Coalition of big investors pushes banks to defund carbon emitters
ft.com
ft.com
https://www.archpaper.com/2021/04/greenidge-power-plant-mine...
And the market will solve this issue real fast.
Sadly the power structures in place prevent creative thought, as those milking the cows of the status quo prevent change.
Imagine: every 6 months or so, $X gets sent out.
"Regular people pay higher marginal rates than rich people, but other than that it's a progressive tax system" is basically the opposite of a progressive tax system.
But on top of that, it isn't even true that the marginal rates paid in practice by lower income people are lower than those paid by middle income people, because of benefits phase outs. The system we currently have is worse than a flat tax across the board. The people at the bottom pay the highest marginal rates.
The only sense in which it's progressive is the same one you get with a UBI and a flat tax, i.e. that the effective rates on the poor are lower because the taxes they pay are more than offset by the lump sum benefit(s).
Not really what I said. If richer people progressively pay more tax for the bottom 99% of the population, that's arguably still a progressive system. The top 1% not paying more feels more like a problem in the implementation of what is otherwise a fairly progressive setup.
I don't think I believe that poor people pay the highest marginal income tax rates given that some poor people pay none and all rich people have the amt. Other taxes, like sales tax, might make that true. A flat tax is more regressive than a progressive tax with loopholes cut out.
Except that that isn't what happens for the people at the very top, i.e. the investment class. The capital gains rate (paid by billionaires) is lower than the top earned income rate (paid by millionaires) and billionaires and international corporations use tax avoidance strategies to reduce the amount of income they pay tax on to begin with.
A flat tax can't be avoided in the same ways.
> I don't think I believe that poor people pay the highest marginal income tax rates given that some poor people pay none and all rich people have the amt.
You're confusing marginal rates with effective rates.
Suppose you make $15,000/year and get $5000/year in government assistance. But the assistance programs phase out at various rates that add together to 80%. If you make an extra dollar, you lose $.25 of food assistance, $.30 of housing assistance and $.25 of childcare assistance, something like that. Because those benefits phase out. The government takes 80% of the marginal dollar. Even if your "income tax bracket" is 0%, your marginal tax rate is 80%. This is more than some higher income person paying a marginal rate of 25% or 35%.
Your effective tax rate is -33%, because you made $15,000 and then "paid" -$5000 to the government, i.e. received $5000 in assistance.
Now compare this with a UBI that has no phase out and a 30% flat tax rate. You make $15,000, receive $12,000 UBI, pay $4500 (30% of the $15,000) in tax, so you net $7500 from the government. Your marginal rate is 30%, your effective rate is -50%. This is more progressive than the status quo on both metrics, despite being a "flat tax."
Because all "flat tax" means is that everybody pays the same marginal rate, whereas any rational definition of "progressive" implies that lower income people are paying lower effective rates.
While not perfect, it strikes me as a rather great „90%“ solution since it gives back the tax in roughly the same proportion as energy use and cost (single/couple/family), so it‘s pretty fair to the poor as well.
Carbon negative coal(). Woot!
() Certainly causes cancer, respiratory damage and widespread property and ecological damage. Not available in all locations.
we don’t necessarily need lower income taxes across the board, but rather a sharp, smooth sigmoidal tax rate curve with the inflection point at the median income. and an end to deductions and carveouts like the lower capital gains tax. that one change would fix a lot of incentive problems in the fiscal system.
edit: i should add that we likely don’t need to lower taxes on housing either, as it won’t make a dent in getting more people housed where they want. what we need to lower are the barriers to development, like restrictive zoning, overly specified building codes, and arduous permitting and review processes.
We have all types of tax already in place, we just need to emphasize.
If we dont the run for profit will make human life unbearable in many places.
Edit, meant to reply below
That ambivalence for parties outside of the consenting exchange can lead to negative or positive externalities.
Ideally these negative externalities are banned (if they're too extreme, such as with lead pollution) or taxed.
I wish more adults understood the above. Capitalism isn't always an unadulterated good (for people outside of the exchange) but it mostly is positive-sum good for people within the exchange, and we need government to implement taxes that prevent the former and otherwise mostly stay out of the way for the latter.
> I wish more adults understood the above. Capitalism isn't always an unadulterated good (for people outside of the exchange) but it mostly is positive-sum good for people within the exchange, and we need government to implement taxes that prevent the former and otherwise mostly stay out of the way for the latter.
