"Stop investing in companies that explore for needless new drilling sites — they’re wasting their money and ours." That’s what Deborah Silvey, president of Fossil Free California, told the board of CalPERS, the largest U.S. public pension fund, at a meeting more than two years ago. It seems pretty prescient now.
I was reminded of that meeting this week as the International Energy Agency warned that we’re actually completely out of time for oil and gas exploration. In its landmark Net Zero report, the IEA said that there is still a path to limit global warming to 1.5 degrees Celsius and avert the worst effects of climate change, but to do so we have to cease oil and gas exploration immediately.
If the world heeds that advice, we’ll leave a lot of stranded assets lying around. Of course, a chorus of activist investors have been pressing investors, banks and companies to examine their risks on stranded oil and gas assets for more than a decade, knowing this day would arrive.
The future is different. We have to get comfortable with different kinds of growth.
Scientists at the IEA have known for years that we already have enough liquid fuel available to meet the world’s needs through 2050. Essentially, we’ve already discovered more than enough sources of oil and gas than we need. The thing is when you’re an oil explorer, you want to keep drilling to grow your company. But for the rest of us, it seems kind of wasteful to pursue growth for growth’s sake when the world needs you to stop and we already have more than enough. It probably won’t work out much longer economically, either.
That’s a harsh reality for oil and gas drillers, but there are so many incentives across industries that have kept things the same way. We have millions of vehicles, machines and systems that could be just as stranded if we change things on a dime. It’s human nature to just keep trying to grow the way we have in the past because it worked.
But the future is different. We have to get comfortable with different kinds of growth.
Venture capitalists are built to target 10x returns — that is, 10 times what they originally invested in a company — while private equity firms often seek 3x to 6x paybacks on their investments. Companies have high hurdle rates for using their balance sheet capital for corporate investment. Investors who get returns like that often make incredibly efficient use of their capital but aren’t always making the same efficient use of their resources.
In the last year and a half of the pandemic, as the world stopped, global greenhouse gas emissions predictably fell by 7 percent. And the debate resurfaced. Is it really possible to be sustainable without reducing growth?
"All growth isn’t created equally," said Jeffrey Hollender, CEO of the American Sustainable Business Council. "It’s just the incentives that we have do not necessarily align with the imperative to be more sustainable."
"Sustainable growth" might look quite different. For decades, sustainability professionals and economists have debated whether that’s possible and what that might look like. Some say it is an idyllic goal and others worry it’s an oxymoron or a conundrum.
The reality is, it’s just not what we are used to. But there are more and more examples of how it might be possible.
Thanks to large renewables investments, emissions from the information and communications technology sector essentially have remained flat over the past few years, even though data is growing faster than any other commodity on Earth, Generation Investment Management said in a report this week. And mass electrification of homes to make them more efficient would offer more than 65 million American households more than $27 billion a year in energy bill savings in aggregate, according to Rewiring America.
Sustainable growth is more like that adage "a penny saved is a penny earned." Methodically saving money, resources and energy can produce great gains over the long-term, even if Wall Street is used to a shorter-term view. It’s about doing more with less, and maybe eventually reaching that still-idyllic, net-positive, regenerative, circular economy.