“Business as usual”

Whilst our 9-minute opus on Ethical Investing may have landed like a balloon made from almonds, it seems as though Mark Carney, the governor of the Bank Of England; François Villeroy de Galhau, the governor of Banque de France; and Frank Elderson, the chair of the Network for Greening the Financial System, were of the same mind.

Sort of…

The high-powered trio recently published a letter in the Guardian warning of the risks of climate change. However, not from a place of wishing to avert death, famine, pestilence and the other trappings of an impending apocalypse, but in falling asset prices.

That is why 34 central banks and supervisors – representing five continents, half of global greenhouse gas emissions and the supervision of two-thirds of the global systemically important banks and insurers – joined forces in 2017 to create a coalition of the willing: the Network for Greening the Financial System (NGFS).

On Wednesday, this coalition’s first comprehensive report seeks to translate commitments to act on climate-related financial risks into concrete action. The four recommendations in the report provide all central banks, supervisors and the financial community with deliverable goals that will help to ensure a smooth transition to a low-carbon economy. We therefore call on policymakers and the financial sector to do the following.

via The financial sector must be at the heart of tackling climate change | Opinion | The Guardian

Speaking the language of the boardroom

Whilst it is commendable that the central banks are taking steps to address climate change, after all, it is they who lend money to the biggest culprits of climate change, it appears to be coming from a position of “yes, the house is burning down, but make sure you leave the house with your wallet”.

With that said, this does make some sense. Let me explain…

Lately, our attention has turned towards economics, in particular, the economics that support maintaining the status quo. Oh boy, this has been a mind-bending rabbit hole that my puny mind has fallen down. As we discussed in our Ethical Investing post, the stock market is a broad church and there are both good and bad companies who sell shares to investors. However, to make life a bit easier, let’s break off just a small piece of the puzzle –cars.

At a personal level, cars are big-ticket items (average cost around £25,000 these days) that have a very limited lifespan. It may well be the second-largest purchase any of us will make, after housing. However, unlike housing, cars are often replaced every 3-5 years. So keen are they to keep you on the treadmill, the age of your car is identifiable from your registration number. What may be an object of pride when you first drive it home can quickly turn into a badge of shame as each new registration appears. More importantly, there’s a steady flow of £25,000 lumps of cash heading towards large corporations responsible for making and selling them. Add to that the interest generated from a lot of £25,000 loans, which are then renewed every 3-5 years, potentially for much of your working life.

For some reason, inspired on a lazy bank holiday weekend we decided to start a thread on Twitter, which went something like this:

The Car Expert estimates that the average car in the UK costs £388 per month, including finance and the usual running costs, or £160 if you own the car outright. That works out at £4,656 per year; £23,280 after five years.

If you replace the car at the end of the contract rather than paying the balloon payment, you could well find yourself in a never-ending cycle of paying £388 per month, adjusting for inflation. Over your working life that could be in excess of £200,000 –on a liability that depreciates at between 10-35% per year. Yes, you may accrue some equity in your current car to carry over to the next, but otherwise it’s a money pit.

On the other hand, if you were to put £388 per month into a stocks & shares ISA for much of your working life (let’s say 46 years), growing at a very conservative 4% per year, you’ll end up with £622,603 in the bank. As personal “investments” go, cars are a catastrophic waste of money.

However, go up a level and thousands of people are employed in making parts for these cars; in the construction of new roads; in staffing the dealerships, the finance companies underwriting the loans; marketing companies and the insurance companies.

Around £2.6 million cars are sold in the UK every year. That means that 2.6 million people are taking on new car loans, paying insurance, VED and all the other costs associated with motoring. There were 31.7 million cars licensed for use on the roads in the UK in 2016. Whilst not all of them will be on finance, that’s still a lot of motorists paying for insurance, VED and fuel at the very least. On that note, there are around 305,500 employed in the insurance industry, contributing £12.2bn to the UK economy.


Beyond that, the fossil fuel industry earns a good living from cars and seems to be hoping to get involved in a new wave of battery-powered vehicles, which will all need to be charged, frequently, largely from coal and gas powered power stations and have no less embedded carbon than a typical diesel.

When CO2 emissions linked to the production of batteries and the German energy mix – in which coal still plays an important role – are taken into consideration, electric vehicles emit 11% to 28% more than their diesel counterparts, according to the study, presented on Wednesday at the Ifo Institute in Munich.

via The Brussels Times – Electric vehicles emit more CO2 than diesel ones, German study shows

Oh look, an elephant…

There’s an elephant in this here room, that many of us cycle campaigning types often forget. When confronted with the prospect of a form of transport that requires none of that –a bicycle. A vehicle you can buy new for under £1000; that doesn’t require fuel beyond the food we eat; that doesn’t require insurance; massive capital expenditure for 3-lane motorways. The two modes don’t read across –you don’t need the monumental numbers, either in terms of people or money, to transition people to bicycles and public transport.

