Image source: Simon Wilkes, Unsplash.
April 2023
We are living in a new world now, a world none of us professional or private investors has known before. The problems causing, and caused by, Climate Change that were identified in 1980, when Al Gore first held hearings to explore what could be done about them, have been allowed to multiply. They have not been properly addressed, let alone solved. In consequence, the problems have not remained in a steady state, they have grown worse and worse over the following decades, until we reach the present day, when they are still getting worse. What were containable and controllable problems have come to dominate the conditions in which we live as people, let alone as professional or private investors.
New times call for new measures
We are now working in another economic dimension, which introduces an element of danger for our world, our families, and ourselves. Our power to do harm or good as a result of our investment decisions has changed because our world has changed. The steady state no longer exists. Our responsibility now demands that we take a different approach to investment decisions with a different degree of care.
We need a new framework because the conditions characterising the world we inhabit are new. Our world has never faced challenges similar to the ones we face today.
Overpopulation
Our world has become fragile for the first time in human history. I wonder how many of us realise what this means? I have not realised myself until quite recently, although I have been studying the issues surrounding global warming and climate change for more than 20 years. It has always been obvious that a community cannot survive if it consumes the resources it needs for its survival faster than it is able to regenerate them. We did not really need Malthus to tell us this, it has always been obvious. In 1972, the Club of Rome described the limits to growth on a planet where the human population was already then using more resources each year than the Earth could regenerate. It famously used an image of three Earths to demonstrate the scale of what’s called our “overshoot”. The world’s population was 3.8 billion at the time, but growing at a rate of 2% per annum. The world’s population has more than doubled since then.
I was deeply shocked recently to read an analysis telling me that, since 1972, the world’s stock of those resources essential for human survival has actually declined, and its regenerative capacity, instead of being nurtured and growing, has become lower in volume than it was in 1972. Fresh water, fish stocks, agricultural land, rubber, new materials such as lithium, whichever resource you choose, the world’s carrying capacity is actually lower than it was in 1972, when it was already inadequate to meet the needs of 3.8 billion people, and its ability to regenerate to meet the demands of 8 billion people today is shrinking, not expanding. We were in danger in 1972. In the intervening half-century, we have put ourselves in a place of maximum jeopardy. The resources we need for survival are dwindling.
I have described the problem of overpopulation. Demand exceeds supply. Solutions to this are readily to hand. Reduce demand until it meets supply. Rationing is the time-honoured method of achieving this during wartime, and it will no doubt come again. Population control is another method, much less satisfactory, as China has demonstrated. Fertility rates are declining globally anyway (at a relatively steady rate of 0.41% per annum, according to Macrotrends).
“The steady state no longer exists. Our responsibility now demands that we take a different approach to investment decisions with a different degree of care.”
Fragility
But this is not our greatest problem. Our world’s new fragility is not a consequence of overpopulation. It is a consequence of something far more destructive. Let me explain fragility. The more fragile something is, the more easily it is damaged by small changes in its state. It is, in other words, more easily broken. A plastic cup can be dropped on the floor and will undergo no change whatever. A china bowl will break into several pieces and might possibly be stuck together again. A delicate wine glass will be shattered into many pieces beyond any possibility of recovering its original shape. The human race has been more like a plastic cup but is turning into the wine glass. Our fragility today threatens our very existence.
We have become a fragile world, in the sense that the previously robust and steady circumstances within which we have conducted our lives for the last 10,000 years of the Holocene Period have suddenly and at a frightening pace become sensitive to small changes. These small changes produce consequences which make huge destructive differences to our lives. I am talking about climate change. Small changes. 300 parts of carbon per million in the atmosphere has risen to 420 parts per million, a shift from 0.03% to 0.042%. This seems a miniscule change – it is actually over a third in fact – and has caused an equally small-sounding shift of just above 1 degree rise in average global temperature compared with pre-industrial levels. A temperature shift you would barely notice in your bath, should you wish to warm it up. It too is a small rise in percentage terms, 6.7% above the recorded global average of 15 degrees celsius.
Feedback Loops
But these small changes have had much larger knock-on effects on the climate that has characterised our long occupation of our planet. These effects seem to be out of all proportion in their magnitude compared with the slight differences causing them, and the scale of the effects is getting larger. The effects are calibrated as feedback loops.
Feedback loops describe those actions that, in and of themselves, cause an acceleration in the actions. When something gets worse, it then gets even worse as a result of getting worse in the first place. Feedback loops accelerate in an exponential manner. For example, if one square metre of ice melts in six months, the consequence of the ice melting will mean that the next square metre of ice will melt in three months; and the next in one and a half months; and so on.
We have been recklessly allowing these feedback loops to get hold of our living conditions for the last three or four decades, and now are starting to see the consequences made visible before our own eyes. Floods, wildfires, melting icecaps, record-breaking heat waves, biodiversity loss, soil degradation, habitat destruction, this is not a list you need me to repeat. You know it has already started to affect us all in Britain. Last year, we were living through the hottest days on record in London, when the temperature reached 42 degrees. We were facing water shortages in the South of England. Further North, we have seen other weather records being broken on a regular basis, causing floods, breakdown in communications, homelessness and displacement. Small changes in our atmospherics have resulted in large changes that none of us can ignore.
“We have been recklessly allowing these feedback loops to get hold of our living conditions for the last three or four decades, and now are starting to see the consequences…Floods, wildfires, melting icecaps, record-breaking heat waves, biodiversity loss, soil degradation, habitat destruction…”
Our own reality
The feedback loops have asserted themselves, with the result that we are now fragile. Much that we thought of as stable is now under threat. This is the problem we are all now having to face, in our private lives. We, as an investment community with all the financial muscle under our control, need to connect up our professional lives with the reality of our lives as we experience them outside the office. We need to acknowledge that, for every action we take in our working life, there is a reaction in that outside world. We currently have an accepted, established means of analysing and assessing this, and basing our investment decisions on that analysis. It is no longer good enough.
Read more on the topic in my open letter to the British Investment community