Guy Oppenheim and The Cost of Carbon Action; or Inaction

By Vladimir Lekovski and Guy Oppenheim Oppenheim & Co. limited The Carbon Action initiative is a vital tool in urging multinationals to kick-start action to mitigate climate change. The Carbon Disclosure Project has operated in a challenging environment both financially and politically as have the IPCC and numerous other climate research centers around the world. Almost no progress has been made over the past few decades in tackling climate change. There have been numerous multinational conferences, meetings and speeches but almost zero concrete action or results. We are facing several converging challenges that are all linked which means we must address them simultaneously. Solutions will become obvious once we shed light on the multidimensional aspects of the challenges/dilemmas we face. Global emissions have almost never stopped rising except for short periods during recessions. Population growth is directly linked to GDP growth and subsequent greenhouse gas production.

Most historical emissions are the responsibility of the western industrialized world and we have no right to constrain the developing economies that are starting to enjoy the same standards of living as we do. The growth in emerging market consumption and emissions is gigantic (China has become the largest emitter with India and Russia not far behind) with devastating consequences for the environment and natural resources. Ironically this is accelerating the impact of climate change, thus endangering their future well being. The biggest dilemma we face is that our civilization is completely dependent on nature but we are accelerating its destruction every year. The very process is weakening our planet’s capacity to adapt to climate change and accelerating environmental degradation. We have a dysfunctional financial system that promotes exponential consumption on a finite planet. The fuel for this ‘growth’ is an endless expansion of the money supply which in turn is devaluing mainstream currencies and exacerbating inflation. We have reached the limits of this model as vital natural ecosystems have already been degraded through pollution. Some of these vital ecosystems are the atmosphere, oceans, tropical and boreal forests, rivers, lakes and wetlands/deltas and finally the critically important ice caps and mountain glaciers. We have to tackle several issues at the same time, particularly poverty. Three billion people live in very difficult conditions and have no choice but to degrade their environment through deforestation, pollution and inefficient use of resources. Half of the world depends on proteins from the oceans with rapidly decreasing fish stocks and coral reef destruction through ocean acidification and warming. Oceans are vital for the ecosystems as they are the biggest carbon sinks and also to absorb most of our pollution. We have created/released around 100,000 synthetic chemical compounds since the beginning of the 20th century and the consequences are now felt across land and sea. We are confronted with a vortex of converging events at a time of severe financial stress. Much of the developed world is bankrupt and cannot make the necessary investments to mitigate climate change. We are constantly reacting to events rather than anticipating them due to short-term goals relating to re-election in democratic countries. We demand quick wins and aspirational lifestyles; yet nature is expected to be relentless in its bounty year over year without respite or recuperation. But in our economic models we do not properly value externalities and the benefits that nature provides for free. It is only a question of when, and not if, the system starts begins to buckle under the strain.

Other effects will exacerbate the problem such as forest diebacks and acidifying oceans. We are probably entering a period of runaway global warming that is unstoppable with dramatic consequences for our way of life as temperatures will rise much faster than everybody predicted. Every IPCC report has been wrong in its projections with scientists seemingly surprised at the speed of warming. So what can we do? Firstly we have to plan and adapt accordingly. We have no time to mitigate the impact of climate change, which arguably should have been considered from the on-set of the industrial revolution. We must think about our vital food and water supplies as we have limited stockpiles of just a few months of grains globally and are therefore ill-prepared to absorb any shock to our food system. Instead of promoting intensive farming and genetically modified foods (which are probably extremely dangerous to our environment and food security), we should promote local, sustainable, organic and environmentally friendly farming methods. In the process we will also improve our health and well being. This goes against the old philosophy of economies of scale in the corporate world where the supplier is squeezed to wring out the maximum margin for the supermarkets. Coupled with massive reforestation and pristine forest preservation initiatives (such as that promoted in Kenya by the late Wangari Maathai) these should enable us to have a more predictable and resilient food supply. Regarding water we have to use less damaging methods by limiting the expansion of dams, as rivers are the life blood of ecosystems. We should use more efficient water management methods through innovation and the maximum use of natural processes. Nature is the perfect engineering machine; it just needs time and space to do its work for us in purifying water, cleaning the atmosphere and providing fertile soil. We must also attempt to mitigate climate change the best we can. The work of the CDP and the Carbon Action initiative is vital. What is needed is not a gradual effort to lower emissions but a radical transformation through a true green revolution. Corporations have a major historic responsibility and a role to play in solving these issues. The true revolution will only happen when consumers’ habits change but more importantly companies have to create the right products and services in order to provide choice in the first instance. Governments can likewise enhance conditions for corporations and consumers to kick start this revolution. The major problem is how to deal with the legacy infrastructure and where to find the necessary capital to completely transform it into a sustainable one. In this regard the financial industry can provide the necessary capital through equity and debt funding mechanisms. The green industry should be able to get cheaper loans and enjoy a cheaper cost of capital than the oil and gas industry, which is not the case today. Innovation is also crucial, corporations and governments should massively increase their R&D budgets and promote green and clean tech. For example I recently got involved with 2 very interesting companies; one is developing a new way to make cement which overall ends up absorbing CO2 instead of continuing the use of current methods which represent 5% of worldwide emissions! The other company is developing processes to grow and process biofuels from algae, it is probably not only the best potential substitute to conventional oil but it also acts as a carbon sink as it absorbs CO2 in the growing

process. We need to accelerate the development of new green technologies by increasing the capital flow to these vital areas. We need to create a carbon tax and apply it globally as it is the only way to rapidly shift the necessary capital needed to transform the existing energy infrastructure. This will drive a massive move into sustainable renewable sources of energy such as wind and solar. Ironically governments are cutting subsidies to the renewable energy industry while at the same time providing massive subsidies to the oil and gas industry to the tune of $450 billion a year (at $100/barrel there is no need for any subsidies!). Just imagine if that money was spent on promoting renewable energy instead. We must change our manufacturing models and seriously rethink life cycle management and supply chains. We need to stop the throw away society and create products that last and that are easily recycled. We can save a massive amount of energy by simply reusing materials instead of having to mine for new material and process them every time. We also have to create a mechanism to transfer knowledge and capital to the poor countries which will be the ones affected most by climate change. If we don’t help them we will experience massive environmental refugee migrations and probably more conflicts over water and natural resources. To lead by example the Gaia Opportunities Fund is committed to donating 25% of our performance fee to building sustainable communities in developing countries. We will promote this through a partnership with the who have been active in this field for almost 30 years. We hope other institutions will be inspired to do the same. We need just a tiny fraction of the total asset base (0.1% of $100 trillion would generate $100 billion of funds a year) to be recycled responsibly in developing countries and have a dramatic impact on billions of people and the environment. In conclusion we must all finally learn to love and respect our planet as it is our only home. We must act as farmers rather than hunters, as trustees of future generations that rely on our wisdom and stewardship now, in return for their future survival and prosperity. Guy Oppenheim is the Chairman of the Oppenheim Group with over 25 years experience as a portfolio manager, investing globally in all asset classes. Guy Oppenheim has managed assets well in excess of $1 billion for institutional clients, sovereign wealth funds, and private families. Guy Oppenheim has been registered and authorized by Financial Services Authorities and served also as Compliance and MLRO Officer. Guy Oppenheim was educated in Geneva and holds a BA in Business Administration majoring in Finance from the University of Geneva.

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