Irrational avoidance of the unpleasant: Global environment foundation head shares his thoughts on American investors

Simon Levey interviews Jeremy Grantham, the successful investment management strategist who is a major supporter if Imperial's climate change institute - News

By Simon Levey
Tuesday 13 March 2012

A successful investment management strategist, whose global environment foundation supports Imperial's Grantham Institute for Climate Change, will deliver a special lecture at Imperial College London this week on a rare visit to the UK.

In the lecture, entitled Attitudes in America to investing, resource limitations and global warming: Irrational avoidance of the unpleasant on Wednesday 14 March, Jeremy Grantham will give an insight into a subject that explores the inevitable mismatch between finite resources and exponential population growth, and questions what can be done to address this in the world's most powerful economy.

British-born Jeremy is behind the Grantham Foundation for the Protection of the Environment, which he established with his wife Hannelore in 1997. The Foundation seeks to protect and improve the health of the global environment, providing grants that focus on climate change and biodiversity conservation.

The Foundation supports research on this theme at Imperial's Grantham Institute for Climate Change, which just five years since its inception has established a strong reputation for understanding and responding to the scale, pace and potential implications of climate change.

Other Grantham Foundation initiatives in the UK include the Grantham Research Institute on Climate Change and the Environment at the London School of Economics.

Simon Levey spoke to Jeremy before his lecture, to find out what goes on in the mind of a successful businessman with such a keen interest in the future of the planet:

Your special lecture at Imperial is entitled 'Attitudes in America to investing, resource limitations and global warming: Irrational avoidance of the unpleasant', what do you think most is the most unpleasant thing American investors are avoiding?

I think the thing investors get most agitated about, partly because it's what they're paid to do, is climate change. You would say that was irrational unless you recognise what a substantial investment of time and money people put into it when they have interests in energy. There are many in the USA whose beliefs lead them to deny the science behind climate change. They say the government should not get involved in enforcing environmental regulations and would rather lie through their teeth then let this happen.

Do you think this issue is mirrored in the UK and internationally?

The Australians have a pretty healthy dose of climate change avoidance thanks to people in the prominent mining industry who attempt to influence government decisions through the use of muscle power. In Britain it's hard to tell how some of the critics of climate science are motivated; are they doing it because they're contrarians who want to go against the likes of the Royal Society? Or are they doing it because they enjoy the limelight and the sense of their own influence? Or are they just such natural passionate contrarians that they will challenge the science whatever the facts? Probably some of them are merely hired guns, like professional 'experts' in a murder trial.

What is the Grantham Foundation doing to change those attitudes, and what do you consider to be its best achievements so far?

Jeremy Grantham (right) with wife Hannelore and Professor Brian Hoskins (left), Director of the Grantham Institute for Climate Change

The work of the Foundation is divided into three roughly equal parts. Through one strand we try hard to help disseminate good science and to expose really bad behaviour, law breaking by politicians and administrators and so on. Our funding supports high quality investigative journalism - such as newspapers did in their heyday - which tries to keep the rich and powerful on the straight and narrow, by funding groups like the Centre for Public Integrity in America. We have no call over what they publish, but thanks to our support they have been able to double the time they spend on environmental efforts, scouring the land for cases where the law appears to be being broken.

Another strand funds academic work at Imperial, Lond on School of Economics, the Indian Institute of Science in Bangalore, the University of Reading and modestly at the Royal Society, and aims to help pull together their climate work and project it in a user friendly way.

The final part is for funding substantial Non-Governmental Organisations in the United States, such as the World Wildlife Fund (WWF). It's not easy to know which aspect of all these is the best, since we can't tell how things would have worked out if we hadn't shown up.

How would you say wise investors can make money and kee p a clear conscience over the environment?

I think long term investment in resource efficiency could be the c learest conscience option. It's an area that can create new jobs and help new technologies come into play, and for a lot of strange reasons there is much low-hanging fruit for investors.

Corporations are not as good at being efficient in the small detail as we would like them to be. Right now they have a mindset that focuses on the big brand efforts like new refineries on 'greenfield' sites and lucrative polyethylene plants. But when it comes down to smaller projects, they say they need to make their money back in a short three years. This places obscenely high expectations on them - you would never expect an entire company to perform like this.

