Transitioning means divorcing ourselves from fossil fuel economics

Bolder, faster, together poses the question: How can we all take responsibility for the past, navigate a turbulent present and co-operate to protect future generations? Follow along as this series, co-ordinated by the Transition Innovation Group at Community Foundations of Canada, explores the deep societal transformation already underway and accelerating in Canada and around the world.

There’s an old joke that anyone who believes it’s possible to have infinite growth within a finite environment is either a madman or an economist. It’s no joke — that mad but pervasive economic belief has had us extracting, exploiting, producing, consuming, wasting and polluting for so long it’s brought us to the precipice of environmental and socio-economic disaster.

Can our assumptions about economic growth and our attachment to the systems that drive it be adapted, and where necessary, dismantled and replaced to prevent our multiple crises from worsening? What does it mean to create a “transition economy”?

In the first part of this two-part article, we’ll focus on the big things that need to happen — that are, in fact, beginning to happen — to create a sustainable finance system, one decoupled from the fossil fuel economy.

And let me declare at the outset that I’m not an economist — my direct experience with such matters includes co-founding a community-based business in Vancouver (Alma Street Café), working on new value chains in animal food products with the BC SPCA’s humane standards and labelling initiative, and overseeing the development of an impact investing portfolio and related innovations at the McConnell Foundation.

In 2006, the United Nations created the Principles of Responsible Investment organization, the world’s leading proponent of environmental, social and governance (ESG) principles in finance, with over 3,500 signatories. As a voluntary framework, it supports benchmarking, goal-setting and learning, but it doesn’t enforce anything.

The 2015 Task Force on Climate-Related Disclosures outlines how climate risk must become integral to financial reporting and economic planning. Companies and countries are beginning to implement its recommendations, though not yet at a pace consistent with the Paris Agreement targets.

The Mark Carney-led Glasgow Financial Alliance for Net Zero (GFANZ) that was announced last November during COP 26 was signed by more than 450 financial institutions, but as this article in the Financial Times asserts, signatories must act decisively to avoid accusations of greenwashing. Public pressure and regulatory mandates will help ensure banks, corporations, pension funds and other institutional investors decarbonize their Scope 1, 2 and 3 emissions by 2050. The newly established International Sustainability Standards Board also promises to bring greater rigour and transparency to the field.

The necessary measures are massive in scale and complex to implement, but a direction has been set and momentum is growing.

But is it happening quickly enough? In a paper under review by a leading scientific journal and shared with me personally, climate researcher Corey Lesk and co-authors analyze emissions scenarios for the coming transition, looking at both mitigation (prevention) and adaptation to climate-related changes already underway.

Specifically, they assess the emissions resulting from decarbonizing energy systems, building coastal protection structures including dikes and wetlands, relocating communities away from rising water levels, and financing increased space cooling.

The paper concludes: “Emissions embedded in the transition are [...] strongly sensitive to the pace of decarbonization and, consequently, low climate ambition comes at a high transition emissions cost.” One could add high financial cost as well. In other words, the faster transition is accomplished, the safer and less costly it will be.

Decarbonizing the global energy system is essential, but it doesn’t end there. It extends to all those things that require affordable, readily available power — such as electricity generation, transportation, agriculture, construction and manufacturing.

Whole industries are now beginning to decarbonize. In Canada, the non-profit Transition Accelerator (full disclosure: I am a board member) is catalyzing the development of a hydrogen hub in Alberta, creating new supply chains in the zero-emission vehicle industry, and working on a pan-Canadian electrical grid. Corporate commitments to transition range from the Canadian Steel Producers Association’s goal of reaching net-zero emissions by 2050, to Maple Leaf Foods’ claim to have already done so.

What’s missing, according to the critics, is a plan to bring fossil fuel production to a halt. As Tzeporah Berman says in a widely-viewed TED talk, ‘“For decades, our countries have been negotiating [emissions] targets. But behind our backs, the fossil fuel industry has been growing production and locking in further emissions.”

According to the most recent report from Canada’s Environment Commissioner, Canada’s emissions have increased since the Paris Agreement was signed in 2015, making us the worst-performing of all G7 nations.

In books like Mission Economy: A Moonshot Guide to Changing Capitalism, London-based economist Mariana Mazzucato has been calling for the economy to be restructured in the service of societal “missions” whereby all sectors collaborate on goals that none can achieve alone. In November, the G7 Economic Resilience Panel, of which she was a member, released its remarkable final report — now referred to as the Cornwall Consensus. It states:

“A mission-oriented approach to innovation and investment means focusing less on sectors and more on problems (such as ones inspired by the UN Sustainable Development Goals) that require all sectors to work together. This might catalyze new partnerships focused on societal goals, like adaptation to climate change, climate-neutral and smart cities, and healthy oceans.”

The Institute for Sustainable Finance’s Changing Gears report reviews progress here in implementing the landmark recommendations of the Expert Panel on Sustainable Finance. Mapping and supporting Canada’s zero-carbon commitment with a capital investment plan has advanced, but much work remains to connect Canadians’ personal savings, pensions and investments to climate objectives.

The report also asserts that sustainable finance must address more than climate. Growing gaps in people’s access to affordable housing, nutritious food, and a good life make it clear that to avoid climate chaos and avert social strife, the foundations of our economy must shift to enable what Mark Carney terms “the trinity of distributive justice, equality of opportunity and fairness across generations.”

Safely navigating these turbulent times requires a transition economy be socially conscious around three themes:

• Adjustment: Fair treatment for workers, including retraining and where necessary, resettlement support; incentives for businesses to curtail emissions; and support for communities whose economies are no longer viable.

• Inclusion: Continued commitment to Indigenous reconciliation and economic inclusion for equity- and sovereignty-seeking groups through access to credit, equitable procurement and corrective hiring policies. As this paper submitted by the Community Foundations of Canada to the National Infrastructure Assessment sets out, investment in social, physical and digital infrastructure should be considered together.

• Innovation: Extensive social retrofitting and innovation at the community and broader systems levels.

In Part 2, we’ll explore the social context for financing transition as a source of capital, values-based innovation and civic engagement.