title: Papers - Earth System Finance + Sleeping Giants

Link Authors: Stockholm Resilience Center Subject: Food Systems | Planetary Boundaries | Global Financial System

  • Key question
    • Is it possible to identify a limited set of financial actors mediating flows of capital to known tipping elements in the Earth’s climate system?

Tipping Elements in the Climate

  • We tend to only think of GHG reduction
    • This is important, but definitely not sufficient
  • We need to take into account Tipping Elements that can create tipping points with tremendous climate instability
    • Amazon rainforest and boreal forest
      • Close to tipping already

Research Process

  • Identify Key Economic Sectors

    • Soy, beef, logging
  • Key Economic Actors along supply chain

  • Key Financial Sources (Equity, Debt)

  • Investors

  • Earth system tipping point represent major systemic risk for the financial sector

Key Passages

  • The Critical Role of Tipping Elements

    While reduction of greenhouse gas (GHG) emission is crucially important to avoid dangerous climate change, it is not enough (Steffen et al. 2018). Bolstering the capacity of key tipping elements to prevent them from “tipping” is equally essential. most ‘green’ financial initiatives currently designed to address climate issues focus primarily on reduction of greenhouse gas emissions through e.g. renewable energy, energy efficiency and low- carbon transport. Together these represent 79% of the green bond market (OECD 2017)

  • Why look at equity?

    Stock on the other hand, holds a residual claim on the firms’ profits and has ownership rights allowing stockholders to vote about strategic decisions of the firm and the appointment of top executives. As such, the role of stock is more prominent than that of other types of finance in the governance of the firm

  • Why the Amazon and Boreal Forests?

    Forest biomes are of particular importance as tipping elements because of the nature of their biogeophysical climate feedbacks. Of all the major forests on the planet, the Amazon and the boreal forests are of particular importance; more so than temperate forests and Asian rainforests (Snyder et al. 2004; West et al. 2011; Steffen et al. 2015, see also Supporting Information 1). Their disproportionate influence on climate stability suggest that in order to safeguard a prosperous future for humanity, society needs to consider approaches that, in addition to emission reductions, maintain and enhance resilience of these forested biomes

  • The Big Three

    Our analysis shows that the largest passive asset managers in the world, the “Big Three” (Blackrock, Vanguard and State Street) together hold stocks above the 10%-threshold in 2 of 8 companies in the Amazon biome, 2 out of 16 in Canada’s boreal forests, and 3 of 5 in Russia’s boreal forests

  • It makes business sense to stop

    The approximate USD 45 billion invested by the 16 investors identified here amounts to only a small fraction of their total assets under management. However, this report aims to highlight that while the short-term financial incentive for engaging with the knowledge of nonlinear climate dynamics and tipping elements may seem small, there are long-term financial and sustainability rewards to be reaped in doing so.