An interview with Bob Massie: Global warming, economic growth and the future of capitalism

Bob Massie has been working on business, finance, governance, and sustainability for more than thirty years. Massie has served as the executive director of Ceres, a powerful coalition of institutional investors and environmental and public interest groups in the United States.  In 1997 he proposed the creation of generally accepted guidelines for corporate sustainability performance.

In 2002 he conceived of the first Institutional Investor Summit on Climate Risk at United Nations headquarters. This is an active alliance of 100 U.S. pension funds worth more than $11 trillion which aims to assess the financial costs of climate change. In March 2017, Massie stepped down from the Sustainable Solutions Lab in order to run for the Democratic nomination for Governor of Massachusetts. In this interview we discussed how to tackle global warming, economic growth and the future of capitalism.

You have worked on private sector projects such as the INCR (Investor Network on Climate Risk), where global investors and pension funds aim to triple investment into clean energy technology to reach an annual goal of $1 trillion a year.  Do you think that the private sector is best suited to deal with the threat of global warming?

The capitalist system isn’t designed for long term solutions unless it is given certain kinds of incentives. There are many reasons for this. Some are linked to the very nature of capitalism as pools of capital looking for a quick return. Another is that it can be very difficult in a capitalist system by itself to facilitate fundamental structural kinds of changes. In other words, it is the interaction between government and business that often helps to set up the conditions in which business can flourish, like when building roads or railroads.

The really big problem of climate change needs trillions of dollars of investment without an immediate pay-out – its very hard for capitalism alone to deal with that. But there’s also this failure right now due to both the structural problems of capitalism itself and the failure of our modern politics, which has become increasingly short term in its perspective. When the US was a relatively new country, it used to have a culture that was very much focused on the future. The focus was on the goals that we could achieve as a political community. In the last 50 years this has been much less true – especially under Trump. So the short answer is no, the private sector by itself is not best suited to dealing with the threat of global warming.

Under President Trump, the US has left the Paris agreement that is focused on achieving a global reduction of greenhouse gas emissions. How can we encourage the US to resume its participation in global efforts to lower its carbon footprint?

Right now in the US we are subsidising the fossil fuel industry in a number of ways. That’s because there is still a widespread view that getting rid of fossil fuels isn’t a realistic approach. People tend to believe that whatever circumstances we live in are going to remain the same. To change that mentality, we need to be more supportive as a country of alternative sources of energy such as wind and solar. Not only are they less damaging to the environment, but they can often be much cheaper. The average cost of developing new power plants based on onshore wind, solar photovoltaic or biomass is now usually below $0.10/kWh. So these fuel types are now able to compete with the cost of developing new power plants based on fossil fuels such as oil and gas, which typically range from $0.05/kWh to over $0.15/kWh.

Yet in the face of the economic benefits of moving away from fossil fuels, Donald Trump is actively looking to revive our domestic coal industry. If we want to re-engage with the world on achieving a global reduction of greenhouse gas emissions, our political leaders should start by articulating to the American people the rational for moving away from fossil fuels with a view to getting rid of fossil fuel subsidies and introducing taxes on carbon emissions.

With environmental concerns being focused on encouraging less consumption of goods and resources, will this adversely affect our economies which are heavily driven by consumer spending?

There’s no doubt that we’ve become addicted to consumer spending which constitutes between two thirds and three quarters of the US economy. At the same time there is a growing trend towards dematerialisation based on technology, meaning that we need less stuff than we did before to satisfy our needs. So growing consumer spending doesn’t necessarily go hand in hand with further exploitation of our natural resources and generating more waste. For example, when I went on trips when I was younger, I would need to bring a lot of stuff with me including a guidebook, a camera and a credit card. Now all that stuff has been replaced by services that fit onto one device which is my phone. 

A famous business school case study of the environmental benefits of moving away from selling stuff to selling services is Interface Inc., one of the world’s largest manufacturers of modular carpets.  Under Ray Anderson’s leadership 20 years ago they sought to eliminate their negative impact on the environment through the redesign of processes and products, the pioneering of new technologies, and efforts to reduce or eliminate waste. The Interface story is the focus of the documentary film that articulates the benefits of their approach for both the environment and their bottom line called “So Right, So Smart” (2009).

