A few days ago I met with a colleague who works for the financial sector. My colleague introduced the question of trust in our discussion. I think this is currently a very relevant topic.
Jeremy Leggett refers to the Triple Crunch http://www.jeremyleggett.net/ , Thomas Friedman, citing Paul Gilding to "The Great Disruption", citing John Hagel & John Seely Brown to "The Big Shift" http://www.nytimes.com/2011/10/12/opinion/theres-something-happening-here.html?_r=1&ref=thomaslfriedman
Chrystia Freeland sees the roots in the Reagan Revolution http://blogs.reuters.com/chrystia-freeland/2011/10/14/wall-street-protesters-challenge-reagan-revolution/
What did we learn from the 2008 financial crisis? The financial world can put our global financial system at risk, liquidity and the supply of money can fail within a few hours, leaving our pockets and families without cash. Why can this happen? Banks being part of a global and interlinked banking system fail to trust each other. The flow of money fails because interbank lending seizes. States, central and national banks can intervene as they did in 2008 to prevent system failure. And all this happens in very short term.
What about other crisis? Energy? We still have energy reserves at least for several decades. The problem with fossil fuel sources: it has the potential to disrupt our climate system. So the energy crisis cannot be considered individually, it has to be considered in the context of the current climate crisis. And we learned from the Fukushima accident, that nuclear power is not a sustainable energy option.
Can the economic crises be considered independently from the climate crisis? According to the World Economic Forum and the Risk Response Network http://riskreport.weforum.org/ , climate change has the highest perceived risk with respect to both likelihood and impact. According to Nicholas Stern http://siteresources.worldbank.org/INTINDONESIA/Resources/226271-1170911056314/3428109-1174614780539/SternReviewEng.pdf to limit the concentration of CO2 in the atmosphere to 450 ppm and halt temperature increase at 2°C, the cost to our society is 2% GDP. But that cost is increasing, if we are not acting and the time window of opportunity closing. Continuing to emit CO2 at the current rate, the entire human civilization is put at risk. Going beyond these limits, can cause our natural Earth system to be brought out of balance and collapse, causing the mass extinction of the humankind. The cost related to temperature increases beyond 2°C are estimated to be between 5 to 20% GDP today and in the future, depending on the CO2 emission and decarbonization scenario considered.
As we can see, the economy-energy-climate crisis is interlinked. As indicated by the WEF, the survival of our civilization can be put at stake if we do not stop CO2 emissions.
Why should a banker ask a climate scientist a question about trust? I do not have an answer to that, but it can be related to the uncertainties and risks, related to climate change. Humans can easily react to issues that are short term and visible today. The challenge with climate change is that carbon dioxide accumulates in the atmosphere over several centuries. The consequences of not taking measures against global warming today, will be felt only within the coming decades. By then it will be too late, and human civilization would need to bear the dire consequences of its inaction.
I agree, our society needs the trust in the results, published by scientists. The scientific process is strict and rational. The researcher itself is by definition a highly critical person, always questioning methods, possible sources of error and results. There is a strict quality and review process prior to publishing any results. Also during the peer review process of scientific publications and articles, research authors and their results are challenged to make sure, that the research work and results are reliable. The scientific community itself is a system of self and mutual control, meeting the highest possible quality standards.
The answer is yes, if we should trust some institution, it is definitely the scientific community. To give an answer to the financial and investment banking community: casino type investing must stop. Financial institutions must have the same objective as we all have as adults, teenagers, children and grandchildren and yes, for those to be born: to invest into a world which is sustainable for today’s and future generations. Investments have to be directed into research and innovation, towards a strong and health economy, society, an intact environment with a rich biodiversity for the safeguard of our civilization. Sustainable use of resources and sustainable energy sources and technology in support of the new and emerging economies, access to energy and information, water and food security and health in support of the developing world, the urgent ban of deforestation, to maintain the remaining natural forests which constitute major carbon sinks and our vital oxygen sources, these are the “portfolios”, investing has to be directed to.
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