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Tuesday, 14 May, 2019

Addressing investors at an EQT event, Gro Harlem Brundtland challenges the financial sector to think and act sustainably. 

 

Ladies and Gentlemen,

It is telling of the times we live in that so many of you from the world of finance and investment are joined here to listen to a talk on environmental considerations and sustainable development in planning and investing.

That would not have happened when I was young. 

Environmental considerations as a political and economic force came to life in the 1970s.  I was among the first ministers of environment when I was appointed to that position in 1974, aged 35.

During those years, environmental considerations were seen by most as an obstacle to economic growth. You could have a clean environment, or you could have jobs, wealth and growth. You could not have both. That was the tone in those years.

On the international scene, and in the United Nations itself, developing countries regarded environmental considerations as something the rich countries wanted to impose on poor countries at the expense of economic growth in their countries.

This was the backdrop when the Secretary-General of the United Nations in 1983 asked me to establish and lead an international commission to explore how we could have both: on the one hand an environment that would sustain future generations and their needs and aspirations for healthy lives, and at the same time allow for economic growth and more prosperity, in particular for the billions of people living in abject poverty.

This was the 1980s. Ronald Reagan was President. Margaret Thatcher was Prime Minister. The Soviet Union was a sunset business under communism. And everybody in rich countries was afraid of the vanishing of the ozone layer which protects us from solar radiation.

Today, we have almost resolved the ozone problem and few of us remember what it was. But ozone was perhaps the first perceived global environmental threat to the lives of rich people as well. Nobody could pay their way out of the situation.

I was Prime Minister in Norway during those years. And I remember vividly the international uproar we created when, in 1991, we imposed a CO2-tax also on our own petroleum industry. 
Other oil-producing countries were in shock. How could we saw off the branch we were sitting on?

But emissions actually went down. The finance people of oil companies would go to their engineering divisions and demand reduced emissions, for reasons of profitability. The tax also led to our first carbon capture and storing project, where a gas field proved unprofitable with tax but became profitable when the CO2 was captured and reinjected in the seabed. 

I was Director-General of the World Health Organization during the years of the millennium change. It was like reconnecting with early formative years when I became a medical doctor and went to the Harvard School of Public Health. There were years at the WHO of threatening global pandemics. The health of populations was in peril. We showed how broad interventions, such as immunization programmes, would yield enormous benefits for national economies as well as for people´s health. We saw challenges presenting those gains, and we saw how some countries hesitated to acknowledge their problems, a phenomenon that seemed to recur during the Ebola crisis. 

But when the Bill and Melinda Gates Foundation forcefully moves into immunization, we can be assured that they have calculated the economic return on that, not only the reduced human suffering. 

Having advocated for social justice, inclusion, human rights and the empowerment not least of women, I have observed dramatic changes in perception and acceptance over the last 40 years.

When I was invited for the first time to speak in Davos, in 1979, I was the only woman on that stage, asked to speak on “Quality of Life in the 1980s”. The general attitude I met there was that the only concern relevant to business and the corporate sector was: ”All that counts is the bottom line.”

All other critical issues and concerns, whether social, environmental or cultural, were up to governments.

There has been a real sea-change. I knew we had entered a new era when, a few years ago, Christine Lagarde of the IMF entered the scene in Davos to express clearly and compellingly the critical role of women and gender equality for the prosperity of nations.

Since then, we have also seen the importance of greater equality take hold, across the political spectrum, not only overcoming poverty, and now finally to be found within the Sustainable Development Goals.

Corporate philanthropy can play an important role in overcoming some of the challenges we face. All institutions – large or small – can find a way to contribute meaningfully through leveraging their core competencies. 

The developments over the last years have been an incredible success story in many respects. Environmental policy is accepted and mostly respected, also because it offers business and investment opportunities. 

This has placed you all, as investors, analysts, money managers and corporate executives, on the centre stage. This will be even more the case in the years to come. 

Over the next decade also, you as professionals will increasingly be invited and encouraged to reflect on your strategy and to step up, in order to fulfil your obligations towards investors, towards the companies where you have a role, and towards society. 

It is interesting to see how even the world´s industry giants -- Volkswagen, Porsche, BMW, BP, Exxon and the gigantic European power companies -- have been severely hit as some of their practices have been seen as covert or non-sustainable or as regulations have changed. 

Consumer power has grown. There is a new consciousness, there is more knowledge. And more people are simply scared, like during the ozone crisis 30 years ago.

A few weeks ago, the governors of the Bank of England and the Banque de France made a dramatic intervention calling for the financial sector to take urgent, drastic action on climate change by reassessing risk models and investment principles.

They warned that a “massive reallocation of capital” is necessary to prevent global warming above the 2°C maximum target set by the Paris climate agreement, with the banking and financial system required to play a pivotal role.

“If some companies and industries fail to adjust to this new world, they will fail to exist,” they said starkly.

What we see is a new challenge for established industries to attract the best young talent unless they can demonstrate climate or sustainability commitment. Young talent seems to be looking for job opportunities where they can combine knowledge from the economic, technical and environmental fields, and where they can be proud workers for a better world. 

The most important resource for any business is the ability to attract and retain talent. 

EQT and any other company with world-leading ambitions must adapt to that request by prioritizing and living these important values. 

Every year new steps are taken; In Norway, most recently, this includes electrification of new petroleum platforms, hybrid and LNG-fuelled supply vessels. Floating windmills are considered as a possible source of power for the offshore platforms. Equinor now, with pride, claims to be the most CO2-effective oil and gas producer, which comes from access to emission-free hydro-power to run platforms. Even more remarkably, Equinor in 2018 paid NOK 1150 million for a plot of water off the shore of Massachusetts. They plan to build a world-scale wind park. 

