David Ko & Richard Busellato authors of “The Unsustainable Truth”
There is a rumour going around that sustainability is easy. You and I know that ideas for sustainable actions can come in the click of a finger – choose the vegan option at dinner, switch over to renewable energy, or change our vehicles to electric. These are three suggestions we all can do.
But at Rethinking Choices, we know from thirty years of working in the rough and tumble of investments that such ideas do not lead to sustainability. We have seen how easy money and cheap and abundant energy have allowed the world to do too much. This “doing too much” is the cause of our sustainability problem.
Genuine sustainability is difficult. It needs us to accept we have an addiction to cheap energy. We will only admit to that when we can see our businesses surviving with less energy. Only then will we have the courage to cut oil, gas, and coal production and stop climate change from worsening.
For several hundred years, abundant energy has provided people with better health, greater freedom, and tremendous wealth. Oil, gas, and coal have been the source of this abundant energy. We now know each unit we use makes climate change worse. With oil, gas, and coal providing 82% of our energy, we are caught between a rock and a hard place – between our addiction to energy and climate change.
If it were just a rock and a hard place, we may have a chance to escape. However, climate change makes energy scarcer, and scarcer energy makes the cost of climate change greater. Combined, they drive us back to using more oil, gas, and coal and actively trap us.
This year, every continent except Antarctica experienced power outages because of climate change. Heatwaves triggered them in India; massive cloud seedings could not prevent hydroelectricity shortages in China; France had to reduce its nuclear power production – its rivers did not have enough water to cool the reactors.
We invest in wind turbines to replace oil, gas, and coal. These need copper to produce, but climate change is making production difficult. It takes a lot of water to extract and refine copper, and climate change has created a prolonged drought in Chile – a major copper-producing country. With everything from wind turbines, electric vehicles and the metaverse competing for copper, even if we have the energy and the money, we do not have the water to produce copper fast enough.
There is also the cost of the direct damages. Hurricane Ian is costing the US $120 billion; in Australia, households no longer have insurance to cover against floods; and businesses in Mississippi’s state capital, Jackson, lost millions of dollars a day following flood damage.
Climate change is like mixing paint – once it starts, there is no going back. On the eve of reaching net zero, the extreme rains, storms, and droughts on the day before will be the same as the ones on the day after.
This means if we continue to use oil, gas, and coal, even if we get to net zero, we will still face bankruptcy from the costs and damages. However, as addicts we say we will give up tomorrow but continue to use today. This is why sustainability is difficult.
This has put us into uncharted territory. The decades of plenty are gone; we face decades of famine. Structural shortages in energy and raw materials will force us to drawdown on our wealth, and with the world more indebted than ever before, even rich governments face bankruptcy.
In these uncharted territories, company boards still hold the responsibility to oversee a company’s strategy and direction. To navigate safely, they need to be guided by purpose.
In 1960, Theodore Levitt highlighted in Marketing Myopia how leading companies fail because they fail to see who their customers see them as. They end up wasting resources improving goods and services their customers no longer want. In the world we face there is no room to waste resources; our purpose needs to be consistent with what the people we deal with sees us as.
This does not mean we give up on sustainability. Before we formed Rethinking Choices, we worked on developing sustainable investing for an investment firm. At every corner, we faced contradictions and dilemmas. At their root was confusion about why sustainability matters. In the end, we held workshops to understand what our owners and employees, suppliers and customers saw the firm as. This progressed us to see sustainability as a journey where we will make mistakes and go up wrong paths.
We recognised that the most important thing we can do for sustainability is to survive. However, we cannot survive climate change alone. It can only be done collectively. This made us focus on bringing together those interested in being part of an ecosystem that innovates to reduce collectively the chances of bad outcomes. It makes all parties in the ecosystem more attractive for investments.
The innovations must respect that energy and resources are scarce. Accepting this will drive us to allocate capital differently, accepting shortages, favouring resilience, and emphasising efficiency of purpose over a mechanical efficiency of economics. It drives us to pricing innovations to redistribute resources, to reward subtractive changes that eliminate problems by rethinking choices. We call this innovating inside the box.
This ecosystem gives companies in it clarity over how they can survive with less energy, and thereby fortitude to stay the course. It gives them courage to tackle our energy addiction.
It is not enough to cut oil, gas, and coal use ourselves; we must take what we do not use out of production so others cannot use them either.
This is what Transformational Ownership does. It is an ecosystem that brings people together with businesses and governments centred on reducing oil, gas, and coal production. It does so with people calling on businesses to pay a fraction of the money we spend as a fee to maintain the planet.
The money goes into a single global Transformational Ownership Fund and is used to buy up oil, gas, and coal companies from existing owners. The bought-out companies continue to operate for profit, but crucially all the profits are distributed to people everywhere on an equal per-person basis. This removes any financial interests so those joining know their sacrifices benefit only the planet. It turns ownership into stewardship, focussing on reducing production in line with our pledges and climate science.
Businesses using energy supplied by Transformational Ownership are in an ecosystem that is demonstrably contributing to greater sustainability. Customers have the choice to support the businesses in this ecosystem and to boycott those outside it. They can also call on governments to levy those outside it for harming the planet.
Oil, gas and coal owners have the choice of being a part of the Transformational Ownership supply or face the uncertainties of boycotts, levies, and even legal actions.
As more businesses become part of this Transformational Ownership ecosystem, more oil, gas, and coal supply are captured paving a safe way to net zero. Boards should consider how their companies can be part of such a virtuous circle.
There is a rumour going around that sustainability is easy…
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