Remarks by Achim Steiner to the Future Responsibility Conference, Munich Thu, Dec 5, 2013
Munich, 5 December 2013
- Let me thank the FAZ Institute for organizing this conference and the BMW Group for hosting it.
I would like to use my keynote closing speech here to look into the future and reflect on what that might be for a global population of now over seven billion people rising to well over nine billion by 2050.
It has been fascinating to hear the thoughts and ideas of so many excellent speakers over today's sessions and round tables as they themselves have looked into the future.
My dear friend and former UNEP Executive Director Klaus Toepfer illuminated the issue of energy, future energy, while others the realm of future mobility, not least through the lens of a leading car company like BMW
So you have in many ways discussed and intellectually engaged on what I might call the sustainability dimension of hard infrastructure.
The theme I was asked to speak on is 'On Track to a Green Economy - Natural Capital as a Key Factor to a Sustainable Economy'.
I would like to set out three points.
We are not On Track.
But we are on the track.
And we could be really on track if we get smarter about the economics but also the way finance operates now and into the future.
In short, my reflections will generally focus on the soft infrastructure?the role of forests and of freshwaters and of soils and savannahs and biodiversity in the economy of the 21st century.
Ladies and gentlemen,
Being an environmentalist and making comments on future patterns, trajectories and scenarios is a fascinating role.
If you are an economist, a health expert or a social analyst or a theater critic even, people often take future trends as a given or at the very least worthy of strong consideration.
But if you are operating in the world of environmentalism, you can be all too often perceived -especially by those whose views and values you may challenge - as an idealist, an evangelist or simply cute but naïve.
The notion that you might be in the field of risk assessment or that your work is connected to the real economy in very direct, tangible ways can often seem distant, peripheral, even anathema to many.
But environmentalists-dealing as in all human affairs without 100 per cent perfection-look at the trends and the changes around them and suggest the implications for the world and its people.
The Club of Rome and its 1972 Limits to Growth analysis is one such example.
It was for sure an early attempt at 'early warning'- framing the notion that mining the planet and its natural resources without consequences, had limits and had tipping points somewhere in the future.
Some enjoy holding up Limits to Growth as a work of well-intentioned fiction-yes oil did not run out in 1992!
(In the same way that some climate critics say, 'Oh they can't tell you what the weather will be like in Munich two years from now, so how the devil can they forecast climate change 30 years from now').
But the fact that that the Club of Rome's timescales were perhaps too tight does not take away the fact that the world they described has in many ways arrived -or is arriving-albeit a few decades later.
We are indeed living through a time where natural resources - from freshwaters to arable land needed to grow food or rare earth metals required for clean tech - are diminishing in far too many places and at scales and rates that have local but also planetary implications.
We are also living in a world where we have extraordinary and far more detailed evidence on what that will mean to our economies and to overcoming poverty if we press on along the same unsustainable path.
In comparison to the Club of Rome, when they published Limits to Growth, we now have the work of countless scientific institutes and ever more powerful computer models fed by ever richer data.
The term today is planetary boundaries - push past them and the risk assessments are sobering: you may change the fundamental basis on which whole economies have evolved.
If global temperatures rise for example to 4 degrees C this century as many including the World Bank, the International Energy Agency and UNEP are now contemplating without decisive action you can probably say goodbye to the Amazon - one of the biggest water pumps on the planet.
What does that mean to Latin America, what does that mean to the world including the United States which depends on the Amazon for soya, food and fodder?
What does it mean to exports of the goods and services that are the lifeblood of many of the companies here in this room?
UNEP's own Global Environment Outlook series, the fifth of which was launched last year before the Rio+20 Summit provides the best available evidence that on every score bar one or two we are falling far behind.
And yet - and yet - we have extraordinary examples of where what was forecast, predicated and modeled happened but in ways which have surpassed our wildest expectations
Yes ladies and gentlemen, surprise, surprise - sometimes those championing environmental sustainability get it wrong but in hugely positive ways.
Because the current inability to accelerate and scale-up a transformation of our economies into inclusive green ones has some shinning and extraordinary contradictions.
Ones that make people like me think that a sustainable 21st century is indeed not a dream but a running reality if we act now and re-define our collective futures.
Ones that underline that governments, cities, business are not pre-determined or pre-programmed to just follow the pathways of a previous century.
Every year for the past few years UNEP working with partners like Bloomberg New Energy Finance and the Frankfurt School - UNEP Collaborating Centre for Climate and Sustainable Energy Finance, produce a report on the investment and penetration of renewable energy.
Since 2006, some $1.3 trillion has been invested in new renewable energies.
