SVB & Climate Breakdown – seeing the connection … #ESGLalLaland in turmoil … a ‘GRI is dead’ epilogue … Sunday Thoughts
Edition 18 | March 2023
There are two news topics that made up most of the newspaper headlines in the last 2 weeks: the #SVB bankruptcy (plus the Credit Suisse almost bankruptcy) and the Summary Report of the #IPCC. Most articles I read kept these two news topics totally disconnected. I will offer a different view in this Lighthouse Keeper, namely that SVB’s demise is also – at least to an important part – a consequence of our continued climate breakdown.
#ESG overall seems to be under attack from all sides these days. Those that say that it has no impact (count me in as part of that group) and those that call it ‘woke ESG’ and are pushing hard to make it disappear (for example the US Republican’s ‘legislative trial of denial’, that President Biden then consequently vetoed). While this leads to a hopelessly polarised discussion or even the avoidance of any discussion (Blackrock’s Larry Fink 2023 letter), nobody seems to address how to really get out of this conundrum by putting #ESG at its right place, namely it being useless as ‘pure ESG’, but only when connected to reality by putting ESG performance in context. Call it a ‘third way’, and please put me into that camp, too.
A short epilogue regarding our ‘GRI is dead’ obituary also seems due as it helps to further close that chapter. While we at r3.0 were attacked for ‘clickbait’ and seen attempts to ‘tone-police’ us, it is refreshing to see the other side as well, those that actually appreciate when factual (science- or ethical-based) evidence is presented.
As always, I am wrapping up with some further Sunday thoughts of the month.
Now enjoy the read!
SVB & Climate Breakdown – seeing the connection
The newspapers were full of IPCC’s Summary Report, summarizing 8 years of work of the IPCC, and while the main storyline is clearly ‘we’re already in climate hell’ and ‘the 1.5 degree target of Paris 2015 is factually unreachable if we don’t completely turn around in 2023’, there are two additional aspects that need to be noted, both to my surprise never really mentioned anywhere else: with this report we humans now go on record that we haven’t progressed since the start of this IPCC campaign eight years ago (and haven’t used the COVID-19 dip wisely), the yearly ppm CO2 numbers in the atmosphere continue to go up. And why does anyone now think that this will change, just by another IPCC summary report? Furthermore, we now hold a Summary Report in our hands that involves data that at the beginning of the campaign were at least already 2-3 years old. That means the situation today is already much worse. For example, it is an already unsaid truth that we crossed all 9 environmental boundaries (while so far only six have seen a peer-reviewed appearance in public and the remainders are harder to measure and are still in academic peer-review).
There are now mentions of the need for positive storylines as all what’s missing seems to be concerted ‘political will’, while the techno-freaks still think they can slurp carbon out of the air at scale after 2040 or so. Having immersed myself in #Collapsology (see earlier LHK editions), I can only note we’re exactly on the expected pathway towards collapse, namely to a minimally 2.5 to 3.5 degrees world in which certain parts of our wonderful planet, especially in the Global South (where the Global Majority lives), will become inhabitable. We’re too much in ‘systems lock-in’ already to unleash the necessary transitions. The below visual sums it all up: my just born grandchild will at the age of 70 minimally live in a 2.5 degree world, but chances are high he will live in an unbearable 3.x degree world. It’s hard to imagine enjoyable life at all then. Will he be the last generation on Earth?
So, the question is how will financial markets echo all that, and when, and how? And while it seems to be an unrelated coincidence, we are just now seeing the demise of Silicon Valley Bank (SVB) during the same weeks that IPCC released its Summary Report. I have read lots of articles, lots of technical detail; is that a system-relevant bank too big to fail (or not); the requests for a bailout, the requests for not bailing out; the need for federal guarantees; the potential infectious virus for the global finance systems (and how to avoid it); the lessons learnt (and not learnt) from the earlier 2008 financial market implosion.
But here’s what I haven’t seen mentioned anywhere: that the incidents of climate breakdown and the breakdown of financial market players may have something in common, and are probably not a coincidence. I sat down and drew a first visual, then drew a revised visual, and came up with the following:
Can anyone follow the logic? Start from the upper left and follow the ‘logic circle’ back to the starting point. I don’t want to make the case that this bankruptcy of SVB is only caused by climate breakdown. Oh no, there are top-level mismanagement aspects, failing risk management, investor hysteria, client hysteria, a social media hype as well, hoarding of too much money unrelated to investment in innovative pathways due to many reasons, the weakening of the Dodd-Frank Act (the interview my r3.0 colleague Bill Baue did with Barney Frank in 2008 should be noted here), and all that while the bank was such a fantastic #ESG performer, see yourself:
But from a systemic perspective are we really so blind that we’re not seeing the early signs of an ever more fragile financial system due to the climate breakdown all around us already right now, with bankruptcies like SVB being a logical consequence? Is any risk still manageable in this growing interconnected polycrisis (adding all sorts of social stress risks to the mix as well, as a result of climate breakdown), making a mockery of the usual siloed risk assessment logic? Will hedging risks still be something that anyone will want to do in the future, and for what price?
I would even go a step further: what if climate breakdown and other related crises will take away all innovation potential, e.g. through the non-availability of necessary resources for renewable energy production and distribution at scale, as already projected by the Club of Rome World 7 model? Are we starting to see that when the climate breaks down, the financial system will ultimately follow suit? My guess is yes, and we will – unavoidably – see more cases like SVB in the near future, especially around venture capital for innovative solutions, as climate breakdown takes away the potential of solutions to scale, and whatever amount of money is available, it’ll get stuck.
