NEW YORK (Project union) – Heat waves, floods, droughts and wildfires are devastating communities around the world and will only get worse. While climate change deniers remain powerful, the need for urgent action is now recognized far beyond activist circles. Governments, international organizations, and even business and finance are bowing to the inevitable, or so it seems.
In fact, the world has wasted decades playing with carbon trading and “green” financial labeling schemes, and the current craze is simply to come up with extravagant hedging strategies (“carbon offsets”) challenging the simple fact that humanity she is sitting in the same boat. The “offset” may be helpful to individual asset holders, but it will do little to avert the climate disaster that awaits us all.
“Capitalism’s DNA makes it unsuitable for dealing with the consequences of climate change, which is largely the product of capitalism itself. The entire capitalist system is based on the privatization of profits and the socialization of losses, not in a nefarious way, but with the blessing of the law.“
The private sector acceptance of “green capitalismIt seems to be yet another trick to avoid a real reckoning. If business and financial leaders were serious, they would recognize the need to drastically change course to ensure that this planet remains hospitable to all humanity now and in the future. It is not about substituting green assets for brown assets, but about sharing the losses that brown capitalism has imposed on millions and securing a future for even the most vulnerable.
Too good to be true
The notion of green capitalism implies that the costs of tackling climate change are too high for governments to bear on their own, and that the private sector always has better answers. So for advocates of green capitalism, public-private partnerships will ensure that the transition from brown to green capitalism is cost-neutral. Cost-efficient investments in new technologies are supposed to keep humanity from stepping into the abyss.
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But this sounds too good to be true, because it is. Capitalism’s DNA makes it unsuitable for dealing with the consequences of climate change, which is largely the product of capitalism itself. The entire capitalist system is based on the privatization of profits and the socialization of losses, not in a nefarious way, but with the blessing of the law.
The law offers licenses to outsource the costs of stripping the planet to anyone who is smart enough to establish a trust or corporate entity before generating pollution. It encourages the discharge of accumulated environmental liabilities through bankruptcy restructuring.
And it holds entire countries hostage to international rules that privilege protecting the profits of foreign investors over the well-being of its own people. Several countries have already been sued by foreign companies under the Energy Charter Treaty for trying to curb its carbon dioxide emissions.
“The new consensus focuses on financial disclosure because that path promises change without having to deliver.“
Two-thirds of total emissions since the Industrial Revolution come from 90 companies. Yet even if the managers of the world’s worst polluters were willing to pursue rapid decarbonization, their shareholders would resist. For decades, the gospel of maximizing shareholder value has reigned supreme, and managers have known that if they deviate from orthodoxy, they will be sued for violating their fiduciary duties.
Shareholders, not scientists
It’s no wonder that big business and big finance are now advocating climate disclosures as a way out. The message is that shareholders, not managers, must drive the necessary behavior change; solutions must be found through the pricing mechanism, not through science-based policies.
The question remains unanswered as to why investors with an easy-out option and many hedging opportunities should worry about disclosure of future damages to some companies in their portfolio.
Obviously, there is a need for more drastic changes, such as carbon taxes, permanent moratoriums on the extraction of natural resources, etc. These policies are often dismissed as mechanisms that would distort markets, yet idealize markets that do not exist in the real world. After all, governments have subsidized fossil fuel industries for decades, spending $ 5.5 trillion (before and after taxes), or 6.8% of the world’s gross domestic product, in 2017.
And if fossil fuel companies ever run out of profits to offset these tax breaks, they can simply sell themselves to a more profitable company, thereby rewarding their shareholders for their loyalty. The script for these strategies has long been written in M&A law.
But the mother of all subsidies is the centennial process of legal coding of capital through real estate, corporate, fiduciary and bankruptcy law. It is the law, not markets or companies, that protects the owners of capital assets even as they burden others with huge liabilities.
Defenders of green capitalism hope to continue this game. That is why they are now pushing governments to subsidize asset substitution, so that as the price of brown assets decreases, the price of green ones will rise to compensate asset holders. Once again, this is what capitalism is all about. Whether it represents the best strategy to ensure the habitability of the planet is a completely different question.
Instead of addressing these issues, governments and regulators have once again succumbed to the siren song of pro-market mechanisms. The new consensus focuses on financial disclosure because that path promises change without having to deliver. (It also creates jobs for entire industries of accountants, lawyers, and business consultants with powerful lobbying arms of their own.)
Green washing instead of decarbonizing
Not surprisingly, the result was a wave of green wash. The financial industry happily dumped billions dollars in eco-labeled assets that turned out not to be green at all. According to a recent study, 71% of funds with ESG themes (which supposedly reflect environmental, social or governance criteria) are negatively aligned with the objectives of the Paris climate agreement.
We are running out of time for such experiments. If the goal were really to green the economy, the first step would be to eliminate all direct subsidies and tax subsidies for brown capitalism and force a carbon stop. “proliferation. “Governments should also impose a moratorium to protect polluters, their owners and investors from liability for environmental damage. By the way, these moves would also remove some of the worst market distortions.
Katharina Pistor, Professor of Comparative Law at Columbia Law School, is the author of “The Capital Code: how the law creates wealth and inequality.“
More on the economics of climate change
Diane Coyle: It’s about time economists gave nature its due
William Nordhaus: Pollution and climate change prevention pays for itself