Visit to a lab
A poem. Party invite. Climate thoughts, our trajectory; a conservative changing his mind; climate and fiduciary duty.
This week it’s mostly climate-related comments, my trip to a lab testing business and a poem. I felt for a space a little overwhelmed, so I wrote a poem (see right at end of letter). Some people drink, I guess, I write. Turns out I jotted down quite a few notes down on my train trip to Ely so this is a long-ish letter.
Plus if you are reading this you are welcome to come to my party / meet-up, London, Nov 23.
BTW, this is AI art getting “party party” pretty radically wrong (!)
Me: visit to a lab testing business
Me: passing by Ely cathedral
Climate: a skeptic changes his mind
Climate: Wallace-Wells on a 2c - 3c. world
Climate: Tom Gosling on financial Net Zero alliances
A poem: The world was bombarding me so I stole a time fragment
Links (end) : Autism. Solar. Offsets. Hydrogen. Choices in social care. Crypto. Poem.
This week, in investing world, I went to check out a lab testing business. Here they test for food safety eg. No listeria, salmonellae; food authenticity eg no horse meat in the beef lasagne; water safety eg "Legionnaires’ pathogens; and drug, alcohol abuse (eg in workers on the job, or for crime) and police seizures (of illegal drugs). (No Pictures inside the labs)
The water safety for Legionnaires’ pathogens showed an example of out of date legislation. The older test accepted by the legislation takes days and has strict protocols. The more advanced tests can be performed in hours at the same if not better accuracy but is not legally accepted.
The drug testing was unique. The lab has millions of pounds (street value) of illegal drugs passing through it regularly to be tested for police cases. The tour was organised to shed the business in a positive light but it was easy to see the positive impact such a business has on health and justice.
It was intriguing to see how much manual labour was still required. For instance, confectionary comes in all forms and sizes so can currently only be in a little part automated. This will change over time, I am sure, as the automation improves. (As an aside, I’ve re-purposed the disposable lab coat for a Halloween costume.)
Passed by Ely Catherdral. We went on a hunt for trains which have been put in Ely sidings. This hunt took us past (Wiki link) Roswell Pits, a former kimmeridge clay quarry (where a whole pliosaur fossil has been found) and is now a nature reserve. Ely used to be an island in the 1600s before the area was drained, and eels were an important food source and export. Ely cathedral has its origins in AD 672 but this building was constructed around 1083. The cathedral is still very impressive almost 1000 years later, with 250,000 visitors a year.
We walked around some of the former pits. According to Wiki:
The pits were a source of gault, an impervious clay used to maintain river banks in the low-lying regions of the South Level of the Fens. Following the re-routing of the rivers in the region by Cornelius Vermuyden and his Adventurers in the 1650s, to more effectively drain the Fens, the peaty soils began to dry out and shrink.[5] As the land surface sunk below the levels of the rivers, it became important to maintain the banks with something impervious to water, to prevent seepage into the newly drained agricultural land, and to prevent collapse of the banks and flooding of the land in times of heavy rainfall. Roswell Pits were an ideal source of this material, as they were located adjacent to the River Great Ouse, and boats could take the bulky material directly to the banks being maintained.
The men who carried the gault away were called "gaulters", and typically worked in gangs of three. The gang was managed by a Head Ganger, and a team of three men worked a train of five boats, each around 36 by 8.5 feet (11.0 by 2.6 m), and capable of holding 8 tons of gault (Kimmeridge) clay.
… so I learnt something new. We also found the train we were looking for in the sidings. Yay.
My friend Tom Gosling makes arguments for challenges that the GFANZ and other NZ (NetZero) alliances (particularly) financial ones face.
His overall point that corporates can not attempt NZ by themselves without governments, policy and other supporting actors is well made and I think understood by those at the frontier. He makes other points about the compromises and difficulties of a world where the median policy scenario is looking at 2c to 3c heating (2.6c or so at latest assessment I’ve seen, but with error bounds etc.) but companies are being asked to support a 1.5 to 2c scenario.
