Andrew Parry

Finding the solutions to climate change means facing up to our unlimited consumption and accepting nuclear.

Andrew worries about the rhetoric of politicians. “They talk about the economy and COVID, and the need to maximise growth, and they devise ultra low interest rates to drive consumption to get economic activity back. And guess what, coal and gas consumption has rocketed, travel is back. But we're buying things we don't need with money we don't have.”

Our attitude to growth needs a reboot, Andrew says, from thinking quantity to thinking quality.

“Consumption is the economic virility symbol. We've long known the health cost of smoking, and we also know the real cost of coal and fossil fuels, but we still can't internalise that and correctly value it in the financial models, because of the obsession with growth.”

He says carbon capture may well be “part of the solution”, but renewables can be scaled up far more aggressively.

 “We need disincentives and incentives, and an aggressive acceleration of existing technologies, and as they scale unit costs fall so that spurs more innovation in areas like storage. So there is a route that you can have for renewable energy sources, which are effectively infinite by 2030,  if you really, really want to do it. But we are still licensing oil and gas fields in the North Sea, because of energy security in the short term, and this is the problem with a political system that is short-term.”

Andrew accepts, reluctantly, that nuclear can have a role, led by the Modular Reactors. “But unfortunately, we don't think rationally about nuclear, it's one of the challenges of getting people to understand science in a practical sense, and maybe getting politicians to understand both sides would help as well.”

The financial sector’s role: it’s not the government nor should it be.

“Money follows the opportunities. That's why people still finance coal and oil and gas because it's profitable, it's legal, the demand is there (for now). That's what governments are there to do, namely make the difficult choices that private society can't make on their own. Governments need to understand the role of these incentives that only they can set. If you look at the money spent to build back after COVID, I think less than 3% of it has gone on climate related expenditure.”

Andrews says there is a weight of money out there, but without the right incentives it will go to the wrong things. Meanwhile the private sector is assumed to have all the answers.

“One of the worrying things of the last 40 years of the economic model we've lived under is the progressive subcontracting to the private sector of governance itself.  It's odd to think that people expect now the investment management community to do the things that governments should be doing, in terms of setting appropriate roles, and behaviours and norms across society. Isn't that what we vote our politicians in and out for? So we need to make sure we don't blindly assume the private sector, and finance in particular, has now become the governance that is missing sometimes from our state institutions.”

Andrew welcomes the light now being shone on greenwashing. He says honesty about what can and can’t be achieved is needed, and compares companies devoting capital to climate adaptation or mitigation with passive funds whose portfolios can appear to be having positive impacts when in fact they are not. “You are not actually changing the amount of carbon emissions in the system, you're signalling that it's important, but you're not actually doing it; worse, you maybe maintaining the status quo. We need to be very careful on the language that we use.”

Stranded assets mustn’t mean stranded investors.

“I think our role, particularly in the active space, is to navigate our clients through the uncertain world ahead, to be good risk managers, good opportunity embracers, and that means being selective in our choices. We need to be managing the risks to our clients’ portfolios to be avoiding those stranded assets, those compromised business models, and encouraging the flow of capital into those areas that are going to be around in 10, 20, 30 years’ time. But we have to be cognisant of the rules of civil society, government, and the demands on an economy that is just the sum of our total needs and wants.

An accelerating transition will mean a lot of stranded assets, so is it really meaningful to engage? “We don't want engagement to become a fig leaf for inaction. Investors can't make a bad business model into a good business model. If the business is disappearing, we can be supportive and encouraging of change, but it won't be enough if the transition curve is fast enough. As an active manager, do I want to engage with a company for engagement’s sake, if it's going to go over the edge of the cliff? We don't want to end up with clients losing money.”

Emerging markets: renewables can help fight poverty.

Nations which have plentiful fossil fuel reserves will naturally see it as national income in the ground, Andrew says. “Hence the only way that you can actually keep it in the ground is to make the move to renewable energy faster and more scalable, to drive down the marginal cost.” 

Andrew is optimistic about a solution. “Let’s have economic climate competition to see who wins the race to become the greenest the fastest. Because ultimately, if you really can scale renewables, with battery storage and nuclear maybe, then your marginal cost of electricity could become very low. Fuel poverty is a huge issue in poorer countries, so think about renewables as an infinite source of power which can over the medium to long term can make the oil and gas and the coal in the ground unviable. That's the way to see it.”

Adaptation will be forced on us by nasty events.

Not to be planning for adaptation ignores the realities ahead, Andrew warns.  He cites the $20billion cost of the ice storm in Texas in 2021 and the $80billion bill for the last big heat wave event in North America. 

“The (transition) curve isn't at the moment steep enough to ensure that we're going to achieve limiting temperature increases to one and a half (degrees). If we're heading for two and above then we are going to need to adapt as well as mitigate.”

But sadly we will probably need a nasty wake-up call. “We're inevitably not going to get the full policy response until we get some climate event that wreaks some very unpleasant devastation, that changes the narrative, that brings home to people the severity of what is coming. And that forces us to change our ways, because I just don't think voluntarily people are going to do that.”

The financial sector is playing its part in driving that systemic change through capital allocation, Andrew says. “But it's got to be wider. And unfortunately, governments have found that taking action tends to mean taxes, which are never popular. So everybody wants to take climate change action until it comes out of their back pocket.”

2050: lets not delude ourselves.

Climate Change Tracker’s projections suggest that we are on course to lift global temperatures by 2.7 to 3.1 degrees, not 1.5 degrees, by 2100.

Andrew says: “I think we're deluding ourselves that we’re on track for one and a half degrees, the charts vividly show that we need incredibly precipitous action to achieve that. This means we have to be thinking now not just about the mitigating actions, but the adaptation that the world is going to have to go through. There are going to be some outcomes that could surprise all of us.

“But the optimism has to be that we can do it. We can have doubts and be negative, but it just might take a good climactic slap to bring us to our senses, to make us actually take much more action in a much more serious way.”

The views expressed in this interview are that of the interviewee and do not represent those of Trafalgar House Pension Trust.