As the tide of the Second World War was turning in favour of the Allies, there was a ferment of discussion – initially bottom up – about how to build a better world when the war was over. While loved ones were fighting overseas and people at home were struggling with rationing and movement restrictions, some made the time to think about the future. The Bretton Woods Agreement, establishing fixed exchange rates, happened ten months before the war ended in Europe.
Investment professionals, who are able to self-isolate in comfort, have a responsibility to contribute to this process. As future oriented professionals we can cast our eyes to a time when the COVID-19 pandemic is controlled, so we are better prepared for the worst impacts of the climate and biodiversity emergency. Here are five things that we need to learn to be fit for the future.
Prevention is better than cure
A global pandemic was high on the list of strategic risks for all governments but some (like Germany, Denmark and New Zealand) have done better than others. The evidence that this was a predictable and preventable (ie, mitigable) surprise is overwhelming. Yet this knowledge did not lead to the appropriate action in the UK and US in particular. Protective equipment was not stockpiled, with a massive impact on morale and the effectiveness of the health sector.
An excessive focus on efficiency and just-in-time approaches have constrained the strategies available to governments. The failure to scale up mass testing and tracing, and the lack of slack in infrastructure and staffing to isolate, has proven costly. In contrast, the South Korean and Singaporean economies have not been so hit.
The climate and biodiversity crises are also major non-military threats to national security and investors have a business case for ensuring that governments are prepared for protecting citizens. Investors are used to lobbying governments and it is now time to add this to this list.
Trust consensus science
The UK government has made much of that it is “following the science” but there has been disagreement between modellers and behavioural specialists, on the one hand, and most epidemiologists on the other. Rather than following the advice of the World Health Organization (WHO), the UK government picked outlier recommendations, such as on herd immunity, that suited its world view.
A pandemic-sceptical media chose to give prominence to contrarian scientists often with no pandemic experience (such as AI experts), framing it as a debate between two sides. Even more irresponsibly, some media undermined public education efforts – such as on physical distancing – which are critical during a pandemic.
In the case of the climate and biodiversity crisis, the science is even more unambiguous. It is as certain as certain gets that global heating is happening, that humans are primarily responsible, and the only strategy is rapid real-world decarbonisation.
Investors should be lobbying governments for an emergency policy response which includes a realistic price on carbon and the removal of fossil fuel subsidies. Investors would have credibility with governments if they were simultaneously using their influence and pushing companies to implement transition plans aligned with the Paris agreement. Investors should also be engaging with the media to ensure appropriate public education efforts.
We do not control nature, it controls us
It is hard to grasp the fact that something invisible to the naked eye, on the borderline between living and not living, has kept nearly 50% of the world’s population locked in their homes.
In the coming bouts between mankind and nature, we cannot be sure that mankind will do better or worse than this time – we cannot predict what will happen or when – another dramatic pandemic, global harvest failures, a catastrophic loss of rivers or pollinator loss hitting a tipping point. Hence we urgently need to start living within the nine planetary boundaries set out by the Stockholm Resilience Centre.
Investors have ignored biodiversity loss, and this must be corrected.
Governments have acted with wartime speed and consumer behaviour has been transformed
We have seen:
• Policies being rolled out in days that would normally take months or years
• Major spending on health services and social welfare with few arguments about negative long-term impacts
• New physical infrastructure likehospitals being built in weeks
• Aspects of regulation (airport slots, collaboration between supermarkets, etc) being changed overnight
• Proposals for mass testing run by a new, US Peace Corps-like initiative.
All of these changes are highly relevant to tackling the climate and biodiversity crises. In many cases, the public and major companies anticipated government actions through travel bans and working from home. On the other hand, we have also seen the worst of corporate capture – ‘disaster capitalism’ – with a range of sectors, such as airlines, fossil fuel companies, lobbying for unconditional bailouts as happened with the banks after the 2008 crash.
People have generally accepted not being able to be with friends and family, not being able to travel, let alone fly, disciplining their shopping habits, and have answered the call to help neighbours in their millions. But, as was recorded during the Second World War, this will only happen if they feel that everyone is abiding by the same rules.
Investors have, so far, been silent about the conditions for bailouts and this must change. High impact sectors like aviation must be forced to change. Investors in pharma companies should also ensure that any treatments and vaccines are made widely available and not allocated to the highest bidders – a fractured world will not address the climate emergency. More generally, investors should accept that shareholder value primacy has contributed to the lack of corporate resilience and that at best, ESG integration helps investors make money from systemic crises – only (assertive) stewardship helps in the real world.
We need unprecedented international collaboration
Unlike the global financial crisis or previous epidemics, this crisis is truly global. But, it is also painfully obvious that emerging economies have been left to themselves.
The EU is struggling to show solidarity even between its members, the US is attacking the WHO and China, and Asian countries have not really filled the gap.
The same is true for climate and biodiversity crisis, the global response has been paralysingly slow, with commitments to fund mitigation in low income countries remaining largely only as words.
Investors who are globally diversified and prefer globalisation not to come to a crashing end must start lobbying accordingly.
How do we ensure that these lessons are learned, and we do not go back to business as usual?
Just as insurance companies played a major role in the post-Second World War Marshall Plan, investors now have a big role to play. Many big investors have AUMs bigger than most developing world GDPs. Governments are already being lobbied to relax even the puny restraints that are intended to help achieve the 2°C target. Investors need to learn these five lessons, and with the clear eyes that the new coronavirus has given us, demand that companies accelerate their moves to be compliant with well below 2°C warming and tell governments they expect them to act.
Carolyn Hayman and Raj Thamotheram are both former chairs of Preventable Surprises