In advance of the UN Framework Convention on Climate Change's conference in Warsaw, Poland last month, UNEP produced the Clean Energy Voyage report.
Part of the report looks at the predictions-honest predictions - made by big international organizations on this growth at the time. They were all wrong.
In 2012 total renewable energy power capacity worldwide exceeded 1,470 gigawatts (GW), up 8.5 per cent from 2011.
In the year 2000, the International Energy Agency estimated that by 2010 34 GW of wind would have been installed and the World Bank estimated that China would have 9GW of wind and half a GW of solar by 2020.
The reality was that in 2010, 200 GW of wind was operating world-wide and China had 62GW of wind and 3GW of solar by 2011.
I mention these numbers not to point fingers at the IEA or the World Bank, but to show how as a result of smart public policy and innovative industry the rules of the game can be changed and scenarios once held close as sacred cows by some can become Museum exhibits overnight.
In other words, no trend or reality is free from choice or divergence - we can change what some may see as the laws of gravity if we want to and for the better.
Ladies and gentlemen,
The same goes for natural capital, the natural world, our nature-based assets.
We need to rethink our relationship with these soft infrastructures - need to re-discover their wealth and their role in making this world habitable.
But also their role in our economies, in overcoming poverty in countering some of humanity's more challenging and un-blinkered excesses.
The risk assessments of the Intergovernmental Panel on Climate Change (IPCC) hosted by UNEP and the World Meteorological Organization, are sobering in terms of impacts.
But back up those scenarios in respect to the way we are systematically undermining our natural allies?natural systems like forests and rivers - and the consequences become even more sobering.
Forests to healthy arable land are even more crucial in a climatically changing world - yet we run them down like they are inexhaustible or worthless.
We also live with economic inconsistences and absurdities because those who have invested in the old economy want to hang on to it - perhaps out of timidity or willful ignorance of the evidence.
Or perhaps because some still imagine that they can pull up the drawbridge and weather the storm rather than realizing the interconnectedness of the global economy and the global impacts of resource degradation in a world of now over seven billion people.
Ladies and gentlemen,
Getting on Track - Decoupling
If we are to deliver sustainable development, trigger a global inclusive Green Economy and provide jobs and prosperity to the many rather than the few, then there some fundamental challenges to be met and opportunities to be seized.
Let me perhaps flesh out what I mean, provide a few litmus tests for getting down the track to that inclusive Green Economy.
UNEP hosts the International Resource Panel - a team of eminent scientists who in many ways are building on the work of many including the Club of Rome.
They have concluded that humanity will triple the consumption of natural resources by 2050.
Their overarching view is that economies urgently need to decouple growth from natural resource use and point to some sectors of some economies where this is underway - China in terms of carbon intensity is cited as are green economy policies in South Africa and Germany for example.
Getting on Track?Economics of Nature
In respect to natural capital, the debate and the analysis here is moving fast.
In Germany, in Potsdam in March 2007 the G8 plus five developing country environment ministers requested the initiative, The Economics of Ecosystems and Biodiversity (TEEB).
TEEB was eventually hosted by UNEP under the creative leadership of Pavan Sukhdev, formerly of Deutsche Bank who also spearheaded UNEP's Green Economy work.
As a result of TEEB, countries and companies can no longer simply view nature and its services as a 'free good'.
Indeed its assessments and reports point to the multi-trillion dollar assets upon which all economies depend and the multi-trillion dollar degradation being inflicted on the global economy as a result of unsustainable management.
The good news is that many countries are now carrying out their own national TEEB style assessments?Colombia, Brazil, the UK to name but a few.
TEEB is also spawning direct action -take Kenya for example where UNEP is headquartered.
Over several decades the largest closed canopy forest in sub Saharan Africa - the Mau Complex - has been damaged and degraded.
A TEEB-style assessment by UNEP and the Kenyan government estimated that the Mau was worth some $1.5 billion a year to the local economy.
$1.5 billion in terms of the river systems it generates that run to key tourism infrastructure like the world-famous Masai Mara and Lake Nakuru; moisture for the export-led tea industry and services supporting agriculture and hydropower.
Getting on Track?Valuations, National Accounting and Beyond GDP
This work is also feeding into the outcome of the Rio+20 Summit of 2012 with governments looking into a new indicator of wealth beyond GDP.
Why? Because GDP is a crude measure of wealth generation and is fundamentally silent on a nation's nature-based assets and their depreciation over time.
This week at UNEP, we hosted ministers and delegates from Africa under what is called the VANTAGE initiative-Valuing and Accounting of Natural Capital for the Green Economy.
Because it is one thing to have economic assessments of natural capital, but quite another to incorporate this into systems of national accounts of profit and loss and of course policy.