And now back to the IPCC Report. This is what they say about the role of finance to counteract climate breakdown:
Here’s my biggest fear: if an ever more fragile financial market doesn’t have the ability any longer to invest in future technologies at scale due to all the (technical, physical and mental) reasons mentioned above, are we not already in a locked-in downward spiral in which the hopes of the IPCC (as mentioned in the visual above) are simply illusionary? This illusion is even bigger through all the dangerous taxonomies popping up, allowing all sorts of investment in greenwashing, unreliable pandora’s boxes open to political decision-making instead of scientific and ethical norms (for example the EU Taxonomy and the EU political leader’s insult, allowing by the ‘sole decision’ of the Commission to call natural gas and nuclear power ‘green energies.’).
To sum it up: I think we are already in a self-reinforcing spiral downwards, and the technical experts in the environmental and social science camp as well as in the financial markets camp haven’t even realized how it all fits together. Good luck to all of us.
So, what’s possible instead? I won’t repeat the last Lighthouse Keeper in which I wrote about key concepts for a regenerative and distributive economy, with a specific view on ‘post-collapse readiness.’ Also, I refer readers to my book ‘The Corona Chronicles – Envisaging a New Normal for Regeneration & Thriving’, in which I sketched pathways. The printed version is now sold out (I still have about 20 copies, so PM me if you want one of the last copies), but the Kindle version is still available, and we will reduce the price for the online version to 9,99 USD shortly, a 2-year birthday gift for those that still want to catch up! There’s a lot of ‘hopium’, but maybe not from the players you would normally expect it from.
#ESGLalLaland in turmoil
Also, these days we are witnessing another round of #ESGLaLaLand turmoil. As ‘pure ESG’ as I tend to call it is so weak, full of speech balloons, standard setters that lost the plot (not even able to properly define what sustainability really is), it is now attacked from all sides. Prosecuted greenwashing on the one hand, and ‘woke ESG’ on the other, are squeezing out what is left from this minimalistic (and I dare to say unsustainable) concept in which saying ‘small steps in the right direction’ is already a lie, and nothing else than wilful predatory delay, as ESG does not have a defined end goal to measure performance against. It will – whatever the number of ‘invested capital’ says in trillions of Dollars – achieve absolutely nothing for sustainability! I sometimes think I sound like a damaged vinyl on a LP-Player, repeating the same song part again and again. And still, it needs constant repetition. The latest in all that turmoil are episodes like the Blackrock letter of their CEO Larry Fink, avoiding the ESG topic at all, after being attacked by some US States, also divesting money from Blackrock, accusing them of ‘woke ESG’ strategies. The U.S. President, Joe Biden, vetoed a decision of the US Senate voted earlier in March to block a US Labor Department rule that would have allowed retirement plans to consider environmental, social, and governance (ESG) factors in their investments. Biden issued the veto against the measure on March 20. In an article of the magazine Quartz, he explains to US citizens: ‘This bill would risk your retirement savings by making it illegal to consider risk factors MAGA [Make America Great Again, added] House Republicans don’t like.’
As you know from earlier Lighthouse Keepers, the ‘third way’ out of this turmoil is rather simple. Applying the UNSDPI (United Nations Sustainable Development Performance Indicators), a context-based measurement approach involving thresholds and allocations, connecting ESG Performance data with the real world and the carrying capacities of environmental ceilings and social floors, so that every organization can itself assess when and where they are in overshoot or undershoot. Published in November 2022, they wait for adoption in all the formats in which information is demanded, structured, reported and used: standard setters, reporters, raters, rankers, index-providers, investment decision-making, policy development, proper taxonomies, regulation. I’m so stunned that all the Trainings we are currently offering regarding the UN SDPI are heavily frequented, and mostly sold old. They start to spread all over the world, here’s the latest overview. Again, ‘hopium’ for the world, let’s spread the word, and even more the knowledge provided in the UNSDPI!
A ’GRI is dead’ epilogue
Recently, two pieces of us at r3.0 have received a LOT of attention: after I kicked off with a very personal ‘Goodbye to the GRI I once knew’ story in my last Lighthouse Keeper, r3.0 offered a more official position which we called ‘GRI is Dead. Long Live Sustainability Reporting’ on our Medium account. We spread this article on Linkedin, fb, and Twitter. After around 70.000 impressions and interesting threads under our posts (see here and here and here), we found it impressive that beyond the usual attempts to ‘tone-police’ us, we often also receive quite a number of very appreciative private messages. Here are just three of many (anonymised as those are private message examples):
They show there is backing of our views, but the fact that this mostly happens through private message also proves our system’s stranglehold for the many individuals in our field, niches and affiliations. Let me assure you that we’ll continue our path.
Now, for all those that want to delve deeper and look for a bibliography how we at r3.0 have communicated with GRI over the last decade, this documentation will keep you stunned: ‘Sustainability Context: An Annotated Bibliography’, compiled by my colleague Bill Baue, and just released on r3.0’s website as a Common Good Resource. I hope you will agree that we’ve done our utmost before we finally declared GRI dead.
As always at the end of each Lighthouse Keeper here are the latest Sunday Thoughts. Enjoy!