Liontrust Sustainable Investment Annual Review 2021 - Flipbook - Page 45
Final Thought: The post-growth challenge –
confronting the new normal
Tim Jackson is director of the Centre for the Understanding of
Sustainable Prosperity (CUSP) and Professor of Sustainable
Development at the University of Surrey. He is also part of
the external Advisory Committee that works with Liontrust’s
Sustainable Investment team.
“Anyone who believes that exponential growth can go
on forever in a finite world”, said Kenneth Boulding,
speaking to Congress in 1973, shortly after the Limits
to Growth report was published, “Is either a madman
or an economist.”
It occurs to me that it helps to be one of those, or preferably both,
if you are working in sustainable investment. It’s not very kind to
economists of course. But behind this remark lies an obvious truth:
the fact that we live on a finite planet means there are environmental
constraints on activity – most obviously climate change. We ignore
those limits at our peril.
Labour productivity growth across much of the world climbed
consistently in the first half of the 20th Century, hitting a peak of 4% or
5% a year in the 1960s. At that point, something changed and there
has been a slow but relentless descent ever since. Step changes such
as the internet and AI were supposed to increase labour productivity
but failed to stop its decline over the last four decades.
We might even say that, to some extent, the 2007-08 financial
crisis was a result of policies that attempted to stimulate labour
productivity growth by increasing liquidity in the economy,
deregulating finance in ways that were unsuccessful and ultimately
catastrophic. Since that time, productivity growth has declined
even further and even before the pandemic struck, it had been
negative in the UK for several quarters.
In other words, we are already effectively living in a post-growth
society, irrespective of the pandemic. Long-term trends show a
secular decline in both economic and labour productivity growth,
and, against this backdrop of stagnation, we have to rethink what
we are doing when it comes to investment.
In the last couple of years, the climate debate has evolved rapidly. The
Intergovernmental Panel on Climate Change’s (IPCC) 2018 report on
limiting global warming to 1.5 degrees has highlighted that there is a
limited amount of carbon – to be precise less than 420 billion tonnes
that we can burn between now and the end of the century if we want
to keep the global temperature rise below 1.5 degrees.
Having done our own calculations, we found the ‘fair carbon
budget’ for the UK until 2100 is 2.5 billion tonnes. Annual
emissions currently stand at approximately 590 million tonnes a
year so based on this, we have just five years left before the
budget is exhausted. Based on these estimates, the speed at
which we need to de-carbonise equates to a 14% annual
reduction in carbon intensity over the next 30 years to get
close to that net zero target.
There’s no doubt that’s extremely challenging. But it’s also
good news for sustainable investment. It means there is a
huge portfolio of investment needs: in renewables, in energy
efficiency, in decarbonising supply chains and so on. To me,
this is what makes the 1.5 degree Transition Challenge at
Liontrust such an important initiative, stepping up engagement with
companies to ensure they reduce absolute emissions to zero.
Taking a broader perspective, the pandemic has obviously
thrown the world into uncharted territory. But even before Covid,
way back at the start of 2020, discussions at the World
Economic Forum in Davos were sounding a pessimistic
note, with a sense the world had not quite
weathered the conditions post the
global financial crisis. In fact, the
evidence tells a longer story
still. Even before 2007,
the advanced economies
were experiencing secular
stagnation.
Liontrust Sustainable Investment: Annual Review 2020 - 45