During the meeting we had the insight of Sir Partha Dasgupta, professor Emeritus of Economics at Cambridge University in the UK and a key expert in this field.
As he outlined, GDP was actually born during the Great Depression of the previous century and is basically a short term indicator of factory output.
The Inclusive Wealth Report Sir Partha spearheaded for UNEP and the UN University found that 25 countries over 1990 to 2008 registered positive growth against GDP.
But measured against an Inclusive Wealth Index, where factors such as natural capital are applied, growth was actually flat or negative.
Put bluntly, the world could fell every single tree on the planet and GDP - at least in the short term?would go up cause the wood has value in current economic planning but the services forests provide, including as havens of birds and insects that pollinate crops are not.
GDP is also silent about the long term, and the rights of the next generation to a decent life.
Whether it be fisheries or forests, nature is struggling and in many cases failing to renew itself as it once did in the face of what is today all too similar to the film Avatar - in other words a fundamental and unthinking mining operation of planet Earth.
So reforming or enriching GDP for present - and future generations - will be another key factor for being on track.
On Track?Externalities and Subsides
The way we manage our economies in terms of the pollution generated or the degradation delivered is also promoting inefficiencies and 'free-riding' by far too many companies and sectors.
Those industries that want to do the right thing in terms of a sustainable future for themselves and their customers face far too many uphill battles - even today.
Out of TEEB has grown the TEEB for Business Coalition.
A recent report by the consultancy Trucost for the Coalition of which the UNEP Finance Initiative is a member, estimates that:
The top global 100 environmental externalities are costing the economy world-wide around US$4.7 trillion a year in terms of for example air-pollution related health care costs, climate change and loss of natural resources.
The report makes the point that some sectors - for example coal-fired power generation in several parts of the world - would simply be loss makers if these costs were factored into their ledgers of profit and loss.
There is a similar disconnect in respect to subsidies.
Those who challenge renewable energy present a range of arguments?one of which is that wind or solar is heavily subsidized.
Well as the externality evidence shows, there are many cases where coal-fired power stations are being subsidized by yours and my health-care costs, setting aside even wider impacts on the planet.
But directly fossil fuels are subsidized by your and my taxes - indeed and depending on the exchange rates, fossil fuel subsidies globally are in the $500 billion to $800 billion range every year.
Renewables attract direct subsidies of well under $100 billion a year.
And we as a global economy are subsidizing other forms of destruction and degradation from subsidizes for excessive chemical inputs in agriculture to the around $27 billion-worth of subsidies that mean there are far too many boats trying to catch fewer and fewer and ever smaller fish.
Some countries are moving - a country like Ghana or Jordan for example on fossil fuel subsidizes while many larger countries carry on with subsidy-business as usual.
On Track - Reforming Finance
Let me not be misunderstood.
There is a great deal of innovation in respect to public policy, technology and indeed finance.
At the recent UN Climate Convention meeting in Warsaw, governments gave the go-ahead for forests to be formally part of the response to climate change by adopting a framework for Reduced Emissions from Deforestation and forest Degradation - so called REDD+.
Some countries such as Norway along with others are investing in such initiatives which can not only reduce the risk of global warming, but improve livelihoods for the poor in tropical countries while improving the prospects for biodiversity.
Nearly 140 countries have renewable energy targets or policies in place.
Costa Rica has for example set a climate neutral target by 2020 and Denmark has a target to generate 50 per cent of electricity from renewables by the same date.
Since 2006, around $1.3 trillion has been invested in renewables - in 2012 alone China invested close to $70 billion in solar, wind and other technologies.
Nearly six million people are employed in the renewable energy sector world-wide - more than in fossil fuels.
The list is long and it is legion from the three million hectares per year of new forest cover in China over the past decade or so to the dramatic expansion of organic agriculture in a country like Uganda that is also assisting in eradicating poverty by giving farmers higher prices on export markets.
Meanwhile the number of countries with corporate sustainability reporting has increased from 32 in 2010 to 45 in 2013 - over 70 per cent of which are now mandating companies to do this
Some companies are going above and beyond what is required because they equate sustainability with profitability and competitiveness.
Unilever for example through its Sustainable Living Plan has over 50 targets and timetables across its operations, and up and down its supply chain. Earlier this year Storebrand, a financial services group in Norway announced that it was pulling out of investments in 13 coal and six oil sands companies.
Rabobank in the Netherlands also announced it was stopping loans to projects such as shale gas and tar sands citing social and environmental impacts.
There are many, many more example one could cite.
So yes the greening of the global economy is underway and the menu of smart public policies and the percentage of public investments being re-focused in this direction is growing and will continue to grow.
