Environment

The latest Economic Affairs (the quarterly journal of the Institute of Economic Affairs) arrived today. Its leading topic - Corporate Social Responsibility (CSR) - reminded me that I never published the short talk I gave at an EU "stakeholder" workshop on CSR (or Environmental Social and Governance [ESG] disclosure, as they have re-named that rancid and decaying rose) in Brussels a few months ago. I thought it might be of some interest: (I didn't choose the title.)

Why do some enterprises choose not to disclose ESG information? 

Let me be clear first about two reasons why I am not opposed to ESG Disclosure.

1. I am not opposed to companies taking account of environmental and social issues. We do, to a greater extent (relative to our size) than most companies who are enthusiasts for CSR.
2. I do not argue that small companies should be treated differently to big companies. A sign of a bad system is one where it is necessary to treat small companies differently to big ones.

Indeed, I am not opposed to companies choosing to promote their environmental and social activities in any way they choose, including ESG Disclosure if they want.

What I oppose is any attempt to make it mandatory, or to give preference to companies who do it, or to make it a condition of doing business, or indeed to portray it as somehow virtuous or effective.

Running a business is not easy. Businessmen have large amounts of information to digest, possibilities to consider, and responsibilities to uphold. They must be good at predicting the future course of events, and at reacting quickly to changes they didn't foresee. They must be able to tell the difference between conventional wisdom and fundamental truth. Failing to do so can be catastrophic, as we have had to learn yet again.

Anything that distracts them from this focus - that complicates their judgments or clouds the information available to them - can be detrimental not just to their business, but to society at large. CSR does exactly that.

Accounts and prices are ways of condensing a lot of information into an easily-comprehensible, commensurable form. Commensurability is key to business information, and it is absent from the many CSR standards. What does it mean when we quote an “employee engagement score”? How do we weigh a change in that score against a change in our “business practices measure”? Can we compare our “business practices measure” against other companies' “business practices measure”? And where these scores are achieved through surveys, what are we really measuring – fundamental performance, or how we have influenced people's perceptions on the issue?

Even where you think you have something objective, like a firm's carbon footprint, it often turns out to be illusory. For example, BT (a firm with a strong reputation for CSR) claimed to have cut their carbon footprint dramatically by buying "green electricity", when in reality their contribution to the carbon savings was negligible. Despite an unfavourable decision by the energy regulator, BT maintain this fiction in their latest CSR report.

Where you have a material externality, the right approach is to create an appropriate institutional framework to internalize it. Businessmen and other leaders will then be able to take account of it through their conventional business tools and will have sufficient incentive to act where appropriate. Investors will be able to measure a business's success in acting on the externality through their single bottom line.

What drives real change is not fine words and woolly numbers in glossy reports, but incentives of sufficient value that they justify action. One danger of CSR is that, by creating greenwash for companies to pretend that their minimal and often illusory contributions are somehow significant, it provides cover for those companies to oppose measures that would have real effect.

We must judge, promote and reward businessmen according to their entrepreneurial ability, not their ability to direct or present their company's activities in a way that accords with some prescriptive attitudes to certain social and environmental issues. Otherwise, we will end up with the wrong type of people leading homogenised businesses, undermining the diversity that is vital to the effective functioning of markets.

All of the following businesses were strong proponents of CSR: ABN Amro, ING, Bradford & Bingley, Northern Rock, HBOS, RBS, Woolworths, Anglo Irish Bank, AIG, Bear Sterns, Lehman Bros, Merrill Lynch, Morgan Stanley, Washington Mutual, Fannie Mae, Freddie Mac, SachsenLB, Hypo Bank, Kaupthing, Martinsa Fadesa, General Motors, Chrysler, Nortel, and of course Enron before that.

I don't intend to be that type of businessman running that type of business.

Mental illness is no laughing matter, so I hesitate to take the piss out of the following. On the other hand, it's hard to know whether to laugh or cry when you see something like this. You can fill in your own punchlines about the mental state of many enviro-communists.

The National Lottery is funding the Ecominds programme, "for a range of groups who want to encourage people with experience of mental distress to get involved in environmental projects, such as improving open spaces and wildlife habitats, designing public art and recycling."

There is nothing the enviro-communists like more than finding people who are mentally and emotionally vulnerable, and getting them personally invested in their philosophy. Physical/outdoor projects are probably a good thing for people with these problems, but we can't keep it as simple as that. We have to drag "the environment" into it. Like "Christian" charities, the enviro-communists want a piece of their soul in return.

The objective, to "help reduce the stigma surrounding mental distress and help create a society that treats people with experience of mental distress fairly, positively, and with respect", is worthy and utterly unobtainable by this means.

