The Irresistible Efficiency of Climate-Smart Finance

Full-spectrum financial sector transition to low-emissions business models is possible. In fact, it is already underway. Resilience-focused finance enhances the health and longevity of investments and expands the capability of any given dollar to generate added value in the world.

The why is both simple and complex:

  • simple, because it is simply better to avoid risk that pervades the whole economy and feeds back negative value to whatever we do…
  • complex, because we are still learning just how intimately complex natural systems are tied into to our lived experience of economic value.

When we save $0.20 on a gallon of milk, we think that we are saving money in aggregate (overall) and that over time, this empowers us to be more sovereign economic actors. But if the better price we think we are seeing has been achieved by hiding more significant costs that filter out through the wider economy and are not expressed in the price, then we don’t know how much of our economic sovereignty we are surrendering, or even to whom or to what end.

Overuse of combustible carbon fuels means Earth’s atmosphere now traps more heat than at any time in the life of our species. The background greenhouse effect, which keeps the Earth habitable, is now accelerated by an artificial greenhouse effect. This distorts the way our climate manages thermal energy.

A persistent 2ºF change in average temperatures in a particular place can cause the ecology of that place to migrate or to break down. The most common experience is some of both, and not in a way that is optimal for replacing what is lost. Deep ecological integrity evolves over long spans of time; it does not achieve optimal balance over a few years or decades.

Bees need not just the crops they pollinate to flower during certain times of year; they also need non-commodified flowering plants to grow reliably, year-round. That integrated ecological web provides the optimal conditions for growing anything that might have value to people—as food, as a commodity, or as raw material. Temperatures change, rain patterns change, habitat for specific flowering plants shifts, pollinators migrate or die off, and agricultural production suffers. Crop failures become more common.

  • Complex: Disruption of food supply means overall economic stress, and less capital and consumer spending to benefit any given kind of enterprise.
  • Simple: People need food more than they need almost anything else; cause problems there, and you’re going to have reduce opportunities elsewhere.
  • Macrocritical: We cannot afford for this not to be remedied, so those who lag behind will see their operational specialties deprioritized as the market shifts to better options.

Change is coming to virtually all areas of value production: materials, energy, information… the integration of these new kinds of value production creates a new category that includes all of the others: efficiency-building human empowerment.

Resilience-focused finance is not about austerity; it’s about empowering people to achieve more with much more efficient use of resources and lower degrading impact on vital systems.

What we are starting to see is that old models of energy production—which are incredibly costly and rely on market concentration, government command and control, major financing assistance, and the passing of hidden costs to all people and even to natural life-support systems—are losing profitability.

As the resilience information knowledge base expands, activities that require additional spending to conceal grave additional costs will be less and less able to compete with activities that don’t require that spending. The narrowing of margins will continue, with some fluctuations, until high-polluting centrally controlled energy production is replaced by high-efficiency distributed generation that links ups with other consumer-centric products and services.

We could call these particular kinds of innovation “irresistible efficiencies”, because they ensure:

  1. More effective planning for future outcomes;
  2. Closer alignment of consumer behavior with true living cost;
  3. More coherent measurement of the wider value of a particular investment.

Resilience-focused bonds are becoming a critical investment vehicle, both for measuring the future resilience planning of the bond issuers and for providing investors with a way of knowing there is a wider nonlinear payoff for the bond investment itself.

Why invest in hidden losses when you can invest in additional value generation?

The irresistible efficiencies of climate-smart finance are just becoming evident—for investors and for outcomes in farming, infrastructure, energy, public health, coastal resilience, and basic services like clean water and education. The deployment of these new financial instruments is happening at the municipal level, through community-level enterprise and infrastructure, and being driven by institutional investors’ long-term responsibilities.

Within two years, we should see more than $1 trillion of total finance that is traceable and graded as climate-smart, with much more ready for upgrading. Full-spectrum financial sector transition is real, it is now, and it is accelerating.

That means macrocritical information (good or bad) is increasingly difficult to hide. And so, the big resilience question is fast becoming:

How smart is your money?

The Note for May 2017 ]