The mountain of paper that has recently been produced with regard to the climate negotiations has made one thing clear: we are not really getting anywhere yet. There are plenty of good intentions, but what we mainly hear is reasons why progress is not as quick as we would like.
The average investor will therefore not be too bothered by the stacks of climate-related documents. However, the underlying question - how we can make our economy more sustainable - is of course very relevant for investors. It requires a paradigm shift to make us view sustainability enhancement as an opportunity instead of a threat.
Turning around our way of thinking
Just imagine. You are an investor who has a share in a cotton plantation in 19th century America. Thanks to slave labour, growing cotton was quite a profitable business. Or you have an investment in a textile mill in the Netherlands during the latter half of the 19th century. Child labour made textile production nice and cheap. In this day and age and we cannot imagine allowing that sort of exploitation of production factors - in this case people - in our society.
Still, the abolition of both slave labour and child labour was hardly a straightforward matter. In the United states it took a civil war with over half a million casualties to put an end to these 'externalities'. And the former slave keepers even received compensation for their loss of free labour.
And in the Netherlands, despite the implementation of the Van Houten child labour act at the end of the 19th century, it was not until education until the age of 12 was made compulsory at the beginning of the 20th century that children actually disappeared from the factory floor.
For investors this meant that in the course of a few decades what initially seemed a solid and neutral investment became something reprehensible. For legal as well as moral reasons.
A similar paradigm shift is required with regard to CO2 emissions, because whereas in the two examples above the issue was the exploitation of people, CO2 emissions imply the exploitation of our planet. And ultimately, as was the case with slave and child labour, this is harmful for people. Not us, perhaps, but certainly our children and grandchildren. However, we still do not view CO2 emissions as a moral problem at all, but as a cost distribution issue.
The quickest route
The foregoing makes two things clear: only a clear collective direction will bring about a paradigm shift and such a shift always takes time. But there is a difference with the two earlier shifts: in the case of climate change we are running out of time. We have already used up most of our carbon budget: if we keep going at the current rate, we will breach the 2°C-limit in 18 years' time and will have to abruptly halt all CO2 emissions in order to avoid irreparable damage.
We could of course continue to wait for others to do something first, keep on nattering about who will pay the bill and meanwhile continue to exploit our planet. But in my view, we will not be able to do that much longer. It is now really time for governments to draw the line. For instance by setting a much higher price on CO2 emissions than we are doing now on the basis of the European Emissions Trading System (ETS). And we will just have to accept that production in our region will become more expensive for the 'heavy smokers'. Research actually shows, though, that in general these types of companies do not tend to move their production to another country 'at the drop of a hat'. And of course, such a measure entails considerable allocation issues. But we will deal with those later. First we need to get a move on.
Also the responsibility of investors
The actual reduction of CO2 emissions is the shared responsibility of citizens, companies and governments. And yes, that includes investors. If you still invest in the fossil fuel sector you are partly responsible for the ongoing emission of CO2. And you are in actual fact doing the same thing that 19th century investors in cotton did: making a profit at the cost of others.
Presently, this may still sound a little extreme, but I promise you: our children will undoubtedly view this issue in the same way that we now view slave and child labour.