Are we screwed, p.15
Are We Screwed?, page 15
When Chloe Maxmin read Bill McKibben’s essay in the summer of 2013, the tactic of divestment had been around for more than three decades. To understand why her generation’s iteration of it spread so rapidly, you have to go to 2001, however, when Swarthmore College undergraduate Morgan Simon made an exciting discovery. Simon found that with $2,000 you could invest in a corporation—pretty much any publicly traded one you wanted—and file a resolution requesting changes to its corporate policy. She thought it could be a powerful tool in the hands of college students like herself. To test out her theory, Simon and a few others decided to see whether they could get Lockheed Martin, the biggest weapons maker in the United States, to adopt new policies protecting LGBT rights. “The nice thing about young people is we think we can do anything, regardless of whether or not it is realistic,” she said.8
With Swarthmore’s support, they filed a resolution asking Lockheed to add sexual orientation to its antidiscrimination policy. They wrote letters to more than five hundred large institutional investors asking for their support, and soon reporters started to call. Morgan Simon found herself running out between classes to do interviews with Fox News. That April she flew to Lockheed’s annual shareholder meeting in San Diego. “You get exactly two minutes to state your case in front of the board of directors and executive staff before, literally, two buff men in black suits lead you away,” she said. Lockheed execs mocked Simon’s resolution. What was next, they laughed—a policy on eye color discrimination? But her resolution received enough shareholder votes to survive until the next year. And several months later she read in the Wall Street Journal that Lockheed had decided to adopt it. “We were overjoyed,” she wrote. “I had never felt like my actions could have such an immediate, powerful effect.”9
That success led Simon and four other student activists, in 2004, to launch the Responsible Endowments Coalition (REC). Its goal was to get students across the United States to look at the social and environmental impacts of their schools’ investments—and how those investments might be leveraged to advance a whole suite of progressive goals. “Most universities directly and indirectly fund injustice through their investments, making money off of the dirty work of coal companies, private prisons, tobacco companies, and more,” explained a 2011 REC handbook. “As a student, you have both the power and the responsibility to transform the way your school invests.”10 The wide focus of the REC’s call to action allowed it to spread to more than one hundred college campuses. But it also limited the organization’s reach. What REC offered to student activists was in effect a powerful toolset. It lacked the purpose of a tightly structured campaign.
The ideas that induced people like Chloe to take REC’s ideas global can in many ways be traced back to James Leaton, the head of research for a think tank called the Carbon Tracker Initiative (CTI). In 2012 he set out to answer a simple but underexplored question: how much of the world’s known oil, coal, and gas reserves had to stay in the ground if we were to have any hope of limiting global warming to safe levels? A lot, as he would later find out, up to 80 percent. The reserves of ExxonMobil, BP, Gazprom, Chevron, ConocoPhillips, and Shell alone contained enough carbon to use up over 25 percent of our warming budget. “This research provides the evidence base which confirms what we have long suspected,” explained a CTI report. “There are more fossil fuels listed on the world’s capital markets than we can afford to burn.” The report, called Unburnable Carbon, stated, “The missing element in creating a low carbon future is a financial system which will enable that to happen.”11
Carbon Tracker quantified what McKibben and many others had always known: that the number-one obstacle to an economic system that values human survival as much as profits is the fossil fuel industry. “What all these climate numbers make painfully, usefully clear is that the planet does indeed have an enemy,” he explained in “Global Warming’s Terrifying New Math.” “We need to view the fossil-fuel industry in a new light … it is Public Enemy Number One to the survival of our planetary civilization.” Since the industry was driven by our relentless search for short-term profits, McKibben figured the best way to fight it was to demand a new system. An obvious place to start would be on college campuses. In the 1980s a divestment movement had helped end South African apartheid. If that tactic were directed at fossil fuels, “it could,” he concluded, “give rise to a real movement.”12
McKibben’s essay immediately went viral. Within two weeks it had been shared over 100,000 times on social media. “It is getting monster social media numbers of the kind usually reserved for pieces on HuffPost about Kim Kardashian in a bikini,” wrote the climate blogger Joe Romm.13 McKibben seemed to have tapped into a latent feeling of frustration that had been growing for years. To a majority of Millennials, it made no sense to sacrifice the future for short-term financial returns. They believed that businesses should be improving the world instead of destroying it. And their rejection of industries like oil and gas was already challenging our status quo. McKibben’s essay pointed the way toward a new one.
“Global Warming’s Terrifying New Math” had a profound impact on the worldview of people like Chloe. It made their broad anxieties about our society clear and definable. It gave them a sense of power and control over their destiny. It turned climate change in their minds from an impossibly big global challenge into something that regular people like themselves could influence. Chloe would later say that the essay “changed my life and the course of my career as a climate activist.” It caused her to view the fossil fuel industry, and the wider economic system it represented, as a “moral outrage.”14
What made the industry even less acceptable was that alternatives were becoming more viable all the time. For years, renewable energy had been perceived as an expensive and unreliable luxury that could never take the place of fossil fuels. But China and Germany were determined to prove that false. In the 1990s Germany began subsidizing the development of renewable energy and set targets to phase out the use of fossil fuels. The result was that in 2011 about 20 percent of the country’s electricity was generated by low carbon sources. China’s 2006 Renewable Energy Law would create a similar outcome. From 2005 to 2009 the country’s wind power industry doubled in size every year—and then doubled again by 2012. Within two years of passing the law, China was leading the planet in solar cell production.
