This is Toni Johnson with Heron Soundbites. I’m here today with Nicolas Maennling, one of the chief economists at the Columbia Center on Sustainable Investment. Your center is a joint project with Columbia’s Earth Institute and its law school. Can you talk a little bit about what the project is and what it has to do with investing?
Our mission is to develop practical approaches for governments, investment communities, and other stakeholders to maximize the benefits of international investments for sustainable development. We look at foreign direct investments in a particular country to try and unpack what framework needs to be in place to maximize the benefits and minimize the potential costs that arise from such investments. We focus on three areas mainly; we look at the international investment framework and what’s going on in the world. And then we focus on extractive industries, so oil, gas and mining. And the third work stream is large scale land and agriculture.
This framework looks at things like transparency and good governance, including how countries might manage revenues, leveraging investment to infrastructure, community development, environmental risk and other types of engagement. Can you give a sense of where you are and sort of what you’ve been seeing in other countries you’ve been looking at?
Transparency has been on the increase in a number of ways. Within the extractive sector there has been the EIDI process, that’s the Extractive Industries Transparency Initiative. Where countries can join up and if you’re in that particular country, you have to declare how much you’re paying and the government has to say how much they’re receiving. There are an increasing number of countries also making contracts transparent for these large scale investments and there is actually a repository, resourcecontracts.org. Where we’re collecting all the contracts we find that are public, and put them online and help people to be able to compare the different terms and see what the contracts are.
So on the transparency front, I think there’s been a big movement towards opening up the data. And in terms of long-term planning and revenue management, I think that’s little bit tougher. Right now the commodity price crash has shown that a lot of countries are still very dependent on extractive industries and the revenue from it. In the case of Venezuela and Russia; a lot of these countries are suffering right now as a result of the price crash. I think there is a lot that remains to be done in that area.
There has been a lot of focus on linkages that are on the ground [having more local people employed, having more local services providing goods and services]. Some people see it as a positive thing and others see it as a negative development because sometimes these rules are too stringent and make investment very difficult.
There is a growing movement arguing that large-scale investors need to divest from fossil fuels because of climate change. Given that there are countries that are heavily dependent on fossil fuels as a source of revenue, what are the challenges and opportunities with the divest/invest movement? How is this playing out in the real world?
It is something we are increasingly putting our attention toward. The Carbon Tracker report highlighted what the stranded assets would be. If you try to meet the two degree global warming target or stay below it, then the amount of reserves that are currently in the ground or already have been found, not all of them can be burned. So we’ve been trying to assess how that would divide up between developing and developed countries. Honestly I think the first step is trying to understand how to get to the target in the first place. And the second one is to decide which countries should be allowed to rely on fossil fuel sales a little bit longer versus others who should stop earlier.
Some have argued that those who have already industrialized by using up a lot of oil, gas and coal, should scale back. A lot of countries that we work in, the least developed countries and developing countries; they should be granted extensions on how long they can rely on fossil fuels to move forward. Which is a fair argument given that they haven’t gotten us in this climate situation that we’re in right now. One of the main issues in these countries is that there is a real lack of electricity. I just returned from Tanzania where the government is urgently looking for investments in coal to power plants and oil to power plants. I think at that level, this global discussion is not yet there. There are a number of states here in the United States that are fossil fuel dependent.
There are a number of states that look like some of the countries that you’re working in terms of levels of poverty, inequality and the ways in which they can or cannot absorb a lot of investment capital. If you were looking again at the opportunities and challenges and maybe giving advice to U.S. community developers, what would be some of the opportunities on the investment side that we are overlooking?
I think these fossil fuels will have to be replaced by something, so I think alternative energy in that sense is a big opportunity. If funding comes from the fossil fuel industry towards increasing the opportunities in alternative energy, I think this is a real opportunity that should be considered. Obviously the other opportunities besides renewable, is very country dependent, so it’s very tough to say exactly what the opportunities are.
Apart from investments in alternatives, the other area that would be beneficial to a lot of these states and countries is that you won’t be as reliant on these price waves. The post-fossil fuel world will be less dramatic because you won’t have the huge fluctuations you would have in oil, gas, and mining. The other option is it might be useful to diversify your economy given the resource curse. There’s a real danger for countries that are highly dependent on fossil fuels.
Are there any early diversifiers of their economies that, maybe aren’t there yet, but are starting to take that first step?
Malaysia for example is often a country that is portrayed as having successfully diversified their economy away from the extractive industries. They’ve had strong government policies for moving into other sectors, for example they built industrial parks with special investment regimes to attract other sectors they were aiming to support.
Then there are other countries that have been less successful at diversifying mainly because there’s a lack of planning or lack of using revenues in the right way. I think that is a big difference between those countries that have been relatively successful at diversifying and countries that haven’t.
Is there anything else you’d like to add today?
I would like to get back to what you said about climate change. It’s really an issue that we in academia, but also everyone, need to think about. It's a very significant and global problem that we’re faced with now. I think divestment might be one of the ways that has been highlighted in the media. The other aspect that we should really focus on is engagement; on how to engage big fossil companies moving into the post-fossil fuel world. One thing that has recently come up is asking the fossil fuel companies how their long-term plans are aligned with the agreement that was made in Paris.
I think we’re in very interesting times on that particular topic and I hope everyone will work together to come up with very good ideas to this complex problem that all of humanity faces. Apart from just the climate change issue, the next question down the line is how to make it equitable and make sure the least developed countries are still able to electrify their populations and that they are not the ones that suffer the most from actions being taken to reduce fossil fuel extraction.
One of the things here at Heron that we’re concerned about is the dependence of poor people on fossil fuels just to make a living. And how that plays out given our strong belief that climate change has the ability to undo the work of all anti-poverty efforts in a day. These are the most vulnerable people, the least resilient, and they have the least amount of resources to adapt to a climate crisis. So it’s going to be a real challenge for the field to balance these tensions.
I think you’re exactly right. That’s one of the main problems; the effects of climate change are mostly felt by the poor. Farmers especially are going to be affected by the impact of climate change and at the same time when you try to cut back on fossil fuel extraction, you harm the countries that have the most to lose from restricting fossil fuels. It’s a very complicated issue.
I think that the rich nations, given that we got in the place that we’re in right now because of industrialization of the western economy. We have a moral obligation to make sure this transitions happens. And at the same time, that it happens in a way that we support the most vulnerable people and most vulnerable countries on both sides. The ones effected by climate change and also the ones who have the most to gain from extracting fossil fuels.
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