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Events

UNEP FI 2009 Global Roundtable

The Cape Town to Copenhagen Diaries

by Paul Clements-Hunt

A large rotating restaurant

Archaeologists in Rome have unearthed a massive rotating restaurant from the era of the depraved and debauched Emperor Nero. According to a BBC Radio report this morning (30 Sept), this mechanized altar to gluttony whirled around dispensing its culinary delights for the great and good of the Emperor’s inner court 24-hours a day. What a marvellous metaphor for the global economy and its relation with the global environment--"pile it high and eat it fast" and worry about the impacts afterwards. Or perhaps a metaphor for the excesses of the latest credit boom when many sectors of the investment chain feasted on easy credit and cheap money, thus contributing to the financial crisis and economic crash of 2007-2009. For the alphabet soup of mysterious financial products--CDOs, SIVs, ABS and so on--read "dodgy dishes" where the ingredients are unknown but diners consume, trusting the restaurant owners. You get the point.

Checking the cables

The cable car ride up to the iconic Table Mountain overlooking Cape Town was out of action in mid-August. The notice in the Breakwater Lodge elevator explained that a team of high cable experts from Switzerland were being flown in to ensure the ride, a must-do for many tourists visiting that mesmeric city, was up to the very highest global standards. It struck me that both our global climate and the world’s financial system needed the equivalent of these daring high wire experts who regularly check that the cables are sound.

The Cape Town trip was one of three long haul flights (the carbon curse of the international bureaucrat), during a busy summer, the others being Sydney (Principles for Responsible Investment annual meeting) and New York (a wedding). The trips speeded summer reading with Liaquat Ahamed's Lords of Finance: 1929, The Great Depression and the Bankers Who Broke The World and Niall Ferguson's The Ascent of Money: A Financial History of the World, being top of the list and consumed ahead of in-flight movies with relish.

Both books speak to the power as well as volatility of finance and evolving capital markets while capturing in graphic detail the manifold threats that systemic failure in our financial systems--whether at the global or local level--create. So back to those cables checks. In late 2007, for the United Nations climate summit in Bali Indonesia, UNEP FI produced one of its regular CEO Briefs entitled Carbon Crunch. The bail-out of the US investment bank Bear Sterns and the collapse of Lehman Brothers were still some months off and yet, for the UNEP FI team, the parallels between the accelerating credit crunch in the last quarter of 2007 and the coming carbon crunch were apparent--"a real and present danger". Little did we know then the severity of the financial crisis and the on-going economic crisis that it has spawned. Who'd been checking the financial cables? What we did know was that a group of UNEP FI’s own member financial institutions, under our Climate Change Working Group, had created a viable scenario that, based on business as usual, would see an annual loss of US$ one trillion in a given year by 2040 due to natural losses and climate change. Hence the Carbon Crunch title of the CEO Brief for Bali. By September 2009 we know that our global credit crunch and financial meltdown of the past two years sees us at US$ three trillion and counting. The coming Copenhagen climate summit provides the global community with an opportunity to check every single thread in the cables holding our unravelling climate system together and--Swiss high cable expert style--to do something about it before UNEP FI’s US$ one trillion carbon loss, in a given year, becomes an order of magnitude higher with the unimaginable impacts that would bring.

Cape Town to Copenhagen

On 22-23 October, 2009, the UNEP Finance Initiative community brings its 2009 Global Roundtable, Financing change, Changing finance to Africa for the first time. Our two-day event at the Cape Town International Convention Centre (CTICC), will, in effect, check the cables holding sustainable finance and responsible investment together. Can we, in the wake of the tumultuous financial and economic crisis of 2007-2009, get the "global cable car" going again with environmental, social and governance (ESG) disciplines more firmly embedded in policy-making, capital market dynamics and the mainstream business units of financial institutions.

Our Cape Town event comes just six weeks ahead of the United Nations Climate Change summit in Copenhagen. UNEP FI, with the City of Cape Town and a range of partners backing "Cape Town Green Week", has made a deliberate effort to create a virtual bridge linking Cape Town with Copenhagen. In coming weeks, UNEP FI Cape Town to Copenhagen News Centre will provide a rich smorgasbord of climate change news for the financial, investment, and capital markets actors with an interest in Copenhagen.

The ultimate correlation

Polishing off the aforementioned books, by Ahamed and Ferguson, both dissecting different aspects of financial history, I became convinced climate change is the ultimate correlation. For canny investors this is a thing of horror rather than beauty. As we know, over the decades wise and prudent investors have sought diversification to protect portfolios, ring fence assets from value destruction and, ideally, grow the value of their assets over time.

Investors, welcome then, to the era of the carbon crunch. Climate change, with its planetary implications--ranging from more volatile weather patterns to drought and inundation--has the power, over time, to correlate all asset classes, drive a destructive unification along the investment chain and produce far more losers than winners. Sure, there will be investment winners--those who short carbon intensive industries and get their timing right --but the impact of global warming on economies, communities and productivity across agriculture, commerce and industry, has the potential to wipe value from inter-linked capital markets in a manner that heralds a tectonic shift for the investment world. The US$ one trillion loss in a given year by 2040--perhaps earlier--as painted in the UNEP FI scenario flagged above, is not something any canny investor wants in their "uncertain box". What can finance, investment and the whole panoply of capital market actors do about it?