There's also a problem with corporate tax, which seems to subsidise inefficiency, or certainly taxes efficiency , the more profit you make the more tax you pay. Similarly, if you waste energy, it reduces your tax payments because you make fewer profits. In this way the government is sharing in your energy waste. On the other hand it will pay nothing towards your capital costs to reduce your energy losses.

What changes would you like to see in the next 5-10 years to bring the world out of its current credit crisis without turning its back on the environment?

Jeremy Grantham says governments have the power to enforce enlightened regulation on, for example, fossil fuel use by cars

It takes someone with a very robust character who feels strongly about environmental issues to drag a corporation in this new direction. It's not easy to volunteer to do things that aren’t required by law, or to make changes that don't make the stock holders happy.

However if you change public attitudes, you can make a corporation feel that going green is helping their image, and they'll sell more of whatever it is they offer. Public pressure can make them put their best foot forward and it looks like it's from of the goodness of their heart, although of course they're really just courting the public favour (and very sensibly so).

Governments too can make a change. If they decide they don't want the penalties of climate change or resource depletion, then they have the power to encourage better efficiency. Enlightened government regulation is what we need most - especially for fossil fuels. And especially for an approach that interferes least with corporate freedom but gets the greatest response for saving the environment. Some existing regulations are very clumsy - for example, requiring cars to run at a higher mileage per litre of fuel, although I'd certainly take it over nothing... A direct tax on cars by weight and/or fuel-efficiency would be very straightforward, simple and effective.

I would rely more heavily on the conscience of the public and government than I would on a sudden rush of blood to the heart of corporations.

Who would you like to see taking more of a lead on climate change?

By far the most effective and dramatic shift would be if American Congress took a lead. Of course it looks at the moment like that will happen shortly before pigs fly over Washington, but you live in hope that there will be a change. The world can make progress without them, but a strong lead from the USA would make it many times easier.

Can you tell us about something that has recently surprised you about climate research, policy or action?

Jeremy was greatly surprised by the drop in price of solar panels, making this technology more cost effective and attractive to investors

I was greatly surprised by the drop in the price of solar panels. This is a potential game changer. In a two year period, the price of a solar panel came down to one third of what it had been. Instead of talking about solar energy becoming cost effective in 15-20 years, we're all talking about a 2-5 year time frame, even without government subsidies. And that's a time horizon that makes corporations prick up their ears. It opens the gates for giant projects in sunny places like North Africa, Spain, and western USA, and for energy generation at home too.

What keeps you awake at night?

Even though I have a series of beliefs that are apparently quite pessimistic, I'm not kept awake by them. I'm actually extremely optimistic on a day-to-day basis.

I think these things are pre-programmed - you can lose a leg and bounce back to a previous level of happiness, or win the lottery and remain a pessimist. I'd say I'm an optimistic person, who just happens to find myself confronted with a whole lot of rather dismal data and the idea that Homo sapiens may not rise to the challenges in time to prevent massive grief to our species, particularly the poorer ones.

What gets you out of bed in the morning?

Well I don't leap out of bed very quickly - it's more a case of slowly and gracefully, because I like to sit in bed and read the newspapers. But I have a great job in global asset allocation, where pretty much anything brings an opportunity to invest. Any politician in the world says something, it has some relevance to my work; any economic data from 50 countries has some significance; any crisis is the cause of actually some excitement; panic is even better; and bubbles are thrilling.

As if that wasn't already two full time jobs, we have our environmental interests where as you get into it, you get to know the facts and figures and the players. In this, we've had a gloomy couple of years, having our tail kicked on a climate change bill.

What are you most proud of having achieved?

For me, it's running a really substantial, ethical investment firm that puts its clients first, which believe me is not that common. And on the environmental side, we're really proud of the work done at Imperial, the London School of Economics and the Indian Institute of Science. In general scientists have been quite wimpy but I think these three institutions have tried to make the point that these are the facts, unpleasant or not, and that they really matter.