Philippe Desfossés: It’s time for joined-up thinking on energy, sustainability and pensions

The Alstom takeover battle is the perfect example of where some broad, national strategic thinking could matter.

There is a lack of understanding of how dependent we are on energy, and even worse on cheap energy. Economists like Gaël Giraud from the CNRS (French National Centre for Scientific Research) stress how much more elastic gross domestic product (GDP) is to energy than we thought.
We have a similar blind spot on retirement savings. As the world ‘greys’ (the Economist dated April 26th reminds us that the share of people above 60 compared to people under 20 is dramatically increasing) it is of utmost importance that we prepare our economies for the shift in savings that this huge change in the respective social balance between young people and seniors entails.
We also have a huge problem in providing the patient capital in tandem with government funding that can be part of the required clean energy transition.
Part of the answer to all three is related, I believe.
Some might point out that France’s GDP has kept on increasing, albeit at a slower pace, at the same time as French energy consumption was actually decreasing. But that does not invalidate the opening statement of this article. In fact, our developed economies tend to be more and more services driven, and more importantly, global brands have organized their production to move the more energy intensive parts of their businesses to “emerging” countries. Critics argue that it is practically policy in developed countries to export their more polluting activities…One thing we can be sure of is that it does not make sense to assess the energy intensity of GDP on a ‘national’ basis. Starting from there, we now have to face the fact that our current way of life is unsustainable and that it is urgent to speed up the energy transition. At this point, two fears about growth should be dispelled.
First, in lieu of having a depressing effect on activity, promoting the move towards sustainability means that there is a wealth of investments just waiting to be unlocked. As the Institutional Investors Group on Climate Change (IIGCC) stresses, this requires the functioning of an efficient EU Emissions Trading System (ETS) so that every economic agent has to take into account the cost of the negative externality that burning fossil fuels means.
Second, growth “per se” does not mean anything. It is rather unfortunate that we have wasted the opportunity that came with the financial crisis to reassess the definition of GDP and its “construction”. Joseph E. Stiglitz, Amartya Sen and Jean Paul Fitoussi have all worked on the issue and determined that GDP was a poor instrument for measuring “real growth”. We have to think outside of the box. Producing “stuff” is not the guarantee of a better life or economy. Yet politicians still present growth (in its classical definition) as the only way out of the crisis we are in.
By leveraging our economies in the last 15 years we have fudged the issue of the rising cost of energy. Just remember that at some point in 1999 one barrel of crude oil was worth 9 dollars!

However we cannot rely any more on increasing debt. Therefore, it is time – more than ever – to rejuvenate pension funds where they exist and to develop them where they are marginal players in the retirement landscape. Pension funds should take care of the long term, if only for one reason: their fiduciary duty is determined by the protection of intergenerational equity. And in countries where households have lost confidence in investing in stocks, it is more important than ever to encourage the emergence of natural long-term investors like pension funds to bring patient capital to strategic, important businesses.In the case of France, could we find a better example at the moment than Alstom? The company is subject to a $17bn all-cash offer for its energy assets by GE, the US energy giant. Being a specialist in turbine manufacturing, Alstom is typically the kind of company that could play a huge role in the renewable energy transition, especially in France, just when we need it. The lack of a national deep pool of investors investing for the long term looks likely to lead the company to be sold to an overseas buyer with the resultant uncertainty of what that means for national energy production.
It’s time for some joined-up thinking.

Philippe Desfossés is CEO at ERAFP, the €18bn Paris-based French Public Service Additional Pension Scheme