The global impact is hard to understate. From 2009 to 2015 the price of solar energy fell 75 percent. Wind power dropped 30 percent. Major investment players such as Deutsche Bank were soon calculating that within a decade clean energy would be less expensive than fossil fuels in much of the world. By 2013, in fact, countries were adding more renewables to the electricity mix (143 gigawatts) than all fossil fuels combined (141 gigawatts). And the following year more than $242 billion was put into renewable energy, as a report from the Frankfurt School of Finance and Management explained—“far above the figure for net investment in additional fossil fuel capacity, at $132 billion.”15 When college students like Chloe set up their first divestment meetings in the fall of 2012, these shifts were just starting to be felt. They might not have realized it then, but the ground was rumbling beneath them.
The work of REC and others had given them an effective strategy for taking on corporations. Carbon Tracker and McKibben had provided a clearly defined enemy. And China and Germany were proving that alternatives to our current model were viable. Chloe and her fellow students were now in control of a powerful narrative. “It’s that a better world is possible—clean, high-tech, prosperous, and just—and that fossil fuel companies are using their enormous legacy wealth and power to prevent the transition to that better world,” wrote Vox columnist David Roberts.16 And when they began acting on that narrative, when they used it to demand a safer future for their generation, it wasn’t very long before the rest of the world took notice.
By that point Wall Street was already paying attention. For several years now its leading financial institutions had been noticing something peculiar about members of Chloe’s generation. Investors born after 1982 or so seemed to have a completely different worldview than their financial elders. They seemed to think that Wall Street—and our global economy at large—should aspire to more than just making the highest profits possible with little to no concern for the consequences. “I was taught in [business] school that the purpose of a corporation is to maximize shareholder value,” said Peter Roselle, vice president at Morgan Stanley, a global financial services firm overseeing nearly $2 trillion in assets. “Millennials, though, have identified the improvement of society as the primary purpose of business.”17
I was sitting across a boardroom table from Roselle in midtown Manhattan when he explained why. I and about twenty-five others had gathered on the invitation of a national sustainability group to learn how people my age were potentially reshaping Wall Street’s priorities. It’s fair to say that I felt a bit out of my element. Most of the meeting’s participants were in their forties or fifties or older. All of them seemed to know each other. And their job titles—strategic officer, co-inventor, chairman, managing director, general partner, senior analyst, operations coordinator, vice-president—sounded much more legitimate than the introduction I kept giving: “Yeah, um, I’m a journalist from up in Canada.” Also I should mention that I had a killer hangover.
The night before this meeting I’d watched my friend’s band play in a sweaty and smoke-filled East Williamsburg warehouse. My goal, of course, had been to drink only one or two of the Miller High Lifes that the bartender with a neck tattoo and beard was selling for five bucks a bottle. “I have to go meet some serious finance people tomorrow,” I’d explained to my friends. But the opening band’s unholy mash-up of psychedelic jazz and Lynyrd Skynyrd–style roots rock was so unexpectedly weird and awesome that I threw back one High Life after another. And now here I was, less than twelve hours later, in a boardroom high above Rockefeller Plaza, listening to financial professionals many years older than me discuss “the millennial challenge” facing Wall Street.
The problem, as Peter Roselle described it, was that our financial system simply wasn’t set up to accommodate the demand that so many young investors were now making—namely, that their investments be used to improve the world rather than destroy it. “Consumers, especially the ‘Millennials,’ have widened the scope of their investment lens,” a short description of today’s meeting had noted. Morgan Stanley was in the business of making a lot of money really fast. But improve society? The weird thing was that Roselle seemed intent on convincing the room that he was trying. In his opinion, Morgan Stanley was now at “the early stage … of a movement” toward a more socially conscious economy. Let me remind you that I was the only journalist attending this meeting. Nobody there seemed exactly sure how I’d been invited.
So this wasn’t a large press conference or anything. This was a vice president at one of the “top five” Wall Street investment banks telling a small group of colleagues that the financial system as we know it was changing, and that the pressure for that change was coming from people of my generation. It was at this point in the meeting, and after my third cup of coffee, that my mind snapped into focus. What was I supposed to make of Roselle’s remarks? Morgan Stanley, after all, had been one of the leading underwriters of risky subprime mortgages in the run-up to the 2008 recession. Its industry’s heedless pursuit of profits had melted the global economy. Now it wanted to throw $10 billion into meeting challenges like climate change? What was going on here?