An average earner can buy a £1000 bicycle outright in a couple of months, but you can buy a refurbished one, often for less than £100. We usually weigh less than 100Kg, not over 1000Kg and therefore cause less wear and tear on the roads; we are often fitter and healthier, so require less from our health services; and when we crash we often just injure ourselves, so there is little need for insurance. We’re really, really cheap. Our largely debt-based economy is effectively wasted on us.

Cars may not be particularly efficient movers of people, nor efficient users of energy, they are ruthlessly efficient movers of cash –invariably out the pockets of you and I, into the hands of corporations.

If the financial community acts on these recommendations we will be two big steps closer to ensuring an orderly transition to a low-carbon economy. We recognise that the challenges we face are unprecedented, urgent and analytically difficult. The stakes are undoubtedly high, but the commitment of all actors in the financial system to act on these recommendations will help avoid a climate-driven “Minsky moment” – the term we use to refer to a sudden collapse in asset prices.

If you take cars out of the equation, what do you put in its place? What do you do with all the insurance workers; the lawyers; the parts manufacturers; the plant workers; the car dealers? How do you earn money from something that doesn’t really cost anything?

Argh, my head hurts.

A new world

The letter is short on specifics, but perhaps that alone is telling. It takes time to transition a large part of the global economy to something that is nowhere near as resource intensive.

The economic argument for a move away from cars is difficult to make, but nothing worth having comes easy. More cohesive, healthier communities and a whole lot less debt are regrettably not qualities our economy values particularly highly –or at all.

Producing cars is frequently cited as being vital to UK manufacturing. It brings £10 billion to the economy and accounts for 7.2 per cent of British manufacturing as a whole. This is largely thanks to the seven volume car manufacturers, eight major sports car and premium brands and more than 100 specialist manufacturers. There are also seven commercial vehicle and 10 bus and coach makers, and eight Formula One teams based here.

via UK car economy in numbers – Telegraph

Yet, we are already starting to see the beginnings of it. Whatever your stance on the whole Br*xit issue right now, we are starting to see parts of the supply chain shrink. The days of cheap debt may be coming to an end; the confidence to fork out tens of thousands on a car is more difficult to make as employers start to consider what the future economic landscape will look like.

Younger people, preoccupied with trying to find housing that isn’t exorbitantly expensive whilst saddled with student debt, are less likely to be as preoccupied with cars as older generations –generations who were able to buy homes at three or four times the average salary, not ten.

With some variation from year-to-year, researchers say the general trend has been for each cohort of young people since the early 1990s to own and use cars less than the preceding cohort, and for the growth in car use with age to also be at a lower rate.

via Number of young drivers in the UK drops | Business Leader News

Starting over…

It’s time to formulate a new plan. Cars don’t work for people. They make us poorer, inactive and ultimately, ill. However, many of us have grown up in a world where they are so normal that we brush these problems under the carpet and struggle to imagine a world without them. Rather like our friend Drew pointed out, quoting Morpheus from The Matrix:

“You have to understand, most of these people are not ready to be unplugged. And many of them are so inured, so hopelessly dependent on the system, that they will fight to protect it.”

It goes further than individuals, much further, but we are facing extraordinary times and an existential threat that the oil companies have known about since the 80s –yet carried on with business as usual.

Internal company documents uncovered by a Dutch news organization show that the oil giant Shell had a deep understanding, dating at least to the 1980s, of the science and risks of global warming caused by fossil fuel emissions.

They show that as the company pondered its responsibility to act, Shell’s scientists urged it to heed the early warnings, even if, as they said, it might take until the 2000s for the mounting evidence to prove greenhouse gases in the atmosphere were causing unnatural climate change.

via Shell Knew Fossil Fuels Created Climate Change Risks Back in 1980s, Internal Documents Show | InsideClimate News

Business as usual is no longer going to cut it, no matter how much certain mayors and politicians may wish.

It is business as usual that has helped to wipe out 60% of wildlife since the 70s. It is business as usual that has left us with just a decade to act and the prospect of societal collapse in our lifetimes.

This is why the young are rebelling and why the Extinction Rebellion has grown the way it has. In Carney’s letter the central banks are quietly telling investors that the good times may be coming to an end in the only way that appears to matter. They’re saying that the traditional cash-cows that we’ve built our pension funds on are on borrowed time; that the value of investments in high-carbon industries are not safe.

The good news is that we don’t have to wait to move to a new economy. We can choose to save that £388 for ourselves, invested it in funds with social responsibility in mind and hopefully retire comfortably in a world teeming with wildlife, rather than one that’s on fire.

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