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Sustainable Investing in the Anthropocene

State of Missouri Pension FundsJune 12, 2012

1. Context:

Not your grandmother’s SRI/ESG talk

1. Context:

Not your grandmother’s SRI/ESG talk

2. Long View Implication:

This time IS different

2. Long View Implication:

This time IS different

Anyone who believes Anyone who believes exponential growth can exponential growth can go on forever in a finite go on forever in a finite world is either a madman world is either a madman or an or an economisteconomist..

- - Kenneth Boulding, Economist, Kenneth Boulding, Economist, Quaker, Quaker, Co-Creator of General Co-Creator of General Systems TheorySystems Theory

The most powerful force The most powerful force in the universe is in the universe is compoundcompound interestinterest..

- Albert - Albert Einstein* Einstein*

May 30, 2011

Exponential growth leads to ecosystem crisis

”Safe Operating Space”, J. Rockstrom, National Center for Ecological Analysis and Synthesis

Ecological Overshoot: We use 1.5 planets

”Footprint Network.org

GDP growth does not equal well-being GDP growth does not equal well-being

Source:RedefiningProgress

Sustainability Optimum

Efficiency

100%

0%

Resilience

Source: Lietaer, Ulanowicz, Goerner 2008

We know what sustainability looks like

Collapse of Financial System

Collapse of Financial System

Economic Efficiency

Economy

Finance

What’s wrong with this picture?Desired Outcome

PlanetPlanet

Lost in finance: So clever, so ignorant Lost in finance: So clever, so ignorant

Our economy has become an anti-economy, a financial system without a sound economic basis and without economic virtues.

- Wendell

Berry

Money, Banking, Finance & Investment: Designed for growth

Money, Banking, Finance & Investment: Designed for growth

Landing the plane will be a turbulent affair Landing the plane will be a turbulent affair

Stranded Assets: our $20 T “Big Choice” Stranded Assets: our $20 T “Big Choice”

• 2 degree warming limit: 565 GtC02

• “Proved Reserves” have 5X this amount

• 74% owned by States, 24% by companies

At current market value, $20 trillion choice

Source: Potsdam Institute and “Unburnable Carbon”, Carbon Tracker Report

$20 Trillion of denial goes a long way… $20 Trillion of denial goes a long way…

Ecological overshoot = Financial OvershootEcological overshoot = Financial Overshoot

What’s the off balance sheet ecological debt?

What’s the P/E of a “steady state” economy?

What’s the debt capacity of the steady state?

What’s the unfunded pension liability of a SS?

Financial reform: Rearranging deckchairs Financial reform: Rearranging deckchairs

May 26, 2011

1. Context:

Not your grandmother’s SRI/ESG talk

1. Context:

Not your grandmother’s SRI/ESG talk

2. Long View Implications:

This time IS different

2. Long View Implications:

This time IS different

The situation is hopeless, but I could be wrong.

- Ted Turner, quoting his former Foundation head.

Towards a Regenerative Economy Towards a Regenerative Economy

• Holistic frame: nature as model

• Redefine wealth: natural/social capital

• The humble retreat of finance

• Public interest in capital investment – an opportunity for leadership

A unique moment in history for Fiduciaries A unique moment in history for Fiduciaries

Years of focus on fiduciary duty of prudence has generated myopic investment herding behaviors, undermined intergenerational pension equity…

- “Reclaming Fiduciary Duty”, James Hawley, Keith Johnson, Ed Waitzer

What’s different this time What’s different this time

• Cycles within seismic shift -- downside shock bias

• Caution: Steady state = revaluation

• Long run not sum of short runs

• Uncertainty different than risk

• There is “no sideline”

What’s different this time What’s different this time

• Schumpeter’s “creative destruction” on steroids

• MPT built on flawed assumptions

• Index benchmarking and tracking strategies exposed

• Asset class diversification a mirage

ESG framework: Integrated reporting ESG framework: Integrated reporting

Unparalleled Leadership: Jochen Zeitz2010 Earnings: Euro 202mm2010 “E P&L”: (Euro 145 mm)

Investment themes for the AnthropoceneInvestment themes for the Anthropocene

• Reassert owner responsibility: Active concentrated ownership of resilient cash flow/dividends

• Diversify systemic risks

Investment themes for the AnthropoceneInvestment themes for the Anthropocene

• Low carbon energy infrastructure

• Ecosystem regeneration• Technology• Emerging markets • Distress/opportunistic

Investment is the bridge to the economy we need. And the steering wheel.

Investment is the bridge to the economy we need. And the steering wheel.

We are called to be the We are called to be the architects of the future, not architects of the future, not its victims. its victims.

- R. Buckminster - R. Buckminster FullerFuller

Thank youThank you