Another question on this topic of the environment. With especially developing nations facing potential economic downturns, do you think that the environment will become a lower priority to economic growth and how can we manage this? 

Well, that’s a really interesting question, because for a very long time, the assumption has always been, if you spend on the environment, you’re taking away from the things that will allow you to have strong growth. This has been proven statistically to be wrong in many cases. And to give an example, if you look at the Financial Times in the last couple weeks, there’s a lot of reporting with some degree of surprise that so-called ESG (Environment, Social and Governance) funds have outperformed others funds. And why is that? There are many reasons.

Some of them are that when you pick a company that has a lower environmental impact or has a climate plan – you often find a better run company. Companies that are facing the future have more dynamic leadership and are not simply making short term profits. So one way to put it is that an interest and commitment to ESG or sustainability is actually a proxy for superior long term management. Now, that was the theory for a long time, but we now have a lot of data proving in many cases that it is true.  It’s being discussed at the level of major investors and various specific ESG funds right now.

There is also a major shift in how we define capital. Any business model actually draws from multiple forms of capital. In addition to financial capital, businesses also need to draw on natural capital, intellectual capital, social capital, and many others.  That’s one of the major reasons I co-founded the Global Reporting Initiative, which develops accounting standards for forms of capital other than finance.  When you have a broader definition of capital, then you have a much broader understanding of the externalities that you may be imposing on others. That notion of multi-capitalism is something that I have been engaged with for years. And now it’s taking hold — but 20 years too late. There are many examples of huge investment companies such as BlackRock or people like Mark Carney, formerly the governor of the Bank of England, that are pushing this forward as an important piece of the  solution. This is because this form of new measurement preserves the idea that we need economic growth while not throwing ourselves in the void. 

So to return to the economy and the effect that preserving the environment will have on it; Manufacturing, oil and aviation companies, hire huge amounts of workers and drive economic growth. How will they be affected in our attempt to decrease CO2 emissions?

Every industry will be affected in a different way. To be sustainable one must change the approach to commercial construction costs.  If we invested a bit more upfront, you would have better insulation, better energy systems (including solar or ground-source heat pumps) and you would save much more money over the life of the project.  But too often we just want to build something as cheaply as possible and let the next owner deal with the higher energy costs. 

To give another example, there are very few miners in the United States. There were 750,000 after World War II; there are now about 50,000. So today we need a plan for what is called “just transition.” You don’t just fire the workers, leaving them without income or without health care. You put them on a path to finishing their careers or being subsidized for retraining. It’s not that big a problem. I mean, the USA has 330 million people and we are talking about a tiny minority. But that’s a very sensitive and politically significant issue. Again, people tend to focus on how much changes will cost.  They don’t examine how huge the benefits might be.  If we were to change the American grid for example, that’s millions and millions of jobs available in engineering and construction.

Another question on politics: to what extent has Covid-19 forever changed  the way we travel, trade and co-operate across the world?

In one way Zoom has educated an older generation on how to connect in a different way. For example my wife, who is a professor of architecture, has continued teaching through Zoom even though her students are in about 20 different locations around the world.  It could be that Zoom will make us more interested in one another. My concern is we are not going to learn the lessons of the last couple of months. It should be an opportunity for Trump to address structural problems in the US – but he is mentally and psychologically unable to see that. 

Could you go into a little more depth as to these structural issues we face?

So, first of all, I do believe in the positive contribution of a form of capitalism. It’s important to be able to gather capital and to apply it to projects, whether it’s at a local community level or a global level.  This allows us to take on new projects that smaller entities or individuals just can’t take on, thus helping us to channel our natural human instinct to exchange with one another.

But on the other hand, we should be aware that capitalism is always changing: the capitalisms of the 1640’s or 1820’s or even the early 1920s, are all quite different. And one of the problems that we get into is that we say: well, we have a system, it’s worked, it’s been here forever and let’s just keep it. That’s not actually true. What we have is a dynamic system that goes through a new phase every 25 or 30 years as a result of new technology or new problems. 

