|Foresight, Imagination, and Competence
I had never heard Jeremy Grantham speak before. While I had read about this reputed British investor and his knack for predicting economic bubbles, actually hearing the co-founder of Grantham, Mayo, & van Otterloo (GMO), a Boston-based asset management firm, is quite phenomenal.
Last week I was in New York to attend the 7th Annual Conservation Finance Investor conference hosted by Credit Suisse and sponsored by The Conservation Finance Network and Cornell Atkinson Center for Sustainability. Wilson Ervin, Vice-Chairman at Credit Suisse in the group executive office joined Grantham on stage after the opening remarks by Marisa Drew, CEO of the Impact Advisor & Finance Department at Credit Suisse.
The conference theme, “Defining the next decade” was apt for the series of thoughtful missives Grantham shared in rapid-fire mode in response to Ervin’s questions relating to climate change. It’s rare to hear someone equipped with mountains of stats and supporting case data boldly list sectors of global industry for “behaving badly.” While Grantham called for holding irresponsible market actors accountable, he also acknowledged the positive force for change they offered if they chose to voluntarily act. Exhibiting his impeccable grasp of the English language, Grantham declared to all of us in attendance that “25 basis points was just the price for doing the right thing” when it came to being a responsible global corporate citizen. He went on to make the case that the majority of capital is currently controlled by those that do not believe in the risks posed by climate change concluding that, “There is a great opportunity to make money betting against them!” This tracks with well with his historical outlook. In Grantham’s 2008 GMO letter to investors, he said, “To avoid the development of crises, you need a plentiful supply of foresight, imagination, and competence. So it’s more or less guaranteed that every time we get an outlying, obscure event that has never happened before in history, they are always going to miss it.”
Before moving on to topics that included fertility, life expectancy, and regenerative agriculture, Grantham shared that everything has ended worse this past decade than the decade before, “That is not winning!” he said crisply. Grantham cited Sir John Hicks when observing that developed countries are not making a profit under the “Hicksian income” definition. Sir Hicks (8 April 1904 – 20 May 1989) was an influential British economist well regarded for his perspectives on income and consumer demand theory. Sir Hicks stated, “The purpose of income calculations in practical affairs is to give people an indication of the amount they can consume without impoverishing themselves.” Until we can charge these externalities relating to a changing climate and value of our natural ecosystems to the balance sheet, one may conclude that we might face a similar decade.
However, the conference was buttressed by two major announcements that signal pivotal change is afoot. BlackRock adopted foresight and declared that climate change will have a significant impact on the global financial system. BlackRock announcement that they will embed climate change in their investment decisions came across the wires on Tuesday (1/14). On Thursday (1/16) Microsoft took ownership. They pledged to remove the organization’s entire carbon footprint by 2050, accounting for all of its impact since its inception in 1975! These giants just set the stage for a positive decade as we approach the call of delivering squarely on the UN’s Sustainable Development Goals.