But given the scale of the challenge the world faces it is not enough and it has not yet gone to scale, reached a critical mass and achieved a transformational momentum.
The missing ingredient is private capital and the focus of the capital markets on the opportunities and potential returns.
Currently governments are struggling to raise the $100 billion a year needed by 2020 to finance agreements under the UN's climate change convention.
Yet institutional investors - including pension funds, insurance companies and investment funds - in the OECD alone had over Euros 70 trillion under management in 2011.
It was estimated in 2009 that institutional investors owned over 50 per cent of the US equity market by value and over 70 per cent of the top 1,000 corporations.
Are they investing in the inclusive green economy?
A report this year by Carbon Tracker and the London School of Economics' Grantham Research Institute suggests not.
It found that over the past two years the carbon intensity of the main London and New York stock exchanges actually increased by seven and 37 per cent respectively.
The same report found that estimated spending on exploration and development of new reserves by the 200 largest listed fossil fuel companies totaled $674 billion in 2012.
Designing a Sustainable Global Financial Architecture
Let me perhaps put what I see as that challenge to you in respect to private sector finance and capital markets in an inclusive Green Economy.
Let me perhaps flesh out seven possible design elements of a sustainable financial system to support sustainable development, including improved management of the natural world.
Elements that can also assist in delivering the post-2015 Sustainable Development Goals under design as we speak.
Regulatory oversight - can the mandates of regulators be evolved to ensure more effective stewardship of financial market resilience that accounts for its impact on the real economy and the natural environment?
Responsibilities - can reinterpretations of the responsibilities of financial institutions, such as fiduciary duties, help them integrate environmental considerations more effectively into for example asset valuation and transaction decisions?
Information - can environmental disclosure by corporations and financial institutions be ramped up and made richer in terms of transparency?
Incentives - can better incentives be put in place to influence capital allocations towards the inclusive green economy?
Innovation - can the innovative potential of finance be maximized more to reduce capital costs in the inclusive green economy?
Risk - can the assessment and management of market risks such as credit ratings be improved in order to embed environmental threats such as stranded assets?
Capital Regulations - can rules governing banks better incorporate green economy factors like energy efficiency in mortgage lending?
Ladies and gentlemen,
The fact is that a lot of the policy action of recent years has fallen far short of the real and fundamental challenge - including in respect to natural capital.
Namely changing the 'rules of the game' that govern financial markets?instead the world has been tinkering around the edges of the old economy.
When it is the behavioural norms, institutional frameworks and regulatory requirements that guide the allocation of capital - into either the old 'brown' and now unsustainable economy or an inclusive green one - that need addressing and addressing urgently.
There are signs that at least in some economies, moves are underway to address this disconnect and block on the green economy ambition of nations.
The China Banking Regulatory Commission's Green Credit Guidelines are a case in point
Another case in point is South Africa's adjustment to pension-related legislation aimed at encouraging trustees to take sustainability issues into account.
The time is ripe - indeed perhaps overdue - to put in the final and crucial design elements that reform and re-focus the capital markets in ways that unlock and unleash the finance needed to meet our mutual aims and the aspirations of the many.
Wealth in the 21st century is going to hinge on re-building and sustainably managing scarce natural resources and cutting humanity's carbon footprint.
By in part accelerating the penetration of clean and renewable technologies and developing the skills and the employment opportunities in a world of now seven billion and soon over nine billion people.
Addressing the way the world finances itself is to my mind now the place to focus and to invest our shared intellectual and political capital in order to liberate financial capital fully into the sustainability space.
It is the missing piece in the sustainability jigsaw puzzle.
Humanity perhaps thought that it could generate the technologies and economies that would free it from nature - but as we continue through the early part of the 21st century we can see that human well-being and prosperity is even more linked with nature and natural assets than ever before.
If we want to get down the track and reach the finishing line, the way we finance the world, the way we measure wealth, the way we reduce externalities and 'decouple' and the way we internalize science into government and corporate planning needs to change.
The time has come to take the world's economic, financial and business models finally out of a past century into the realities, imperatives, opportunities and green pathways of a new one.
In doing so we can combat and strengthen adaptation to climate change while more rationally managing a resource base that is at the heart of all our life support systems and future wealth.
It will happen-either by default or by design - if by default the costs are likely to rise dramatically over the coming years, according to many of the best forward-looking risks assessments available.
Will they, like the Club of Rome's Limits to Growth, be selectively cherry-picked by those who want to keep the world on track to a future of damage and degradation?
Or used to take us collectively on track to a sustainable future where managing natural resources rather than mining them becomes the norm rather than the exception and where wealth and well-being win over the short-termism of GDP and a wasted world.
We shall see.
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