Your argument goes the way that lousing each other is beneficial to all if there are strict rules and punishment for those that don't louse back, instead of simply washing yourself or seeking other ways to delouse oneself. I'm well off and thanks to wide diversification of assets my future descendants will have all the time in the world to wonder why people still equate labor and property.
Your core point is a good one: trade tends to be mutually beneficial, and good policies of ownership design [1] incentivize net-positive wealth creation. But there's a lot of good and bad ideas (and ideology) wrapped up in "capitalism" as such; it's worth teasing them all apart independently rather than the simple "Capitalism: Y/N" stances that pervade the discourse. I'm frankly ready to banish the words "capitalism" and "socialism" from our vocabulary entirely; they're simply not helpful.
[0] https://astralcodexten.substack.com/p/your-book-review-progr...
[1] https://www.penguinrandomhouse.com/books/601899/mine-by-mich...
"its shortcomings are numerous:"
Take positional goods. If there's no negative externalities, how is that bad? If person A wants to give lots of money to person B for a diamond, that has zero negative impact on me. Person A is presumably happier and person B is presumably happier (otherwise they wouldn't have traded). Nobody is losing in a nontrivial way here. You could maybe argue that a society with status strata is undesirable, but it's a bit of a stretch to lay the blame for that on capitalism, diamonds (or family pedigree or whatever) would be a status marker irrespective.
Take quasi-sociopathic companies. Yes, they're amoral and generally will do anything for profit, but this is mostly a point about externalities. A chemicals company will treat their customers extremely well but will dump in the river because those impacted aren't their customers. There's examples of businesses treating their customers atrociously (e.g lead spiking of turmeric, not doing safety recalls, etc), but these are exceptions and aren't the rule, brand equity all the way through the supply chain incentivizes the opposite in general. Every business I patronage treats me like royalty and it's no coincidence.
Regarding races to the bottom, do you mean things like the zero sum competion for speed among HFT firms? Isn't this waste just an inevitable byproduct of competition? As an industry, they've largely successfully automated away expensive human market makers, despite this zero sum waste that comes from that competition. It's not efficient to have 5 supermarket chains with 5 legal department and 5 HR departments, but we accept that we need that waste for competiton to function.
Regarding rent seeking, that's fairly broad and it'd be better to discuss specifics.
For fiat currencies military is providing protrction of that value with other things, so it's quite hard to compare the enrrgy needed by other countries to protect their currency (Marco Polo was a great Netflix series showing what happens to a currency when the military is defeated).
Oil companies have a ton of money. "Start their own bank" money, if it came to that. There's no way this actually works against them. This kind of thing only works against marginalized people.
So what it's meant to do is normalize the tactic. The banks are doing this against evil oil companies, and screw those guys amiright? Show everybody that our benevolent overlords are doing this for our own good.
Then they come after others, actually marginalized groups without "start your own bank" money, and anybody who objects to that but not this is a hypocrite doing battle with existing precedent.
But .. this already happens, and has for some time, and nobody defending that makes reference to climate disinvestment?
Why can't they go to a different bank if they feel so strongly about it?
Pesticides are a necessary chemical to industrial food production. Consumers can opt to prevent that from being used/manufactured by buying organic[1]. Organic goods are widely available in US supermarkets. The fact that organics haven't outpaced conventional foods tells you all you need to know about consumer preferences.
>Can poorer car buyers opt for any thing cheaper than the currently available options? Or rather, because there are no options available for them, should they simply not use cars instead of using the polluting gasoline cars?
So according to you, poor car buyers are forced to choose between a gas guzzler or no car at all, because the fuel efficient cars are too expensive. Clearly the right thing to do is... stop gas guzzlers from manufactured in the first place so they're forced to not have a car?
[1] organic allows certain kinds of "natural" pesticides, which might or might not be worse than their banned counterparts, but this is another can of worms
Or tax gas guzzlers more? Provide tax incentives for fuel-efficient and electric cars? Both?
Agreed. And what banks do has (or should have) little bearing on that.
> This does nothing to help the poor but environmentally conscious person.
That's debatable.* But in any case, banks aren't charities. Modern capitalism holds that they have no obligation to anyone except their shareholders.
