business leaders it affects. Explore our in-depth reporting and analysis here.
Thank you for reading.
Please send any news or comments to: jonathan.ball@newstatesman.co.uk
Sortition is a powerful approach to genuinely represent the needs and desires of the Public's interest.
Our politics today is riddled with the consequences of addiction to power, money, sex, attention-seeking behaviour, and corruption, which dominantly afflicts the few we choose to represent us.
Sortition (e.g., citizen assemblies) deals effectively with addiction to deliver solutions which represent the majority.
Question Time 11 on BBC1 January focused on what would persuade an audience of undecided voters. No question was asked and no reference was made in any of the panelist answers on the question of carbon budgets and the green transition. Lisa Nandy seemed to have been have been undermined or intimidated by the Reeves and Starmer ambiguities. However, she did support the building of 1.5million homes sidestepping the issue of upfront or embodied carbon and that that scale of new building (especially in Starmer new towns and green belt) would exceed the carbon budget for the whole economy.