Further to the earlier post about the dumbest economic argument in the world, the perpetrator (Mark) has now published the results of his poll, which asked "Who is best placed to decide what to build on any particular plot of land?" He has discovered that most people think that the owner is. Well, knock me down with a feather. Of course they do. So do I.

But in Mark's strange world, dreamt up to justify his devotion to LVT, this somehow means that whatever use gets the best value for the landowner also is most beneficial for the neighbours. Gems from his analysis include:

"Interestingly, even though each of these uses must have some 'external costs', it must also have 'external benefits', and the rental value of each shop reflects the profit value to the owner/occupier, plus the external benefits and minus the external costs of the neighbouring businesses."

"as the rental values of premises in the same street are going to be broadly the same, the external benefits generated by each occupant must exceed the external costs (or else rental values would tend to nil rather than skywards)."

"So the 'location value' of any site, being a positive figure, consists to a large extent (I can't quantify this as a fraction of the total rental value, but it it very significant) of the external benefits created by neighbouring occupants"

Notice how Mark is rather casual about the direction and extent of externality. So long as there are some external costs and benefits floating around, it doesn't much matter in Mark's world whether you are the inflicter or the inflictee. Somehow, this has all magically coalesced into fair value for all.

Bishop Hill has a shocking exposure of how local government in the fire-hit regions of Australia prevented locals from taking actions that would have reduced the risk to their properties and lives.

It must be great coming up with policies for the Lib Dems. OK, they have no chance of ever winning anything, but that is the point - they know this and can say absolutely anything. If I were a Lib Dem policy maker I'd ensure that our manifesto included free beer for everyone, the three day weekend, Christmas would be twice a year, I'd abolish all taxes and reduce carbon emissions in the UK to zero. Of course, they wouldn't promise any of these things because they are obsessed with trying to sound like a credible opposition.

I can't even be bothered to explain why - I think he just is. Anyone else agree?

Last Friday, the LibDems launched "new transport polices to create a zero carbon transport system by 2050." And no one noticed. Not even their website, which carried the press release, but doesn't seem to carry the document, Towards Carbon Free Transport.

We are given a few hints how they might achieve this mighty ambition, but are otherwise left to speculate. The hints are:

• Introducing a distance charge on road freight, related to weight and emissions, as an incentive to shift freight to rail, raising at least £600m a year
• Establishing a new 'Future Transport Fund' to fund a programme of investment on our railways; removing bottlenecks, providing more trains and reopening lines
• Backing new North-South and East-West high-speed rail lines to the best European standards to replace internal flights
• Toughening new legal limits on the average emissions of new cars sold in the EU, to be reinforced with a steadily declining total that reaches zero by 2040
• Introducing a new 'Climate Change Charge' on internal flights, except life-line routes, starting at £10 per ticket to help fund the 'Future Transport Fund,' which will generate at least £150m a year

So we will still be using trains, planes and automobiles, but they will somehow magically become zero-carbon vehicles. I'm looking forward to discovering how the full document explains how they will achieve this miracle.

UPDATE: They have now (Monday, 8th August) provided a link to the report. As expected, it is a mixture of the sound and the fantastic. Detailed analysis is provided in the Comments.

Following my report of predictions of floods for London and a worse-than-average hurricane season, there has been some refinement in both regards. Piers has updated his forecasts for August (attached), though this has not resulted in any major changes - he is still warning strongly of more floods, including for London.

The justification given by the Environment Agency for the bonuses taken by their managers is that they had achieved 42 of their 45 performance-related targets. There has been much debate about whether the bonuses were appropriate in the circumstances, but besides the important points of principle, has anyone checked to see what those targets consisted of?

For the benefit of our readers, I have now waded through them. They are listed with comments below, but in summary, it was 42 out of 59 (not 45), most of the 42 were insignificant, bureaucratic or suspect (often some combination of the three), some of the other 17 were more significant than the 42, and most of the 59 were inappropriate tools for measuring their performance regardless of success. Highlights included:

• Success claimed in influencing planning decisions in relation to development in the floodplain, in offering an appropriate flood warning service to properties in the flood plain, in getting more people to take their advice on flooding, and in delivering their flood risk management programme. If this is success, you've got to wonder what their definition of failure would be.
• They redefined their failure to achieve their targets for the number of houses protected from flooding and the condition of the flood risk management systems as "partial achievement" (in much the same way that teachers wanted to refer to failure as "deferred success"). This allowed them to leave these factors out of the consideration of their overall success in meeting their targets - their logic seems to be: "it's neither success nor failure, so we just won't count it at all". In the case of the flood risk management systems, this "almost success" consisted of a little over half the systems being in their target condition.
• One of the targets which they admitted they had not achieved was for emissions of priority pollutants to be going down. Just a minor part of the EA's role, but obviously not as important as their successes in increasing the proportion of ethnic-minority employees in their workforce to a full 2.7%, getting positive media coverage, putting "workforce plans" in place, and not having too many accidents.
• They have, apparently, made themselves more efficient, dealt with permit- and planning-applications on a timely basis, reduced the administrative burden that they place on business, and generally delivered such a great "service" that most of their "customers" are happy with them. Honestly. Why are you laughing....