Tom argues that for many investor mandates this would be incompatible with fiduciary duty. This is the legal concept - with variation between countries - that an investor has to act as “prudent person” would and this is typically interpreted to mean to maximise risk adjusted financial returns depending on the mandate. Tom’s argument is that investing for eg. a 1.5c world would harm risk adjusted financial returns and not be “prudent” given the policy scenario.
To this particular argument, I believe the legal answer is “it depends” or as lawyer might say, it depends on “fact and degree” (not legal advice yadda yadda) . Certainly, (not investment advice yadda yadda) I could construct an equity portfolio that is plausibly in-line with a 1.5c to 2c scenario and that plausibly will make better or at least as good risk adjusted returns as the benchmark on a 7 year or longer horizon.
And, in fact, the equity portfolios I manage are aligned with the Paris agreement, and I believe will produce better risk adjusted returns than their benchmarks. There are two observations and a caveat that I will make. First, the caveat. I am very of the “fair share” carbon budget analysis that determines temperature alignment at a company level. I judge there is limited \ no science basis for the estimates that go into fair share analysis. They are social-political judgements. This is less of an issue at a country or sector level, but a big problem at a company level. This was hit home to me listening to Prof Simon Dietz at the LSE, Climate Transition \ Grantham | TPI team. So when you see you a rating organization claim company X is aligned to eg. 3.2c this number has so many dubious assumptions behind it to be borderline fictional. [The challenge is that you need to assign a company its “fair share” of the global carbon budget for a 2c world (at 66% probability)]
My first observation of why such portfolios are possible to manage in line with fiduciary duty is relatively simple maths. If the world is on track for 2.6c, (66% chance) then some companies and sectors are approximately heading to a 3.6c world and some are heading to a 1.6c world (given ALL the massive uncertainties I briefly highlighted some of, above). It seems entirely plausible that you can construct high returning portfolios from those below average companies.
My second observation is you can plausibly see this from bottom up calculations. There are 1000 over companies with Science Based Target approvals (there is a large separate debate on how robust the SBT process is, but it is plausibly as good as other processes) and you have a good number of companies such as Microsoft which have produced good financial returns and are plausibly aligned with a NZ world.
Still, while NZ and fiduciary duty in my view is compatible. It certainly is possible to break it. Hence the answer, it depends. But, for instance, 30 to 35% of Americans do not believe in man made climate change, and many investor mandates will want asset managers to ignore climate in the way they ignore (at first order at least) poverty, pandemic risk, nuclear risk, pollution and many other negative systems risk. This does not address the complexity of systems thinking, universal ownership or a possible systems view of fiduciary duty. But, it is certainly possible to break this in a mandate. A catholic mandate may be broken by investing in a prophylactic maker, a global mandate is broken by not investing globally. These may seem almost trivial except that it does show that the “customer” or end investor wishes in this case are primary.
Also, broad index funds eg representing the 2,000 largest companies in the world. Those type of funds are likely not aligned to a 1.5c - 2c world currently (they are likely to be aligned to board where the world is heading if govts make good on their commitments), and their mandates may well not be suited for a NZ commitment.
In any event, Tom’s blog makes several noteworthy points for climate and Net Zero thinkers to ponder, even if the legal nuances of fiduciary duty, in my view (not legal advice, yadda yadda) simply depends on the actual circumstances.
David Wallace-Wells raises the challenge of the fact that the median science now points to a 2c to 3c world and not a 4c+ world.
That this is progress, but that damage will still arise. Some activists advocate for representing a more alarmist world in order to garner more action. Others believe sticking closest to the median science is more truthful. This is not only a challenge for climate but crosses into pandemics and other areas.
