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“Any idea that our current technologies can substitute for nature… and mitigate climate change and biodiversity loss on their own is absurd”…

Jan 21, 2022
Jérôme Tagger explores the intersection of financial markets and society. He joined Preventable Surprises as CEO in 2020 after 15 years of field building in responsible finance.  He was a Director at the Global Impact Investing Network, the founding COO of the UN-backed Principles for Responsible Investment (PRI), Head of Research at Eurosif and Chief Revenue Officer at ImpactAlpha. He most recently advised UNEP FI’s Positive Impact Initiative and the World Benchmarking Alliance. 

Praveen Gupta: Do businesses fully realise that climate is both a systemic and existential risk? Why are they trying to game it rather than address the bubble? What do you think they ought to be doing?

Jerome Tagger: A growing number are coming to realize that the climate crisis could have existential consequences. At the same time, the status quo appears comfortable, cognitive dissonance is strong, the unknowns (e.g., tipping points) are confusing (as well as an excuse for inaction) and the perceived trade-offs are too high. Executives are rarely incentivized in terms of reward, to drive this sort of transformation, few seem to have the courage needed to stand out and lead, and economic systems (from investors to consumers) pressure in a different direction.

This type of societal transformation is chaotic and anarchic – there is no one at the helm, so no one will dictate transformation. What leaders should do: set their organizations on a path to rapid transformation, advocate tirelessly with their constituents, support level setting legislation (e.g., carbon pricing), strengthen rather than weaken governance and political institutions, and constantly raise the bar of their ambitions. What civil society should do: exert constant pressure for them to do so and call out insufficiencies.

PG: Suddenly everything about capitalism seems fragile? Unlike other forms of ‘isms’, can this be capitalism’s ‘antifragile’ moment?

JT: It’s too early to tell. What is capitalism anyway? Seen from Berlin, Beijing, New York or Lagos, you might come to different conclusions. Is it shareholder primacy? That’s likely to stay strong in countries with large liquid markets and matching ideologies like the US. Is it just in time global supply chains? Covid is showing the limits of that, and companies are to some degree reacting, but there are limitations, for example with natural resources where supply diversification is a challenge. Is it the increasingly concentrated economies, with 4-5 companies controlling key global sectors?

One of our advisors estimates the risk of Severe Global Disruption this century at 25% (corresponding to roughly a 25% loss in global output). Who is prepared for that? Who is doing proper risk management?

One of our advisors estimates the risk of Severe Global Disruption this century at 25% (corresponding to roughly a 25% loss in global output). Who is prepared for that? Who is doing proper risk management? You tell me. It’s relatively new that societies actually have the ability to make this sort of macro long term projection thanks to a boom in science, so it should be no surprise that we all are learning what to make with that information. What we learn from this exercise, and how humans and societies withstand and react to the pressures of the current disruption will tell how history looks back on turn of the century capitalism. I suspect it will not be kind, but then we rarely look back with kindness on humanities past moral failures. Ultimately, it’s the here and now that matters and where we have some agency.

My worry in all these conversations about the end of capitalism is that they are highly ideological and polarized. Thinking of the world as either capitalist or socialist is inaccurate and unhelpful. More pragmatism, backed by strong ethics and the leadership of courageous individuals, would be welcome, especially as we face significant global environmental, social and technological disruption.

PG: What surprises is Preventable Surprises striving to prevent?

JT: The sort of repeated financial market shocks that could be prevented by stronger governance and a focus on anticipation and mitigation rather than la-la-la-oh-no!

Not sure whether it’s Stormy or Misty. This one was all over as Jerome and I spoke!

PG: ESG much maligned? Shouldn’t businesses be working towards a triple bottom line?

JT: I think that investor responsibility will be important so long as there are financial markets. In that sense, the idea that we have a conduit for widespread responsibility is good (although I’m sceptical about the extent to which it can be codified as current legislators would have it). Does ESG meet the challenges we discussed in the earlier questions? In aggregate, no. Mostly, ESG practitioners push weak levers, although some will argue that there is a limited availability of strong levers. Is there a ton of greenwashing? Absolutely. Do I believe in ESG professionals as agents of transformation? Yes.

The notion of business purpose is fraught. I think it is possible for some companies to embrace purpose, through the values of their founders for example, or because of the products they bring. But many of the statements of purpose that are being published now feel artificial at best. And circumstances change too, so purpose has to have some flexibility. It will be interesting to see how this debate evolves and if it can go beyond statements to behaviour change. At the moment I am much more interested in personal purpose. I want accountants and oil drilling engineers with strong ethics.

The bigger question is how values and ethics can be brought into technologies that fundamentally reshape our institutions (e.g., democracy and any notion of freedom), but also now, through AI, what it means to be human. 

PG: Tech companies – the new East India company?

JT: One of the challenges of our time is that a small number of companies have too much influence and control on our daily habits, on political opinions, on personal freedoms, on capital markets, and on R&D and innovation (e.g., the future). As oligopolies tend to behave (e.g., get lazy) and with growing political interest in the damages of economic concentration, there is some hope that this might change. The bigger question is how values and ethics can be brought into technologies that fundamentally reshape our institutions (e.g., democracy and any notion of freedom), but also now, through AI, what it means to be human. 

Speaking of reshaping things, it’s also important to note that these companies are also shaping the new world order and imbalances since a majority are in the US and China.

Perhaps countries who are behind on the technology race can compete on other dimensions: creativity, diversity, resilience, nature, metaphysics, freedoms. And some solid firewalls.

PG: Tech and Nature at odds? Is it arrogance or myopia or lack of sense for history?

JT: Cleaner and more efficient technology is vital, but any idea that our current technologies can substitute for nature and suffice to mitigate current environmental catastrophes and mitigate climate change and biodiversity loss on their own is absurd. Hundred years for now, who knows.

PG: Many thanks Jerome for these brilliant insights from your crystal ball. May we be in for some pleasant surprises!

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One Comment
  1. Raghunathan permalink

    A most absorbing conversation! And pertinent too! Enjoyed both the questions as well as the answers!

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