Price the E in ESG otherwise its one more climate con

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imagine

climate change impacts

pommels

indonesia tsunamis

drought floods landslides

sea level rise hundreds

then thousands of indonesians

start leaving then

millions right now

20 million on makeshift boats

are right outside

singapore seeking

shelter food

and water

millions more are heading towards

australia the same scene

is unfolding in the mediterranean sea

at the gates of europe and

on the u.s mexico border

where tens of millions of latin

americans

africans south asians arabs

climate refugees all of them

are seeking refuge on makeshift boats

and on foot what

exactly are singapore

australia europe and the united states

going to do

are they going to shoot them

are they going to let them in

or are they going to complete trump’s

wall

except this time take it all around

their countries

but what happened you might ask

what happened was we delivered progress

without sustainability

that’s what happened the progress that

we delivered

in large part powered by

burning gas and coal and

oil was amazing for 200 years

we doubled global life expectancy

we cut infant mortality from 50 percent

to 2.9 globally

we pretty much conquered illiteracy

and every one of you right this second

has

in their pocket more information

than abraham lincoln or

louis xiv ever had access to

in their entire lives

but we delivered that progress

in large part burning called

oil and gas while

cooking the books

how bad is it every single earnings

number

of every single company in the world

is actually wrong

now at the beginning obviously we did

not know that we were cooking the books

so when the first coal plant opened in

london in 1882 it was a beautiful site

it lit up a part of the town it powered

the telegram

and we then built a global

infrastructure

burning oil gas and cold

but at least 40 years ago

we should have known

and must have known that we were cooking

the books

as a matter of fact according to united

nations body called

the ipcc we have known

that humans have an impact on climate

through burning

oil gas and coal for about 100 years

but let’s be generous and call it 40.

because 40 years ago

exxon scientists had scientific papers

that predicted pretty much exactly

where global warming was going to be

today and that’s all public information

but what did we do about it

we pretty much did nothing

about it and the data is very clear

emissions are still rising

now we came up with very creative ways

to do nothing about it first we said

collectively governments companies

lobbyists think tanks that in fact

humans don’t cause an impact on the

climate through burning fossil fuels

so we just denied it then

we buried the evidence after that

companies became more creative

and said things like oh my god how can

you possibly

have me estimate my impact on the

environment if you government

don’t give me a carbon price or you

government don’t force me to clean up my

water discharge full of chemicals

or you governments don’t force me to

take responsibility

for the plastic that i’m dumping

everywhere to an extent that

every single one of us today is eating

drinking and breathing plastic

but recently we came up with an

even more fantastic way to

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cook the books and it’s called