Over the past 30 years we have seen a whole new and comprehensive body of norms and ethical standards for business.

My late and dearly missed friend Kofi Annan, when he was Secretary-General of the United Nations, developed the UN Global Compact, which thousands of businesses around the world have signed on to. The Compact is a set of 10 principles for responsible business that some 9,000 businesses around the world have signed and report on.

We have the Principles of Responsible Investment - PRI - convening investors, which direct and redirect trillions of dollars every year.

We have new rules on human rights and business developed in the United Nations. We have the Global Reporting Initiative, and a set of sustainability reporting requirements, sometimes set by regional stock exchanges, other times laid down by laws regulating annual reporting, such as, for example, in Norway.

I do not believe all of this would have seen the light of day if the world of business hadn’t eventually embraced it. These rules serve to level the playing field, and to extend licenses to operate.

Part of the financial industry still prioritizes short-term profits. They will prove unsustainable.  Consumers and clients increasingly factor sustainability into their purchasing and financial decisions. Furthermore, such investments may be threatened by litigation, tariffs, quotas and policy shifts. 

The marketplace has to reflect the full ecological and human costs of economic decisions, and establish price signals that render transparent the consequences of both action and inaction.

I am encouraged to see that there are many people in the financial and investment communities who recognise the need for serious, systemic changes to make their industries “fit for purpose” in today’s world.

Larry Fink, the CEO of Blackrock, put it well in his most recent annual letter to the CEOs of the companies in which his fund invests:

“Commitment to a long-term approach is more important than ever… as wealth shifts and investing preferences change, environmental, social, and governance issues will be increasingly material to corporate valuations.”

Throughout the 20th century, economic growth was measured by the accumulation of physical, financial and human capital without regard to changes in natural capital, and without taking social risks into account.

In the 21st century, the goal must be a “green economy” that can generate economic growth and improvements in people’s lives without harming the environment. This is actually what we called for in the 1980s when we delivered the UN report we wrote in the World Commission. This reflects the Commission’s definition of sustainable development: “Meeting the needs of present generation without compromising the ability of future generations to meet their own needs”.

And, yes, the combined strength of appropriate policies, technology and choices of consumers and business has proven itself to be tremendous. 

A solar plant is now being built in Idaho that will deliver power at 2.2 US cents, or 0.19 Norwegian Kroner, per kilowatt-hour. I remember when a kilowatt-hour cost of solar was 5 Norwegian Kroner.

Onshore and offshore wind sees immense cost reductions. 

The cost/performance ratio of batteries improves at an even faster rate. Companies that can´t offer electric or hybrid options are facing headwind in many markets. No brand has ever sold more vehicles in Norway than what Tesla sold in March 2019. The Nordics, the home turf of EQT, is among, if not the, region that is moving the fastest. Dozens of companies with a global potential are about to emerge.

Even more positive, many of the new technologies are particularly well suited as an enabler of sustainable growth in Third World countries. The move from complex, high-cost fixed phone systems to cellular technology brought technology and services to billions. Norway had 800,000 fixed phone lines; Nigeria, a country with about 200 million people, had 150,000. Norway now has 5.7 million cellular lines. Nigeria has 144 million, making it the world´s seventh largest market.

In the next decade distributed power system will follow. Green power systems. This increases productivity, creates a surplus, creates a tax base and brings development. It even reduces birth rates and supports equality.

A person in Tanzania has access to less power than a 60-Watt light bulb. She lacks light and a basis for building even small businesses. A Norwegian company can expect a power outage once per year. A Nigerian must expect almost 35 per month. These challenges must be resolved if businesses are to prosper and growth is to be created. 

Now, finally, we see a green route emerge. 

There are single country risks in, say, Africa, but across a portfolio this is levelled out. The new technologies enable this. Wind and sun, unlike coal, gas and partly hydropower, have the advantage that the projects can be developed in stages and in multiple locations.

The real high-risk countries in the energy industry, and in most other industries, are in Western Europe and especially in the United States. Where else can companies implode due to “just” one error, or due to “just” one litigation?

There is a growing recognition that regulations and limited public funds must be used strategically and catalytically, as incentives to unlock greater private investment flows, share risks, and expand access to the building blocks of prosperity, including modern energy services.

Political measures will be put in place to steer the allocation of funds and to build a platform for private and public sector investments. The Norwegian Sovereign Wealth Fund was recently given a separate quota for investments in non-listed green infrastructure. 

In parallel it was recently announced that it would divest from about $7.5 billion worth of assets from oil and gas companies that are focused purely on exploration and production. 
Knowing the Nordic political community, I can say one thing for sure: billions of dollars will be placed into co-investment vehicles in support of the green revolution.

We need to be united in a common endeavour, as it is our common future that is threatened if we persist with failed political and economic models.

The 17 Sustainable Development Goals, agreed by all world leaders at the UN in 2015, now cover all countries and all aspects of human life and development from health, education and the environment to peace, justice, security and equality.

They aspire to building bridges and collective impact, across sectors and issues, to inspire shared responsibilities and sustainable growth.

One such illustration can be the obvious links and great potential when focusing on water, energy, nutrition, food, agriculture and health.

To implement the Sustainable Development Goals (SDGs), the world may need investments in the order of $7 trillion globally, annually. 

Of these trillions, one trillion is estimated to come from public sources. A mere $150 billion is official development assistance (ODA). Around 80 per cent of the total will have to come from private sources. Today, 80 per cent of global value creation comes from the private sector.

About 80-90 per cent of infrastructure investment will be made by the private sector. 

The challenge is often to make projects and investment bankable. But given developments in recent decades, I have no doubt: 

We do have the capacity to solve the climate problem, that we will have the capacity to solve our critical development problems, and that it will be indeed a common future.

Thank you.
 

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