So part of the problem that we’ve got today is that we’ve taken certain inherited forms of capitalism and we’ve just carried them along. What I am really talking about when I say we is the people at the top: because the system is working very well for them. So you look around and say: I’m getting wealthier, everybody I know is getting wealthier. House prices are going up. Why is this bad? So that’s one. And connected to that is the assumption which has a strange history that shareholders and shareholder value are the most important things in our capitalist society.

By the way, I just want to make the distinction that for me there are not two sectors; public and private. There are three. Obviously you have the public, and then I separate the private into 2 groups. There are small and medium sized businesses which operate on a fairly low level. And then you have corporates, which marshal billions of dollars, have tens of thousands of employees and are able to have a significant impact on how countries develop. But they’re barely accountable. So for me, that dynamic is a three way dynamic. And for example, in the US, we have lobbying institutions that say they’re for independent and small business. What they really do is the legislative bidding of the largest companies in the country, which is not necessarily what best serves the interests of the country’s small businesses and citizens.

So it’s about not limiting our self to shareholder value, but also considering a company’s environmental, social and societal impact. Is that what you think?

I was on the International Integrated Reporting Council in 2013 and we issued a report. We were also working with the International Corporate Governance Network, which is an alliance of major investors that have been pushing major companies to consider alternative forms of recording profits. And as you pointed out in one of your first questions, when somebody who has, you know, a half a million shares in your company asks you to do something, you tend to do it. So that’s an interesting dynamic. However, there is still hope, even though economics and finance have all these structural problems that prevent them from being able to be harnessed to best serve the interests of the world. This is going to be something that you as a citizen are also going to have to try and improve and change to ensure that we manage these huge issues we face.

Just to return to something you previously touched on, which is more of a theoretical point. The USA guarantees its citizens the rights to life, liberty and the pursuit of happiness. To what extent do you think that the government can curtail individual freedoms for the “greater good” of fighting climate change?

I’d like you to also consider the reverse. Amartya Sen is a Nobel prize winning economist who has taught for years simultaneously at Harvard and Oxford.  One of his most powerful books is “Development as Freedom.”.  He argues that we tend to think of freedom as preserving the option of doing what we want – we think of “freedom from” restrictions.  But often we are most constrained when we do not have the resources to accomplish what we want.  One can think of this as “freedom to” do things.  If one does not have health care, or housing, or education you are “unfree” because there are so many things that you can’t do.  

When running for office I used to describe it this way.  To build prosperity in one’s life, I said, you have to have a stable table with four legs on which to rest your life and career. And without this, your life is unstable. And I said those four legs are a good home, a good school, a good doctor and a good job. And in the United States, you know, our housing situation is worse than in many countries. We have really messed up our education system and though we have very good health care, it is unevenly distributed. And finally, a good job, which should be built around a living wage, has become rare because capitalism has increased productivity without increasing wages – and the benefits of that flow to the top.

Figuring out what we accept or require of people is the day-to-day topic of legislation and governance.  We accept, for example, that if someone wants to drive a car, he or she must have a license. But you might say that’s a coercion. How dare you tell me that I can’t drive a car. Well, we’ve decided that as a matter of public safety, we need to do that.

And so your question is perfectly fair – and not always easy to answer in the specifics.  In the case of climate, we might need to restrict some behaviours in order to protect future humans and the future planet.  What duties do we owe to the future?   Given that the alternative is the annihilation of human civilisation and destruction, I think we can justify many bold actions.

To be a member of a society is not just to assert your rights, to demand that obtaining what you want is the primary role of government.  We also have responsibilities, which is something that in our culture we do not talk enough about. This is one of the reasons why we are failing as a country.

In American political life, the government has a duty to create the conditions under which people can seek life, liberty and the pursuit of happiness. So it goes both ways, and I think that right now in the United States with the coronavirus situation, we must embrace our responsibilities and apply our strengths.  My generation has failed in this, in part because we believed that our market system would never fail. 

Now that it is failing, I worry that too many young people will slavishly follow lessons that no longer work rather than dig in and change the future, which, if you live in a privileged part of society, you have the possibility of doing.  We could build a just and sustainable society, but we will only achieve this if we believe that it is possible.  In a book I wrote nearly twenty years ago, I ended it with the sentence “In the end, we become what we believe,” and I still believe that.