Wednesday, September 25, 2013

Our Governments Gave Up the Business of Protecting Us a Long Time Ago. Will Banks Fill the Breach?

We know that a fossil fuel future is unsustainable.  Even the energy industry may agree that fossil fuel consumption is unsustainable but just not yet.   The old nag has still got some good years ahead of her, nobody knows how many for sure, so let's just keep going.

The fossil fuel industry is on life support.   It's kept going by subsidies, grants and deferrals lavished on producers by governments in their service.   Why do we give the most profitable industries such massive subsidies?   Rationalize that, please. 

There's the question.   Is it rational for governments to keep propping up the fossil fuelers?  A movement of top bankers doesn't think so.   They think it's time to clean up the energy companies' books and compel them to factor in the natural capital they rapaciously devour.

It is not easy to put a value on a forest, a clean river, or unpolluted air, but that is what a group of the world’s biggest banks is attempting to do.

They have agreed that the way the present economic system uses and often destroys the environment without paying to do so is not sustainable.

The banks are also concerned that some companies are using up natural resources so fast, with no thought for their own future, let alone that of the planet, that they will collapse. They want a way of warning them and ultimately withdrawing their credit unless the companies mend their ways.

The 43 financial institutions, including the World Bank, are setting up a working party as a consequence of the UN Conference on Sustainable Development in 2012, also known as the Rio+20 summit, when the initial 39 large banks signed a Natural Capital Declaration.

The declaration defined natural capital as “the Earth’s natural assets (soil, air, water, flora and fauna), and the ecosystem services resulting from them, which make human life possible.”

The banks conclude that industry is using trillions of dollars of essentially free, natural capital every year and simply not accounting for it.   That natural capital, by the way, belongs to me and you and everyone else.  It doesn't belong to Big Oil or Big Coal or any other industry.  It's just another hidden subsidy by which they pad their bottom line and swell their profits.

"At the moment overuse of natural capital is not seen as a business risk, because everyone believes they can get out before the resources run out and the crash occurs. We are hoping to change that attitude and get companies to pay a price for overuse of natural capital.”

No one has any illusions that the commitment by bankers to get natural capital accounted for on balance sheets, and then taken into account in the share price, interest on loans and cost of insurance is going to happen quickly.

Industries like mining and fracking are in the front line because their operations are already perceived to damage and use up clean water resources and to cause pollution. The bankers want to put a financial price on this and ask whether the financial risk that overuse of resources causes to the businesses makes them a bad investment.
But all businesses, even the banks that control investments, have an impact on the natural environment, which generally they do not pay for and which does not appear in the accounts. So to turn their heady declaration of a year ago into something more tangible, the bankers have set up a high-powered working party to put a price on the natural world.

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