e s g

esg stands for environmental

social and government risks and

governance risks

that a business runs

into and it’s about cataloging these

risks

so that investors take them into account

when looking at the performance of a

company now

esg is a beautiful thing because

hypothetically if you’re looking at a

portfolio of buildings for example

which you want to buy today financial

statements only show you how much money

these buildings make

and how much it costs to run them

they do not show you for example the

emissions that went

into building that building the

emissions that the building

is emitting today the deforestation

impact if any of that building and the

sea level rise

protection investment that needs to be

made to defend that building

so esg is at the moment

basically a lot of blah blah blah to say

i’m gonna take this big bucket i’m gonna

put in it everything i

don’t want on my balance sheet

and in my earnings and then i’m gonna

just forget about it in computing my

profits

it’s actually very elegant as a way of

continuing to do nothing

and esg took off because of its feel

good factor so 10 years ago

esg was pretty much zero in terms of

global assets under management

today it’s already one out of

three dollars that are professionally

managed

in other words one out of three dollars

professionally managed

pretends that it’s being managed taking

into account

esg factors and

soon it’s going to be a hundred percent

of assets under management because it’s

just

very elegant and because we citizens

want clean investment products

but there’s at least four

problems with esg and that’s at least

four problems

the first one is there are no

standards for disclosing

environmental social or governance risks

and so what companies do is they

arbitrage between them

they find kind of the best standard to

get the best

governance grade and then they go to

that one and it’s frankly

the standardization is a complete zoo

but hopefully

something is going to be done about it

the the second problem

is that abuse is rife

we all know that deforestation is a

major driver of climate change

78 of mutual funds offer

esg investment products how many would

you think

actually filter their investments for

deforestation risk the answer is zero

zero also price climate risk

and take it into account when investing

the third problem is

epic green washing and i mean epic

green washing it’s almost too beautiful

to

describe but i’ll give you one one of my

favorite examples

in 2020 253 funds

in the united states switched to an esg

focus

253 funds out of these

87 percent modified their name

by adding things like climate or

sustainable or green

or esg guess how many

changed their underlying portfolio

initially zero

and the fourth problem regrettably

is actually bigger and more

lethal

g governance is about how well a company

is managed social

or s is about human capital

and how you deal with your stakeholders

i can accept i can accept that these two

can go in a bucket which hopefully

investors would read

but e is about environmental destruction

it’s a completely different thing and it

has to be priced

then flow through earnings and impact

executive pay which at the moment it

does not do

and we’re not talking small numbers

companies worldwide

in 2019 were responsible for

7.6 trillion dollars

of environmental destruction that they

did not pay for

that’s one and a half times

the gdp of france

and the uk combined 7.6 trillion dollars

and if you look at climate change

as a subset of that

7.6 and take

a few companies as an example just to

get our head around

the issue let’s start with

exxon the oil company exxon

by its own account discloses that it’s

responsible for

730 million tons of co2 of

emissions per year

now the social cost of carbon

in other words the destruction

of each ton of carbon from a climate

change

and environmental perspective

is anywhere between fifty dollars per

ton of co2

to two hundred dollars per ton of co2

depending on which study you look at

if you look at the biden administration

at the moment their tentative number

which undoubtedly is going to go up is

51

so let’s be generous to exxon and take

50

if you take 50 and you multiply that by

the 730 million tons

you get 36 and a half

billion dollars that’s 36.5

billion dollars of climate impacts

which exxon is responsible for

but are nowhere to be found on its

financial statements

or in its earnings and are nowhere taken

into account

in its executive pay

and it’s not just exxon by the way it’s

every single company

in the world with no exceptions

none and what that means is that

for 40 years because we have

buried that environmental destruction

outside the financial statements

what we’ve done is we’ve literally moved

tens

of trillions of dollars to the wrong

place

we sent them to search for more

oil more gas more coal more plastic

more polluting products

instead of having done the right thing

sending them to the right place which

would have meant that today

we would have been done with that

climate change

challenge already so

exxon in a good year makes 20 billion

dollars

its earnings are therefore misstated

by something like 200 basf

the german chemical group

their earnings if you do the very same

math based on

their numbers are misstated by 67

percent

67 toyota makes

also about 20 billion dollars a year but

if you take

its emissions multiply that by 50

you get 20 billion dollars which means

that toyota actually has never been

profitable

and all that money has been diverted to

petrol cars

when it shouldn’t have this is hugely

meaningful

because if we weren’t cooking the books

your electric boiler right now would

instantaneously be

cheaper than your gas boiler green

hydrogen would

already be with us we would be flying

electric

planes we would be sailing electric

boats bill gates talk of a

talks about of a green premium which

according to him

is the premium you have to pay for a

zero carbon product compared to

a fossil product of the same type so a

plastic straw versus

a biodegradable straw but in fact

the green premium would instantly

disappear and would never have existed

if we weren’t cooking the books and

looked at a different way there is no

green premium

unless you are cooking the books

this cooking the books thing is a

pandemic

attacking it is probably the most

effective lever

to change the world and move it to a

safer place

immediately and in the fastest possible

way therefore merging

progress and sustainability

and i’ll finish by saying this

indonesians

and latin americans and africans and

arabs and south asian

do not want to move to sweden

they really don’t or denmark

they want to stay at home but to do that

their home has to be climate safe

thank you

[Applause]