A resolution for the PRI: From fairytales to real commitments

A radical plan to improve responsible investment

This article is Free, but to access more of our content, you can sign up for a set up a no strings attached 28-day free trial here.

Responsible Resolutions: This is the latest article in a series from sustainable finance practitioners about their hopes for the New Year. Jean-Marc Jancovici offers a four-point plan for the way forward.

Since its creation in 2006, the Principles for Responsible Investing (PRI) has gathered roughly 2,800 signatories, representing $90trn of assets under management. As $90trn is about the overall amount of assets under management in the world, it means that any potential signatory of the PRI has indeed signed them: what a success! For sure, the world is on track to make climate change an old memory before I die!

A success… or just an illusion? Because, if it is so easy to be accepted as a signatory of the PRI, doesn’t it mean that the associated commitments are just so weak that any entity can commit to them without changing anything significant to the pre-existing situation?

What does the PRI ask for? Regarding processes: “incorporate ESG issues into investment analysis and decision-making processes” and “incorporate ESG issues into ownership policies and practices”. Then come communications, with “seek appropriate disclosure on ESG issues by the entities in which we invest”, “promote [the PRI]”, and “report on activities and progress towards implementing the Principles”. A little unity to end, with “work together”.

Anybody afraid? You shouldn’t be because, obviously, fulfilling these principles is the least challenging thing in the world. Sorry to crash the party, or take the risk of sounding obnoxious, but the PRI principles today are not serious commitments – they are just a possibility offered to too many to greenwash as much as they can.

First, just shuffle through the existing investments to identify, for all of them, the goal(s) of the SDGs that can be put forward. With 17 goals, it’s no big deal, and if you have no idea, just pick “Industry, Innovation and Infrastructure” (goal 9) for any investment, you are sure it will do the job!

Then hire a trainee in sustainable development to write a report, and eventually massively invest in communications to explain what a wonderful job your company is doing to ensure a sustainable world. In most cases, corporate communications is, by far, the first budget benefitting from engaging in “sustainable development”!

As this “symbolic” – symbolic because it has been used in many strong declarations regarding our future – year 2020 begins, could we imagine a set of principles that would be a little more binding?

First of all, everybody should agree that it’s impossible to claim being serious on ESG if we fail on essential E issues, and climate change to start with. If our climate system becomes hostile enough to prevent food from growing, being good on gender equality or alleviating poverty won’t keep us alive.

So the following will concentrate on climate change, for it is a mandatory part of any serious ESG approach. It should of course be extended to all other essential items for humanity to exist for a long time period on Earth: soils, nitrogen and phosphorous cycles, natural ecosystems (including fish stocks and forests), and much more…

In the field of climate change, the first significant commitment should regard training. Of course we are hearing a lot about climate change every day, but there is a huge difference between hearing a word often and clearly understanding what detailed reality lies beyond.

Who knows how much time it takes to fully remove a surplus of CO2 after the emissions stop? How does a 4°C global temperature rise compare to what happened in the past? What is the temperature rise that will trigger the collapse of the West Antarctic Ice Sheet, eventually meaning 5 or 6 extra meters to the sea level? Jean-Marc Jancovici, Carbone4What temperature rise is the beginning of widespread food insecurity throughout the world?

And regarding energy, knowledge about “physical facts” remains also much too scarce in the financial world, which believes that all the information is priced in. Of course it is not! The atmosphere we breathe is invisible in any corporate financial accounting, but without it there would be no accounting, because there would be no people…

Why are these questions important? Because, as long as one isn’t able to clearly describe the issue at stake, including its physical processes, orders of magnitude, boundaries associated with alternatives etc, there is absolutely no chance that action is taken properly, and actually it’s – sadly – what can be witnessed for the decades that have just elapsed. 

Want proof of it? There has been absolutely no change in the trend on world emissions since we have started to invest in what we believe are solutions. Isn’t the most simple explanation the best? It is just because they are not solutions!

So I propose a four-point plan.

1. So the first commitment of a “serious PRI” is also one Greta Thunberg should ask for: all the executives (not only the top ones) of signatories should undertake 10 to 30 hours (my personal estimate of the appropriate volume) of training on energy and climate change during the year to follow, the idea being to understand the present situation first, and not to listen to a list of turnkey or “tick the box” solutions presented as obvious before understanding what’s going on.

2. The second commitment should be to implement carbon accounting for the investments, detailed enough to enable it to weigh each unitary economic option against its carbon consequence in the full value chain (not only direct emissions, that tell a very small part of the story most of the time). The associated budget for putting such a system in place should be no less than 5% of the IT budget (my personal estimate) if the entity is really serious about climate change.

3. The third one should be to establish a strategy that complies with a 4% decrease of the world’s emissions each year – which is what it takes to “remain below 2°C” – and which, among other things, means that the world economy contracts a little each year. Green growth is just a fairytale: in the real world, being “harmless” regarding physical flows, means contracting them when we have become “energetically obese”.

4. The fourth one would be to have a member of the executive committee devoted to climate issues for at least 50% of his or her time.

All this seems challenging? It’s not a wrong impression: it would be, but the good news is that it would be only the beginning. It’s another way to say that we won’t deviate from our present collision course with the fairytales of green growth and “just do your best to implement ESG” that we are presently telling ourselves. 

Facing the facts requires courage, greenwashing only the ignorance of the public… and too often of those that make the rules. It’s urgent to get out of this situation.

Jean-Marc Jancovici is a partner at Carbone4, President of the Shift Project and a Professor at MINES ParisTech.