*For actually "poor" people, car ownership is a burden. They have to pay high interest rates and tie up a significant portion of their capital just to get around. Whereas most developed countries (and even a great many developing countries) have efficient public transportation, which doesn't have these downsides for poor people. Also the poor have more to lose from climate change, so arguably these banks are serving them better in the long-term by divesting from carbon.
—-
For the other part I agree companies aren’t charities. My entire point here is that people should quit trying to pressure them into acting like charities. Let companies make money, that’s what they are good at. If you want to eliminate ICE engines pass a law.
You keep saying "pressure" as if it's a magic word. How can you pressure a business to do something against what it believes to be its own (or its shareholders') interest? All kinds of people lobby companies and government to do literally everything under the sun. Companies don't listen to all of them. They only listen to the ones they think are good for them. And if they choose wrong, the market will punish them. Right?
On a separate note "companies shouldn't be woke" people also tend to be among the most ardent worshippers of the free market. Somehow their faith is shaken when companies do something they personally disagree with - then they fall back to "they're just giving in to activist pressure". I'm not saying you're like that. Just pointing out the irony.
Re: more expensive cars hurting the poor in North America, I'm honestly skeptical. If anything more expensive cars will be a forcing function towards developing more affordable housing close to work and better public transportation systems. Kind of an inverse Jevon's paradox. This will save the poor money in the long term.
If there's not sufficient voter support for legislating morals then democracies shouldn't be legislating morals. The voters should get what they want even if it's stupid.
I recognize that these may be entirely separate subsets of free-market libertarians, but it's enough to make me grow frustrated at the entire group.
I'd much rather banks and investors were explicit and public about the values driving their choices.
If your hypothesis is right that the big banks are leaving money on the table, I'm sure somebody will start a tobacco/child labour/fossil fuels ETF investors can buy if they can stomach it.
The optics of such a nonsense ETF would itself drive investors away. Like seriously?
If a bank decides not to invest in some given company or sector, that's not "public policy making". That's just the bank exercising their right to decide where to put their money. Indeed, they can't do anything less. Whether they invest or not, they are making a decision that has social impacts.
If the bank instead paid lobbyists to persuade politicians to create new rules (and I'm sure they do), that would be closer to "public policy making".
Also, this concept of "cancel culture" is absurd. People and companies have always risked falling from public grace if they say or do things that go against the values of the majority of the public.
Was it "cancel culture" when Studio 54 got shut down? Or when Tim Leary got fired from Harvard? Or when Ellen's sitcom got cancelled?
Right or wrong, each was merely the result of going against the grain. Today, the cultural middle has shifted, and so some groups are finding themselves in a position they're unaccustomed to: being in the minority. (Or more accurately: not being _consistently_ in the majority.)
But the consequences are no different than those faced by any minority, and this is healthy for society. It's never a good thing when one group has so much social leverage that they get to dictate the terms for everybody else. I would argue that today, there's no such thing as a majority group. We're all minorities to varying degrees, and we all need to learn how to get along. I think that's a net positive, albeit a very messy one.
Isn’t that what a corporation is supposed to do?
You might be able to argue for the existence of a naive utility, one that doesn't bother being aware of the impacts of its investments. But that seems kinda silly in my books.
If banks decided to invest in carbon producing companies, is that an activist policy? What about if they invest in US companies? Or invest in developing countries?
What makes this (avoiding investments in polluting firms) activist investing while the opposite isn't in your view. Seems hypocritical.
Also, why does THIS count as an activist policy, and not literally everything else banks have ever done?
There's no such thing as a neutral way to invest money. Every investment sends money towards one group and away from another. We give control of our money to banks with the trust that they are being intentional about how to use it.
Why is this an "activist policy" more than anything else?
Should they stop advertising too? Advertising also has a viewpoint, after all.
Agree here that soft-rules to exclude finance will cause a lot of negative results, expected and otherwise.
People that complain finance will not voluntarily comply are right, most finance activity specifically and actively "does not care" and this also must be exposed publicly. Sunlight is a strong disinfectant.
ps- per piketty [0] the finance system is currently self-perpetuating, no longer solely an expression of real value. Humans are proven dangerous, so, take care with "laws"
https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...
If they really see it as a risky investment, that's fine.
> Bruce Duguid, head of stewardship at Federated Hermes’ EOS division, said there was a need for “dramatic shifts” in bank financing in order to meet the Paris goals and “avoid the looming systemic risk of a ‘carbon crunch’ hitting their balance sheets”.
