How much of the 51 billion tons are we talking about?
4th April, 2022
So, I’ve been catching up on my reading. With some annual leave and a little more time available, I read Billy Connolly’s autobiography ‘Windswept & Interesting’. Great read, Scottish legend, what more can I say. But as much as I would like to relay some of the stories, that’s not the point of this blog. Next in line on my reading list was one I’ve been meaning to get to for a while, Bill Gates ‘How to avoid a climate disaster’. A gift from a great acquaintance, thanks Matt.
Interestingly, the big G has spent quite a while investigating climate change, which I hadn’t previously appreciated. Successful rich guy, got the foundation to keep him busy I thought, but no, in the early 2000s when investigating global energy poverty, he became indirectly involved with climate change, long before most of the rest of us had woken up and smelt the (sustainable) coffee.
Bill says we have two numbers to remember: ‘51 billion’ and ‘zero’. No prizes for guessing which is which on the subject of climate change. 51 billion tons of greenhouse gases, AKA carbon dioxide equivalents (CO2e), every year, which we need to reduce to zero, while in each and every year the number is above zero, the global temperature will be increasing.
A climate pandemic?
But, as Bill says, what does 51 billion actually mean to anyone, apart from being a really big number? With the research undertaken so far, there are a few statements he makes that help to contextualise the really big number. The first is that by mid-century (when many are targeting to get to net zero), climate change could be as deadly as COVID-19 and it’s not just a climate thing. He explains that although the models do vary, the conclusion is unmistakeable: In the next decade or two, the economic damage caused by climate change will likely be as bad as having a COVID-sized pandemic every 10 years. Stick that in your 95 VaR!
The size of the challenge should also not be underestimated. Buying an electric car does not solve the issue. How many CO2es are emitted in making the electric car, building the charge points, laying the roads and generating the electricity to charge the battery?
After a couple of chapters Bill cites some of the carbon reduction claims made, such as doing X is the equivalent of taking one car off of the road. But what does that actually mean? How many cars are on the road to begin with? How much of a difference is X therefore actually going to make?
Make it meaningful
This is where the title of this blog comes in: How much of the 51 billion tons are we talking about?
With whatever we can do to aid our journey to zero, the comparison needs to be against the 51 billion, rather than a meaningless simile.
The really interesting thing for me however, being a governance nerd, is when the G-meister relayed a mental framework with five key questions / considerations, which he explains can be applied to any topic. Weirdly, this immediately made me think of the amount of times I have been asked, ’how do we apply proportionality Paul?’. The answer to which is; how much of the 51 billion tons are we talking about?
All pension schemes have a system of governance. However, are they all effective? How do you measure that? How do you evidence that? If any elements aren’t effective, what do you need to do? And how do you do it proportionately? While the regulation sets out some specifics, e.g. having a written policy on your Risk-Management Function, how does just having a written policy provide for an Effective System of Governance (ESoG)? The policy is just words on paper.
Actions speak louder…
The part that makes your system of governance effective is how you use the words on the paper to actually govern your pension scheme. That part only the trustees can do. Your lawyer can help with drafting the words, but you need to implement them in the ongoing management of the scheme.
If we accept at a macro level that trustees have three KPIs: to pay the right benefits to the right members at the right time, the system of governance needs to be structured to provide for these. So, in my metaphor, borrowed from the big G, our three KPIs are the 51 billion. Then each element of governance and risk management will reduce or offset the risk of not achieving them.
So, when your advisers present you with a gap analysis as being the best thing since the first loaf was cut, in order to comply with the expected new code’s requirements, think: how much of the 51 billion tons are we talking about?, i.e. on a cost / benefit basis, will a gap analysis help me achieve my KPIs or would it be more effective do a benefit audit?
And you thought this blog was going to be about climate change. I’ll pen a blog on that when I have finished the book.