One of the great things about the work that all the people subscribing to Responsible Investor do is that, when I now go into a bank and ask for the carbon footprint of my fund, they’ll tell me. They know. They will tell me that the mainstream benchmark I’m invested in has an emissions intensity of 1,000 tonnes per million dollars invested and that my alternative is 552 tonnes.
Or is it kilograms? Neither, most likely, since 1,000 tonnes would be 10 times as intensive as the MSCI World, unlikely for a mainstream benchmark even in the most carbon-intensive capital markets.
Cross your heart, how many of you reading those lines stumbled over that number? How many hesitated when asking about the unit?
It is curious that, even though financed emissions are branded for their simplicity, a simple poll done in my network suggests the majority of readers would not be able to ballpark the emissions intensity of an average fund.
Saying the MSCI World has an emissions intensity of 101 tonnes of CO2/$ million invested has the equivalent informational content of saying that “responsible” is an anagram of “sensible pro”. And even if, thanks to SFDR and similar regulations, sustainable finance professionals are now more comfortable juggling emission figures than they would have been one or two years ago, the average Joe or Jane on the street surely isn’t.
The workaround we have found to this dilemma is twofold.
The first solution involves saying how much more or less intensive a fund is relative to its benchmark. Incidentally, this is how we measure financial performance too, which helped us get to the point in the pandemic where ESG fund managers were bragging that they had only lost 20 percent when covid-19 hit, not 25 percent.
The second is through scores – four out of five leaves or stars or the now popular implied temperature rise metrics. These are virtual stickers or high-fives that give us a sense of achievement (or failure).
Both solutions give context to climate indicators, but they don’t give them quality because neither is informative on telling us about climate outcomes. I don’t care if I’m first or last if I don’t know the race I’m in. Raw footprint numbers don’t imprint themselves on the mind. How many readers still remember the MSCI number from two paragraphs ago?
Here is one way to give colour: recent research by US economist Daniel Bressler tells us that 101 tonnes of CO2 emitted in 2021 is set to produce about 0.02 future climate deaths. By that measure, the emissions allocated to a typical $400 million equity fund thus are responsible for about one future climate death per year.
A broader consideration of potential future climate deaths beyond direct heat deaths – from storms, poverty or conflict, for example – roughly quadruples that number.
For a retail investor, saying your fund is half as carbon intensive as its benchmark is context. Saying it reduces your expected contribution to future climate deaths by 50 percent and so your investment would over a 40-year period contribute to one fewer climate death is quality. It is colour. It is texture.
When I published my recent book on understanding our “Kill Score” – how many sustainability deaths we produce through our consumption, production and investment choices – my editor at first had reservations. Another guilt-tripping Cassandra conjuring an apocalyptic future!
A conversation about sustainability deaths is productive, however, because these deaths crystallise the conflict at the intersection we call “sustainable finance”. There are four street signs at this intersection: “guilt-tripping” vs “optimism-washing” and “tree-hugging” vs “bean-counting”.
The trouble with this intersection is that we don’t often meet there. We are either in Guilt Tripping Town, reminding ourselves how horrible we are over a late RI drinks event, or in Optimism-Washing-Ville, putting lipstick on the pig that is COP climate negotiations. Neither place is able to fully grasp or engage the passions of the public mind.
The same is true for the bean-counting vs tree-hugging highway, where we either wander aimlessly in the woods of Sad Panda Pictures or return traumatised from the Factory of Numbers that the sustainable industry uses to turn nature into Neo’s Matrix. All is green. All is numbers.
Climate deaths bring these worlds together, giving us a chance to meet at this intersection.
Sure, recognising that our sustainability footprint causes future climate deaths may easily swerve towards guilt-tripping. But understanding the extent to which tiny causes and improvements and progress are not just lost in a sea but can concretely reduce these deaths is incredibly powerful.
They turn the practice of bean-counting and the numbers it produces into something emotive, meaningful and, perhaps most importantly of all, significant.
I don’t dare to suggest that I can assume to walk into a bank in the near future and see the expected future climate deaths linked to a fund. I can see the legal and comms teams’ heads spinning at the thought. But whether death is the right frame or not, we need to do better at telling the story.
After all, numbers are the hammers that frame the moral and financial case for action. To do that, they must animate not just sustainability as an issue, but the impact of sustainability choices on the world we live in.
Jakob Thomä is Principal and Co-Founder of 2° Investing Initiative Germany and Professor in Practice at SOAS, University of London. He is the author of the newly released book Der Kill Score, available in German.