It seems pretty straightforward that investing in something that violates a global UN agreement is not a financially sound decision.
Funds coming from adult entertainment are (1) high risk (in theory) for being proceeds from a crime (prostitution) and (2) high risk for money laundering because those businesses are often high cash or cash-only.
You can see how designating a business as #1 necessarily creates the situation that gives rise to #2 and so it becomes a self-fulfilling prophecy: the business is high risk because it’s high risk.
Climate change threatens to devastate hundreds of millions of lives. It will disrupt the global economy for decades. So, yes, fossil fuels are a risky investment.
Of course group action is more meaningful, and that's why this group of investors is pressuring a group of banks.
That marginal effect is exactly that, marginal. It makes as much difference as adding a single drop of water to the ocean. If you're doing a risk calculation, which is what we're talking about - not a moral calculation - then adding zero to any term in the calculation doesn't change the result.
I know where you're coming from, your heart is in the right place, but your mathematically wrong here.
> Of course group action is more meaningful, and that's why this group of investors is pressuring a group of banks.
That's the only way it can work. I wish them luck.
How do you know these banks aren't betting that being seen as climate-friendly will make them more attractive to customers and investors? And thereby increase pressure on competitor banks that aren't similarly climate-friendly to follow suit? This would result in the type of coordinated action that actually can make a difference to climate change at a macro level. Mission accomplished.
At the end of the day banks are businesses doing what they feel is right for themselves. If you disagree with how they run their business, you should divest yourself from them and end your business relationship with them.
Banks have been choosing who they fund and who they don't for a while and it hasn't really been decried so far. This only highlights that we live in a society that is both democratic AND capitalist: decision making power is distributed, on the one hand, "equally" to each citizen via voting rights, and, on the other hand, to whomever holds the most capital.
You could even argue that the proportion of the power that goes to capitalists is inversely proportional to the amount of state actions in the form of redistributive policies, market legislation, etc.
Once you take this into consideration, your initial observation doesn't reflect a new financial "cancel culture". Rather it reflects how much of the decision making power is now in the hands of capitalists in the US.
Either you're for or against the system. Capitalism's end game was not to be counted a citizen but to become the oligarchy. Congress has a lot of power but only what the people give them, well the people have lost most of their voice/power so now congress is fueled by the power that money can buy from the companies that fund them.
Thus it is we've entered late-stage capitalism. The federal government won't ever do anything about it as long as they're allowed to control congress by the wallet.
Short-term as myself a libertarian-socialist I see this as a positive - because the alternative is lots of death from climate change...
Long-term as a libertarian-socialist, I see this as a scary power grab by corporations. In some movies/shows/books you see companies that govern and have whole worlds and solar systems named after them.
When you take away regulations, when you move to allow companies total freedom to do whatever you want you have to be willing to take the consequences of whatever those freedoms bring, whether that's polluting the water supply or encouraging MLB to pull out of Georgia over voter rights.
You can't have your cake and eat it too!
COVID-19 is an example. An investor in a drug company might want that company to maximize their profit from making a COVID vaccine, but an index fund manager would be willing to sacrifice some profit for a faster vaccine distribution because the benefit to the economy as a whole (and thus their own total profit) would be greater than the lost profit from not maximizing vaccine profits.
Climate change is similar. Having index funds and other large fund managers owning the market means their fear of climate change damaging their long term profits is greater than their greed to make profit from one individual company causing environmental damage in pursuit of profit.
In some ways it is kinda interesting, since it is a way past the collective action problem that often prevents action on things like climate change. It is also scary, of course, for non-democratic institutions to have so much power.
The question remains: how will you do activities like e.g. making steel in a "green" manner? Moving money around cannot alone answer that question; finance can only help by moving money toward new technology that can perform the jobs of the old, non-green tech. What are these investors willing to invest in to make the needed tech?
There is no inherent reason not to collocate steel plants with plentiful renewable energy. As energy is one of the primary input costs to steel manufacture, it should be practical to develop “peaker” plants which take advantage of the midday energy cost dips due to solar.
