Going nuclear

Weapons are ESG now. Investment lessons from sanctions. Energy security vs autocracy.

From the top

🌏 The window of time to mitigate and adapt to climate change is “brief and rapidly closing,” says the latest IPCC report. One in three people are exposed to deadly heat stress, rising to three in four by 2100. The warning arrives when all eyes are on the Russian-Ukraine crisis, which has forced a reckoning over Europe’s dependence on Russian gas. “As current events make clear, reliance on fossil fuels makes energy security vulnerable to geopolitical crises,” the UN’s António Guterres said on Monday.

🇺🇦 A month ago, the solution would have been renewables. The Ukraine crisis, however, is changing the face of sustainability. Having been reminded that S + G issues exist at a state level, the West is reevaluating its relationship with autocracy. Swapping gas for renewables means exchanging Russia for China, substituting one geopolitical challenge for another. The “Ikea of the energy transition,” China accounts for 80% of US and 90% of EU imports of materials critical for renewable development.

🌾 It’s not only energy. Food security is one of many humanitarian disasters emerging from the crisis, building on the agricultural plight outlined by IPCC. By day one of its invasion, Russia effectively controlled 30% of the world’s wheat exports. Worrying? Not for China, which accounts for 47% of grain inventories after having spent much of 2021 snapping it up. Beijing also dropped sanctions on Russian wheat imports back in January. Prescient for an administration supposedly in the dark about Putin’s motives.

💣 War. What is it good for? ESG, apparently. The defence industry is seizing its opportunity to be branded as sustainable in the EU’s Social Taxonomy. Sure, the energy crisis shows what happens when we withdraw financing from things we need. But if anything is ESG, might it be time to retire ‘ESG’ in favour of, say, outcomes on a case-by-case basis? Or do we continue to brand as morally Good whatever is financially Good? Blame everyone who justified ESG with outperformance (2018-2021).

💸 Money is a social construct. Bailouts, stimulus, sanctions—all reinforce the idea, articulated by Matt Levine, that money is a tool of social decision-making. On the one hand, cool that the global financial system rewards prosocial behaviour. On the other, it’s not the only system. When the US punishes a country with expulsion, it undercuts its hegemony by a) creating the demand for an alternative system, and b) undermining trust in the dollar as a neutral world reserve. Something for the divest/engage debate.