An eco-house in Pembrokeshre with a minimal carbon footprint is to be demolished because planners judged that it "failed to make a positive environmental impact", The Times reports. Of course, carbon footprints are a lousy way of measuring environmental impact, but any fool can see that not just the house but the way the occupiers live their life has minimal impact on the local or global environment.

Piers Corbyn, the man who has successfully forecast, weeks or even months ahead, much of this summer's extreme weather events, has issued a warning of further heavy rainfall on 5th-9th and 18th-23rd August. He also warns that there is a serious risk of flooding in London, as the floodwater from this rainfall hits the spring tides of 12th and 28th August.

I have no idea about the conditions required to cause flooding in London. We are often told (for instance by Ken Livingstone only this week in questions on the Olympics) that London is protected from flooding for at least the next fifty years by the Thames barrage. But given Piers's record (he was bang on with the rains of 12th-14th June and those of 24th-26th June, which caused the Sheffield and Hull flooding, but was out by two days in forecasting the recent heavy rain for 22nd-26th July, when it actually fell mostly during the period 20th-23rd July), and the less impressive record of the Government and the Met. Office, I would be inclined to take at least the weather forecast part seriously, and to ask questions of the Environment Agency about whether the conditions he forecast could really result in serious flooding in London.

The economic consequences, if Piers is correct, could be significant. He has written to Gordon Brown to warn him. We'll see whether the Government will take the threat more seriously this time, and take more decisive action to put preventative and rescue measures in place.

Meanwhile, on the other side of the Atlantic, we are well into Hurricane Season, which officially begins on 1st June. So far, it seems to have been a pretty quiet one, though one wouldn't expect the big storms yet - they tend to be concentrated between August and October. The Season Outlook issued by the National Oceanic and Atmospheric Administration (NOAA) at the end of May warns that it is very likely (75% probability) to be an above-normal hurricane season. This is not, as will doubtless be claimed if the Outlook turns out to be right, because of global warming, but because of "1) the continuation of conditions that have been conducive to above-normal Atlantic hurricane seasons since 1995, and 2) the strong likelihood of either ENSO-neutral or La Niña conditions in the tropical Pacific Ocean." As La Niña conditions have been fingered for our bad weather, it looks like that part of the forecast has been fulfilled, which was expected to lead to more extreme events than if there had been ENSO-neutral conditions.

All-in-all, it looks like this year could be a humdinger of a hurricane season, if the US government agency's models are right. It's always possible that the weather confounds the models, or that the models are wrong. Even if not, the agency is keen to point out that the scale of damage is not necessarily proportional to the activity of the season, as the precise paths of the hurricanes are an important factor in the scale of damage, and these paths cannot be predicted accurately. But it's yet one more risk of a high-cost weather event.

It must already be a pretty bad summer for insurers, given that southern Europe is experiencing its own extreme weather, Eastern India is under water, Japan has been hit by the strongest typhoon on record for a July, while in China, they seem to be managing to have floods and droughts almost simultaneously. If either or both of these threats - flooding in London, or a hurricane-strike on another major American city - occur, it could cause significant difficulties for the insurance industry. And any circumstance where high payouts are a risk can only mean one thing - higher premiums. It's just one more thing to add to the ongoing squeeze on the budgets of most households and businesses nowadays.

So Bernard Matthews bought a load of dodgy birds from Hungary, dumps a load of meat in open bins, had un-fit for purpose sheds which had leaky roofs and mesh that had been gnawed by rats and his farm was at the centre of the biggest outbreak of bird flu seen in Britain. As a result he culled 159,000 of these birds because of his business's poor hygiene. So what is the Department for Environment, Food and Rural Affairs response to this buffoon's Del-boy-esque business practices? They have given him £600k. Jack Straw, the Leader of the House has said “All of us are uncomfortable about the reports of high levels of compensation to Mr Matthews’s firm.” So why has your government seen fit to give him over half a million pounds of our money? I bet old Bernie can't believe his luck, a truck load of cash and he didn't have to flog one of his Turkey Drummers to the ever growing obese nation.

