An inconvenient truth gore11/15/2022 The more you pay for a share, the lower the returns you should expect from it. A low cost of capital is good for a company, but it implies a lower return for the provider of that capital. One of the theories underpinning environmental investing is that if we put our money into companies that are behaving well, and take it away from those that are not, we will make the world a better place by reducing green companies’ cost of capital and raising it for their dirty counterparts.īut there is no free lunch here. And that is before we have even factored in the inflationary impact of building the infrastructure needed to effect a renewable energy transition.Ī third way of looking at the cost of doing the right thing from a climate perspective is in terms of investment returns. The only doubt is how quickly that happens. This will have a significant impact on inflation. To do that, according to the Network for Greening the Financial System, the price of carbon will need to rise from around US$3 a tonne today to US$150-200 by the middle of the decade and perhaps as high as US$800 a tonne by 2050. Part of this is the as yet little talked about cost of putting a price on carbon emissions, which some believe will be essential if achieving net-zero within 30 years is to be a realistic possibility. We have failed to do so and won’t for at least another couple of years.Ī less obvious, but equally important, cost in the climate battle is so-called greenflation. At COP15 in Copenhagen in 2009, developed countries pledged to mobilise US$100bn a year in climate finance to help poorer countries cut emissions and protect themselves from the impact of global warming. The first inconvenient truth to overcome when answering this question is that the world sinks or swims together when it comes to climate change. Unfortunately, the answer to all of them is most likely no. There are a number of different flavours to this question. Inconvenient question 2: What is the cost of doing the right thing and can we avoid it? If the truth is inconvenient enough, it can take more than bushfires, floods and drought to see it. He can placate the voters at home, or the global community gathered in Glasgow, but not by being honest with both. To keep them onside, he has been forced into a logically inconsistent position. Without the support of rural voters who oppose reducing emissions, and of junior coalition partner the National Party, he will lose the next election sometime before next May. Prime Minister Scott Morrison is in a bind. Belatedly, the lucky country has pledged to achieve net zero carbon emissions by 2050 but it promises to do so without either ending its reliance on fossil fuels or beefing up its reduction targets for 2030. The answer, obviously, is no but this is nevertheless the approach being taken by Australia this week. Inconvenient question 1: Can we have our cake and eat it? To achieve those targets, we - and crucially we as investors - need to address a set of inconvenient questions. We know that.Īnd as we approach the COP-26 climate summit in Glasgow this weekend, we also know what to do about it: reduce emissions by 45% by 2030, keep average temperatures less than 1.5 degrees above pre-industrial levels and achieve net zero by 2050. It would be great if human activity were not the cause of potentially irreversible damage to our planet. Climate change remains An Inconvenient Truth. Perhaps the most powerful thing about Al Gore’s 2006 documentary about global warming was its title.
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