Is it better to be Straussian or “on the nose” ? (Do you even know what I mean by that?) My moderately held belief is that truthful is mostly better, but there are definite counter examples. (It is possible that Utilitarian thinker Peter Singer is purposefully not advocating views he holds because he believes this will produce more utility, consequentialist second order thinking for those who might follow such things)
Noted libertarian leaning, conservative leaning thinker, Bret Stephens has an essay on changing his mind on climate. He now views it as definitely a problem, and one that “markets should solve.”
But a careful reading of even just this opinion piece shows that these are not quite “free markets” as such, or at least as interpreted by the 1000+ comments on the article. They are markets that are created, incentivised (or not) by government and NGO actors. This is where a reading of Jacob Soll and his history of free market ideas I think is useful. See my previous blog here.
“Most of this innovation will be driven by free-market capitalism, with important incentives from government and NGOs.” (quoted in the essay).
Stephans argues:
1) Engagement with critics is vital.
2) Separate facts from predictions and predictions from policy.
3) Don’t allow climate to become a mainly left-of-center concern.
4) Be honest about the nature of the challenge.
5) Be humble about the nature of the solutions.
6) Begin solving problems our great-grandchildren will face.
7) Stop viewing economic growth as a problem.
8) Get serious about the environmental trade-offs that come with clean energy.
9) A problem for the future is, by its very nature, a moral one. A conservative movement that claims to care about what we owe the future has the twin responsibility of setting an example for its children and at the same time preparing for that future.
I would say the above sums up a possible centre-right manifesto on climate.
I think, perhaps, the simplified debates over “free markets” vs state control are unhelpful in the abstract. In the abstract, society typically at the nation-state level (but it can be at higher or lower levels at times) decides through a political process where the state should have skill\capacity (with classical liberals and conservatives cautious about the states ability to act, and (what we now view) as left leaning liberals and social democrats more optimistic about government’s ability), and then the state though policy, incentives and regulation develops markets or systems to meet society’s chosen needs usually [today] with a welfare security element (smaller for conservatives, and larger for others).
But the details really matter, most libertarians still advocate for defence, police, justice, basic science research and some other areas all to be done at the government level but they disagree even amongst themselves as to how much regulation there should be on finance or the environment.
Re: environment, two ideas potentially compatible with classical liberals or libertarians would be a carbon tax\price (with neutral redistribution) and relaxed permitting for new energy infrastructure eg wind farms and solar panels.
I currently view the permitting challenge as one of the main shadow battle ground taking place across most developed nations. Certainly in the UK where permitting ends up will set the medium term direction of much more than perhaps the average person realises.
Permitting for new energy infrastructure should also be a cause for leftist supply-side policy people (eg.Ezra Klein in the US). Let’s see where that develops.
The left view is - more easily understood - for more government actions possibly across all of regulations/standards, innovation direction and infrastructure and less reliance on mobilisation from the private sector.
Some thinkers here, go so far as to argue that company pronouncements on eg NetZero are a dangerous placebo that is slowing government action.
I circle back to Jacob Soll and examining the economic history work of Mark Koyama (also see previous podcast). Many solutions have been a blend of government or nonprofit actors in market formations although within this you have examples across the spectrum.
Quick hits:
I think this paper is poor and would lead so-called ESG in the wrong direction, on my LinkedIn.
My friend Melissa is involved in this. Plus Coney. Check it out if it seems your thing. In this playful and experimental workshop, you will be guided through a series of hands-on mini adventures and have the chance to share parts of your journey with fellow travellers.
Autism Awareness
Latest on Solar thoughts:
The challenges and (smaller) opportunities in offsets. From the UK CCC. Very detailed.
Liebrich on where Hydrogen fits within energy transition (purs water on some of the H2 hype, but still sees an important role).
On hard choices in social care. Important to understand the economic trade offs and likely Baumol cost disease here.
Special interests. Autism Awaness.
On motherhood and loss
If you want to understand the basics of crypto. Read this:
I podcast with Saloni, to be released soon. She has great ideas and is lovely.
I had a moment where I felt overwhelmed. I took a step back and wrote a poem. Maybe this is my mindfulness.