In any case, if we get rid of fossil fuels everywhere where it's easy (electricity, heating, mobility except for flying), then we have a lot larger budget for figuring out how to do the things where it's not easy.
edit: Fossil fuel divestment has ‘zero’ climate impact, says Bill Gates (ft.com) https://news.ycombinator.com/item?id=20998948
Firstly, no such lobby exists anymore, if it ever did. All the supposed oil majors have reinvented themselves as energy companies a long time ago and have big investments in solar, wind, etc. They are well aware that green initiatives aren't going to undermine the oil business any time soon; it will happen on a long enough timescale that they can easily build new businesses and make money from the new tech too. Even if every car factory in the world switched to making electric cars and only electric cars tomorrow, it would take decades for the vehicle fleet to turn over, so there's no real pressure on these people to mount diabolical schemes because the time horizon is far too long.
Secondly, the opposite of "climate change science is unreliable" is not "and therefore there is reliable science saying the opposite". If climatology as a field is unreliable then we are in a knowledge vacuum in which the claims might be true, or they might not be, or they might be some exaggeration of the reality or some over-simplification. All these things are possible if the science is not reliable.
Thirdly, climatology is uniquely difficult to deal with because academic climatologists are the ones producing the actual temperature record itself. There have been arguments in the past about the temperature record because global temperatures didn't follow predictions, at all (e.g. the "pause"), and the response of climatology was to issue new versions of the historical datasets that simply created the trend they had predicted. Sometimes the raw data isn't even available at all, only their adjusted datasets. Thus if climatology is an unreliable field there's actually no way to construct an alternative more reliable narrative, because you'd have to build on datasets controlled by the people you don't trust and which are repeatedly revised to bring data in line with predictions. (they have various justifications for doing so, but the incentive problems created by scientists "fixing" the historical record are obvious enough that they don't need elaboration).
Ideally collection and processing of climate related data would be done by totally different people to those making predictions about it. That doesn't happen: the community is just far too small. So, apparently untrustworthy practices can be pointed out like ... well, like claiming you can accurately predict the temperature a hundred years in advance whilst simultaneously claiming you were unable to accurately measure the actual temperature just ten years ago. But that doesn't then let you say "and so here is a more reliable set of predictions".
At any rate, if you'd like a citation for a reasonable, apparently rational and well argued alternative take, have a look at this talk:
There was also a pretty famous case of a climate skeptic that got funding from Koch to look into things and wound up becoming convinced.
https://www.scientificamerican.com/article/converted-contrar...
All the oil majors in the world, plus Saudi Arabia, Russia, China, etc have plenty of motivation and resources to poke holes in the theory and have failed to do so. Can you explain why that is?
If banks decide to become moral investors and quit the game, the carbon fuel industry will be scrambling to replace about $1T/y in funding. Those shadier investors might be out there with higher interest rates, but I doubt they've got nearly as much to spend. So now carbon production is less profitable, and has less capitol to work with. That would be good.
But the cynic in me says that banks will agree to this, but move to an arms-length model.
I don't think anyone expects the rate of contract killing to hit zero just because they personally don't do it...
...which is why it's illegal, rather than relying on individuals doing the right thing.
>If banks decide to become moral investors and quit the game, the carbon fuel industry will be scrambling to replace about $1T/y in funding
This only works if enough banks participate. If banks control 50T of capital, and 90% of banks pull out, but fossil fuels only need 1T of funding, then the fossil fuel industry wouldn't be capital constrained. Given the total size of the global capital market ($118T), I find this hard to achieve.
For coal in the US this process has now played itself out enough that there is no longer sufficient value to extract. All of the major players have gone through multiple rounds of bankruptcy where they have shed pension, retiree healthcare, environmental cleanup costs, etc. They are at the point where even the lowest bottom feeders will no longer bid for them. Take for example Blackjewel which was already a bottom feeder holding company for a number of consolidated assets, they went to liquidation because there was no value left.
https://www.courier-journal.com/story/news/2021/03/03/blackj...
Of course tax payers will be stuck with the healthcare, pension and cleanup bills, not to mention the underfunded Black Lung Fund and of course all the climate and pollution costs.
Like water, capital will always find its level.
I find it funny though when people who fear socialism and communism so much and who consider themselves libertarians (as in the libertarian party of the USA - not left-libertarian) - start to tear down capitalism and claim they want smaller government, less oversight, less regulation on companies which would allow companies to become even MORE powerful, while at the same time crying foul when these companies push any agenda they don't approve of...as if they should have a say in what capitalists do with their own money/time/etc.
I prefer the opposite strategy some funds have taken: investing and then pressuring boards to behave better.
This might not be the best way to increase dollar costs for the industry, but it is a way to do it.