There’s a famous scene at the end of The Italian Job, when the bus carrying Michael Caine and his motley crew of bank robbers heads over-enthusiastically into a sharp Alpine bend and skids off the road. Halfway up a mountain, the bus teeters on a precipice, stolen gold bullion at one end, anxious passengers at the other – trying desperately to work out how to hang on to their ill-gotten gains without paying the ultimate price.
This week the Alps welcome a similarly well-heeled group with a not-dissimilar dilemma: how to preserve their future prosperity, while avoiding an existential calamity. It's a balancing act with no simple solution. The Australian bushfires could scarcely provide a more compelling backdrop to a World Economic Forum annual meeting in Davos, Switzerland, that, this year, has placed the climate crisis front and centre.
It’s tempting to cast Davos delegates each year as ‘the one per cent’, a self-preservation society that wants to have its cake and eat it. The Forum's founder Klaus Schwab said it himself: “People are revolting against the economic ‘elites’ they believe have betrayed them, and our efforts to keep global warming limited to 1.5°C are falling dangerously short.”
Certainly, the fact that as many as 309 trips to the forum last year were made by private jet only fuels the cynical perception of those who gather at great cost to ‘Improve the State of the World’.
This time around, dare I say it, action seems more likely. For starters, asset management giant Blackrock, which manages 7 trillion dollars of cash, has declared its intention to eject over half a billion dollars' worth of coal shares from its actively managed portfolios. It's a relatively minor sum overall, but the message was clear and dramatic. Blackrock added substance to a conversation desperate for action over words.
Momentum has been gathering since last year, when firms representing a third of the global banking industry by assets signed a UN pledge to align themselves to the Paris Climate Accord goals. Yet it’s the sheer scale of Blackrock’s portfolio that makes this such a headline-grabbing move. In an industry where even passive fund management is increasingly influential, there are few better placed to move the needle than Blackrock.
These moves are, however, also driven by pragmatism. As BlackRock chief executive Larry Fink explained to NPR, this is about cities being able to afford essential infrastructure as climate risk reshapes the market for municipal bonds, and how lenders assess mortgage risks in the context of climate critical areas like flood or fire insurance.
“What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding?” he said.
But another giant fund manager, Vanguard, has been more circumspect.
“We have to make sure we’re talking to companies on how they are dealing with and addressing these issues, but not crossing the line and telling them what to do,” its chief executive Tim Buckley told the FT.
The problem is that the freedom to pollute remains valuable. It’s tough to argue the immediate economic benefit of a firm independently limiting its options if its competitors are running environmentally amok. And while that competitive disadvantage can be nullified by ensuring all companies adhere to the same rules, governments (not to mention voters), and shareholders can push for change.
While environmental danger drives the debate, the follow-through investment is an entirely separate issue. Just 100 companies have been responsible for 71 per cent of all emissions since 1988, according to the recent Carbon Majors Report. Many of these companies are, however, literally responsible for keeping the lights on, keeping us warm and to some extent safe and healthy. Alternatives are out there, but they are not necessarily practical or affordable, and won’t be adopted overnight.
Greta Thunberg’s call for an immediate halt to investment in fossil fuel exploration, extraction, and subsidies, as well as a complete divestment from fossil fuels will, she pointed out, be painful. Impracticalities aside, that pain would be acutely felt by the world’s poorest and most vulnerable.
A key factor then is where the money divested from fossil fuels is reinvested. This is where science and technology come in. This week I interviewed Gene Berdichevsky from Sila Nano, a company at the forefront of battery innovation. It has replaced the graphite technology underpinning lithium batteries for three decades with a silicon-based composition. In doing so, the Tesla alumnus says Sila has increased battery life by up to 40 per cent.
As fantastic as that may be, this product has been eight years in the making. The truth is solutions to big problems are often very challenging to find. Significantly larger-scale investment will help, but the idea that the world can immediately adopt new technology and swiftly transition to renewable energy is fanciful. Prices must fall, economies of scale must kick in and then market forces will play a role. As Berdichevsky told me this week, “if it’s more economic...then the transition happens naturally, and it happens much faster, frankly because you're not fighting against the tides of the market”.
The good news is that transition is close, at least where electric cars are concerned. Tasha Keeney, analyst at Ark Invest, told me this week that we are just a few years away from the point where electric vehicles become cheaper than their petrol-fueled cousins.
Forty years after the Italian Job was released, the Royal Chemistry Society launched a competition calling for potential solutions to the gang’s dilemma. Mr John Goodwin of Surrey, England came up with a complex but workable solution. I’ll let you google his answer (it had nothing to do with electric cars!), but the headline was that science, teamwork and patience, correctly applied, might win the day.
Davos delegates will be hoping that a solution to a far bigger problem is within their grasp, because time and patience is running out. The 99 per cent are increasingly depending on it.
