Simon Greenwell
Prior to his retirement in 2019 Simon was European Head of Research at Bank of America. Before this he was the bank’s Co-Head of UK and European Sales and Head of European Distribution. He held senior positions in research, sales and distribution at Merrill Lynch pre- and post-acquisition by Bank of America.
Simon entered the City in 1977 at W Greenwell where he became a partner and then spent nearly 10 years at Smith New Court.
“Food shortages and migration are eventually going to hold politicians to account and then we will start to see a more orderly energy transition.”
Solutions for climate change will have to come from governments.
Simon points to BMW saying half their cars will continue to be non-electric because many parts of the world won’t have the infrastructure to support EVs.
Four of the biggest manufacturers had not signed up to ending fossil fuel engines, he adds.
“So I think, at this point, government policy and legislation is needed to encourage the private sector. You can't ask the private sector to adopt climate change or mitigate climate change unless it has the encouragement from government which has got to raise standards, and put some very clear targets in place.” Green bonds too have their place, he says.
“If you give industry a target, it has to achieve x by y. That has to be realistic, and it has to be agreed with the private sector. So if you're going to achieve by 2030 no new internal combustion engine cars in the EU, for example, that can only go hand in hand with the proper infrastructure, but also with the private sector accepting that they can achieve those additional ranges and capabilities. I think it's a joint approach, but I would point the finger at government at the moment rather than the private sector.”
Simon says when 2.5 degree warming prompts movement of people from the Middle East or Latin America, migration will be the wake-up call to the developed world. “Then the economy is no longer the number one issue for voters, it will be migration and how people are assimilated.”
Mitigate or adapt: businesses need more certainty before planning far ahead.
Simon says vulnerable areas of the economy must press for coherent policies. “I think industry has to lobby as an industry. The EU is a trading bloc and whether its cement or steel or whatever they should say if we're to use less fossil fuels, less pollution, less carbon emissions, this is what we need to see as a policy. And we also need you to prevent cheaper product, which is still using old methodologies, entering the market without some sort of penalty. I don't see any other alternative to that.”
Once policies and targets are agreed, then a company’s board has to decide whether it can stay in the game.
“They have to decide whether to continue manufacturing certain products which you're never going to get to the required standards. But they can’t improve standards by themselves, they need to feel supported by governments and know that their competitors are bound by the same standards.”
The emerging world needs political will from the developed world.
“I have a lot of sympathy with the fact that the pollution currently is primarily being caused by the developed world. And the developing economies are very short of capital. They have growing young populations, high unemployment, and social unrest is getting a lot worse. I think the developing economists have got to put their heads together, perhaps through lowering trade barriers to meet emerging markets’ need to access a lot of markets. I don't have the answer, we can't ask emerging markets to pick up all the slack and go straight to a decarbonised economy with all the associated costs without some quid pro quo. But again, that's going to mean political will inside the developed world to see it as a necessity rather than a nice to do.”
The financial sector has to do more to embrace all three parts of ESG.
The weakest element of ESG is the ‘G’, Simon says. “There's not the focus on the G there needs to be, boards are not held accountable. It's a box-ticking exercise. I mean how can you invest in China, you have no protection as a minority shareholder, and there's no legal structure guaranteeing your property rights. As a result I think there has to be a lot more work on the G in ESG. At the same time, there's got to be standards which are understood by everybody, and a lot more resilience and ability to challenge those standards. Once you've done that, companies can react.”
So-called stranded assets need capital and accountability.
“I think you've got a classic case of unintended consequences with energy. Oil companies need to have sufficient capital strength to develop renewables, so to cripple those guys financially will push them into private equity, which is not accountable to the public markets. And they'll make a fortune. Yes, that's the way the world is going at the moment. So I think the energy transition is something which has not been thought through and I would hold governments to much higher standards.”
The future: heading for a 2.5 degree rise.
“Unfortunately I think we are heading to 2.5 degrees by 2050 or 2060 unless there is a sea change in various governments’ policies. It's not just China and Russia, clearly the US has yet to enact a lot of proposed legislation.”
Simon argues for an index of climate change adoption, to measure global efforts. “You would rank countries by how successfully or how seriously they were adopting the various different approaches, things like grid upgrades, renewable work, specific policy for heavy polluting industries like steel and cement. And we haven't even talked about agriculture, where Europe is very poor. CAAP has no reference to any climate issues. And clearly, methane is a big polluter. So carbon is the one that's everybody discusses, but methane is probably much more dangerous.”
Simon concludes: “I do think the world is going to get a kick from food shortages and migration, they're going to hold politicians to account, the blame game will start in earnest. And that should prompt a more structured, more focused, disciplined energy transition debate. That will be my hope.”