Banks and financial sector firms are still held in low repute by public opinion in many countries. Taxpayers and retail investors along with average citizens still distrust stock markets, high frequency trading and resent their banks, brokers and insurance firms due to their heavy losses and bailouts since 2008's crises.
Now, as financial firms seek to restore confidence and trust, a new series of indictments are brought by Jeremy Leggett in The Energy of Nations: Risk Blindness and the Road to Renaissance. Leggett is a former oil executive, geologist, founder of the successful Solarcentury company and its charity SolarAid, and chair of the influential financial think tank Carbon Tracker. Leggett, also a celebrity in his native Britain, contributes to the Financial Times, The Guardian, and is a Fellow at Oxford University's Environmental Change Institute.
Leggett, as an insider, sat in many British parliamentary meetings, the World Economic Forum, as well as multiple meetings of the International Chamber of Commerce, the International Energy Agency (IEA), the Bank of England and other high-level, closed-door financial meetings on the 2008 crises and continuing aftermath. So Leggett's evidence for his indictments of banks, institutional investors, hedge funds, private equity and VCs are documented in detail - many from his firsthand observations. His further indictments beyond the risk-taking that helped cause the 2008 financial meltdown are against these same short-term financial players together with their long-time clientele of incumbent energy sector companies (utilities, coal, nuclear, petroleum, gas, pipelines, transmission) and compliant bureaucrats and politicians.
Leggett charges with his evidence that these fossil fuel and nuclear interests dominating the world's energy systems deliberately blocked the emergence of the successor technologies for humanity's evolution to the next energy stage: solar, wind, geothermal, ocean and the efficiency revolution - all part of cleaner, distributed renewable systems. These are now emerging in the global transition to green economies underway, especially accelerated by the threat of climate change and the agreements by 191 countries at Rio +20 in Brazil in 2012.
Leggett cites all his damning evidence: the collusion between bankers, institutional investors, bureaucrats and politicians; the financing of media, advertising, public relations and disinformation produced by intellectual mercenaries in academia, "think thanks" and various front groups in Europe, the USA, Japan, India, Russia and other countries. This makes shocking reading to those unfamiliar with energy industry politics, peeking into the inner memos of BP executives Tony Hayward (of Gulf of Mexico oil spill fame), Fatih Birol and other IEA insiders, Saudi memos leaked by Wikileaks about their real fear of peak oil - and all the attempts to silence this debate as well as the findings of the climate scientists of the UN's IPCC. Secret memos between nuclear executives seeking a "nuclear renaissance" claiming that this hugely expensive, wasteful technology is "clean" and "carbon free" culminate in efforts by Tepco to downplay the Fukishima-Daiichi nuclear plant's meltdowns and continuing woes.
We have tracked similar disinformation, cover-ups and efforts to block or destroy solar, wind and energy-efficiency companies. Our own research shows the efforts of big centralized electrical utilities to downplay solar and wind as "niche" technologies unsuitable as major sources for the green transition. Today, this resistance has turned against them - as solar PV and locally owned wind generators simply bypassed them, causing huge losses as discussed in "How to Lose Half a Trillion Euros," The Economist, October 12, 2013. Today, these old utilities are losing demand, thus their financing is less available for their old business model.
Leggett sees the future of 100% renewables and efficiency-based societies now emerging as we also document in our Green Transition Scoreboard®. He sees Hurricane Sandy as a tipping point, as cities at sea level: New York, Washington, Seattle, Miami, Shanghai, Rotterdam, Tokyo, Manila, Bangkok, London and others are preparing for now-inevitable rising seas due to global warming. Even a David Koch-funded TV series, seen on the US PBS network "Aftermath of a Megastorm," tells of the hundreds of billions these cities must now spend to harden their infrastructure and defenses.
Climate denial is finally giving way to the new realities - but as Leggett points out, the tragedy is that we humans have lost 30 years where we could have prevented all this. I knew this in the 1970s as a policy wonk in Washington and gave similar warnings in my Politics of the Solar Age (1981, 1988). Thus, Leggett's and my indictments of fossilized finance are now shared by millions - including the students of the 350.org movement demanding their universities divest of fossil fuels in their endowments. More realistically, we ask for these fossilized asset managers to merely shift at least 10% of these toxic unburnable fossil "assets" into the growing cleaner, green companies we track in our Green Transition Scoreboard. Mercer recommends a 40% shift - half to mitigate these climate risks and the other half to capitalize on all the new opportunities in green companies. This shift is especially important for pension funds, since they are universal owners.
Leggett also agrees with our research that shale gas, oil and oil from tar sands are last desperate plays by the fossilized sectors. The hype about the US being a new "Saudi Arabia of oil and gas" is now giving way to more realistic assessments that these shale resources will deplete rapidly and, as other industry insiders Art Berman and Bill Powers agree, US shale gas may last for six years, not the 100 years advertised. Shale drilling is so toxic and water-intensive, many drought-vulnerable areas like Texas, China and Saudi Arabia will be unable to use it. Texas is now a major user of wind power, and Saudi Arabia is betting its future on solar, while China's new 5-year plan calls for a "circular" economy and major new investments in green sectors.
Leggett and legendary investment "guru" Jeremy Grantham, also a professor at the London School of Economics, have engaged the financial sector with their think thank Carbon Tracker and its meticulous research. Research director James Leaton documents the extent of exposure in pension funds and other institutional portfolios to "proven reserves" of carbon that can never be burned without "cooking" our planet. The evidence of such mis-investment by some 40% of FTSE-listed companies in such "assets" shows how many will soon become liabilities. For full disclosure, we at Ethical Markets joined Carbon Tracker and other companies in letters sent in 2012 to the Bank of England and the European Central Bank, warning of this impending carbon bubble.
This exposure is now widely reported in Bloomberg, the Financial Times and other financial and business media. This "risk-blindness" of financial players is laid out in detail in The Energy of Nations, yet another reason for transforming our global financial casino before it can do even more harm to human societies and our future. Leggett foresees the next crises in inter-related finance and energy sectors sometime before 2015.
For all these reasons, the UN Principles of Responsible Investing (with $34 trillion AUM), of which Ethical Markets is a signatory along with most of the world's forward-looking institutional investors, has tightened its reporting standards making mandatory disclosure of its asset-allocation and investing models. I attended the Executive Session at the UN Global Compact Leaders Summit, New York, September 20, 2013, attended by 1200 corporate CEOs. The agenda: how to retrain asset managers and overhaul business school curricula to teach the new ESG accounting standards. Ethical Markets addresses this need with our Principles of Ethical Biomimicry Finance which move the goalposts toward investing modeling toward the success of life's principles for the past 3.8 billion years. When we move beyond economic models to Earth Systems Science as I show in my "Mapping the Global Transition to the Solar Age" (icaew.com), we will not be flying blind - but have more accurate metrics and models. Leggett's The Energy of Nations is the key to the "next big thing" for investors and asset managers worldwide.