I leafed through the Morgan Stanley pamphlet that I’d been handed at the beginning of the meeting. Hopefully it would contain some answers. Immediately the pamphlet’s corporate title made me cringe: “Sustainable Investing: Imperative and Opportunity.” But as I read on, the language started to sound a lot more Greenpeace than Wall Street. “The global challenges we face in the decades ahead pose critically important questions not only for society at large, but also for each of us as individuals, citizens, parents, business leaders, and also policymakers,” it read. “How do we ensure that the demand curves of the future do not spell a world of intensifying resource scarcity, economic inequality, and ecological damage?”18
Morgan Stanley hoped to proactively avoid that world by investing in companies that were committed to building a better one. Or that was the sales pitch, anyway, of its “investing with impact” program. “Whether it is low-carbon air travel, vertical farming in high-rise structures, or zero-waste buildings and cities,” the pamphlet continued, “businesses and entrepreneurs have the potential to create products and services that enable a more populous planet to thrive within its carrying capacity.” In November 2013 the investment bank announced a plan to invest $10 billion in such companies over five years. Its competitor Goldman Sachs launched a $250 million “social impact fund” only a few days afterward. By Wall Street standards, this was not normal behavior. Capitalism wasn’t supposed to care about society.
In truth it wasn’t as if these banks had suddenly gained a social conscience. The head of Morgan Stanley’s global sustainable finance group was pretty up front about the fact that the pressure for these changes was coming from outside her company. “You are definitely seeing a next [generation] effect of younger investors who want to change the ways that their families or institutions invest,” Audrey Choi explained.19 This now seemed to be common wisdom among major financial players. Across the boardroom table from me, a vice-president at Deutsche Bank weighed in. “One thing that really appeals to the millennial generation is not thinking just about finance,” Sam Marks offered to the room. By which he meant that people my age seemed to view our financial system as the means to a greater end and not necessarily an end unto itself. All around the room, people were nodding in agreement.
I wondered what my friends at last night’s warehouse show would think. Like me, I imagined they’d be a little bit incredulous. Sure, the $10 billion that Morgan Stanley had committed toward society-improving investments sounded impressive. But the numbers needed to be put into context. At the time of this meeting, Morgan Stanley oversaw assets worth $1.94 trillion, or more wealth than that generated by the entire Canadian economy. The company’s $10 billion in “sustainable” assets would be worth less than one percent of its wider business—zilch, basically. And more to the point, why would I trust the altruism of a Wall Street bank whose own self-interest had helped crash the global economy in 2008? Yet dismissing it all as public relations seemed overly simplistic. The more pertinent question, I decided, was what Morgan Stanley stood to gain by making the world a better place.
The first thing would be to gain a less toxic public persona. In the aftermath of the financial meltdown, Wall Street became one of America’s most hated institutions, especially among people my age. One study from Harvard’s Institute of Politics found that 86 percent of 18-to-34-year-olds distrust companies like Morgan Stanley.20 “If you went to a cocktail party in 2009 in New York and somebody asked you what you do, [you’d] kind of cringe a little to say you work for an investment bank,” Roselle said. “So there’s an intentional shift to try to change the image.”21 At this point, I’ll admit, my bullshit sensors went on standby. Yet as the meeting continued, I learned a few things about Morgan Stanley’s plan that kept them from being fully triggered.
They had to do with demographics. At the moment, much of the world’s wealth is controlled by Baby Boomers. That’s quickly changing, however. As more and more members of this generation retire or pass away, their wealth—over $40 trillion globally—is being transferred to Millennials. With that transfer comes a completely different perspective on capitalism. “This new socially conscious generation of 80 million strong,” a 2014 report from Brady Capital Research noted, “will be looking to invest in innovative companies that are disrupting the status quo and doing social good.” Many of its members desire an economic system that heals the planet rather than profiting from its demise. As Millennials ascend to positions of power in society over the next few decades, the Brady Capital report went on, their worldview will be “an influential force on corporate America and Wall Street.”22
In a sense, you could see Morgan Stanley’s $10 billion commitment to a less broken economic system as an early hedge against the more socially conscious future that people my age are demanding. Once again, by Wall Street standards it’s a minuscule investment. But it’s not totally insubstantial either. It’s one-tenth of what developed countries like the United States have promised to poorer nations for fighting climate change. Morgan Stanley was entering a rapidly growing market too. In the United States, investments in companies that pursue social and environmental progress alongside profits grew from $3.74 trillion in 2012 to $6.57 trillion in 2014. “There seems to be a powerful but latent demand” for a less destructive economic system, financial executive Elizabeth Littlefield observed. “My guess is if you build it, [investors] will come.”23
Once those investors come, moreover, they are likely to stay. Or so it would seem, according to Morgan Stanley’s own research. Conventional economic logic holds that companies aspiring to make a positive difference in the world will be less profitable than ones driven only by their bottom line. As it turns out, that assumption is deeply flawed. After reviewing seven years of data for more than ten thousand mutual funds, Morgan Stanley “observed that sustainable funds tend to exhibit slightly higher returns and lower volatility than their traditional counterparts, barring a few exceptions.”24 The reason has to do with efficiency and risk. Companies with lower ecological footprints often use fewer resources, for instance, and are less exposed to the price volatility that comes with them. A 2014 study from Ceres found that clean energy is already saving America’s largest corporations more than $1.1 billion per year.25