So what can we expect from Wednesday's budget, apart from Gordon Brown boring us all to tears? Well, the buzz word at the moment is green and it's an expensive word at that. It seems the biggest losers on Wednesday will be the evil folk that are deliberately going around doing their best to destroy planet earth - yes, I'm talking about you Mr Car Driver. Mr Brown does not care that you have not got a viable alternative to get to work unless you live in London - in fact the less viable the better. For if these green taxes actually worked the Treasury would be out of pocket, the car industry would collapse and cost of running over crowded trains would bankrupt the country.

The hypocrisy of this government over the green debate continues. Whilst we are being taxed from the skies, off the roads and out of business the government is actually increasing its CO₂ outputs. The Sustainable Development Commission (SDC) criticises ministers and senior civil servants for failing to set the right example. The report analyses the performance of 21 government departments and agencies against targets on all aspects of green behaviour. It says: "No department can make a reasonable claim to have met the requirements of all the targets assessed." The report found that most departments are using energy less efficiently compared to previous years and that, on average, they generate more waste. Most were way off track to meet the target of reducing carbon emissions by 12.5% on 2000 levels by 2010.

The Department of Trade & Industry seems to be in a bitter and very personal battle with the Department for the Environment, Food and Rural Affairs to see who can fritter away the most public money. It seems the DTI have struck the latest blow with their low carbon buildings programme, designed to boost the installation of solar panels and wind turbines on houses.

Yet another token effort by the government to make it sound like they are doing something, when they are actually just paying lip service to popular issue of the day – achieving absolutely nothing and throwing away our money in the process. Do they really think £3.5m worth of solar panels and wind turbines protruding from a few roofs is going to stop anything (apart from the neighbours view)? They have managed to burn their way through their annual budget in just six months! That’s £3.5m spent on achieving absolutely nothing and it was all done twice as fast as they had planned to do it. Brilliant. Miliband has his work cut out.

All sorts of environmental issues are now presented not just as practical but as moral issues - if you don't recycle, you aren't just a wasteful person, you are a bad person. In Radio 4's Start the Week today, Andrew Marr's guests included Mark Dowd, a former Dominican friar turned journalist, who has put together a programme for Channel 4 called God is Green, arguing that environmentalism is a religious issue. So now it's not just practical and moral, but religious.

Another of Marr's guests, Michael Portillo, was an honourable dissenter from this view, but Dowd's view was supported by the other guests - Wangari Maathai (Kenyan environmental and human rights campaigner) and Christine Riding (curator of Tate Britain). Majority support in the studio for a moralistic approach to environmental issues may well reflect the tendency in the country at large.

Let us assume, for the sake of simplicity, that it is a religious question to the extent that it is a moral question. Dowd tries to make the case that it is more than that - it is embedded in the religious texts. But his example - the fact that there are 261 references to the creation in the Quran - does not seem like strong evidence that environmental care is mandated by God's instructions. So let's stick to the question of morality.

Some projected consequences of global warming, if accurate and allowed to proceed unchecked, are clearly immoral. If global warming caused the destruction of home and habitat through flooding and drought, and my actions contributed knowingly to global warming, those actions would be immoral in so far as they were reasonably avoidable, where I had done nothing to mitigate their effect.

The latter provisos are important. To some extent, my very existence is contributing to global warming. I emit carbon dioxide when I breathe, methane when I fart, and rely on production and transport of goods to satisfy my wants. I might be able to minimise my dependence on produced goods, but it is unrealistic, in a world dependent on division of labour to maximise efficiency, to imagine that I will eliminate entirely my dependence on others' produce. Were we to set that as the moral "gold standard", we would have to acknowledge that a necessary corollary of complete self-sufficiency is the abandonment of mechanisation (which requires factories for production of the machines) and chemical fertilisation, both of which have substantially increased agricultural yields. In such a world, the population that could be supported without further encroachment into uncultivated land would be very much lower than it is today. Moralists would have to explain how this dramatic reduction of world population is to be achieved (and for those religions opposed to birth control, how the lower level is to be maintained).

Any realistic moral philosopher would have to recognise that some continuation of division of labour, mechanisation and transport is necessary to the welfare of mankind. Happily, the Earth has the ability to absorb a certain amount of carbon annually. Upto a point, carbon emissions can be not only necessary to human welfare, but also beneficial to our environment. The trouble comes (in theory) when we emit more than the Earth can absorb. But as every inhabitant of the Earth is contributing to carbon emissions to some extent, it can be difficult to identify which emissions are responsible for which effects. How are we to distinguish by ethical assessment which activities are moral or immoral?

One approach is simply to dictate that certain acts are "good" and other acts are "bad" - simplistic, rules-based morality. We are told that recycling is good. The trip to the bottlebank fills the recycler with a sense of wellbeing that they have done a good deed. But what if the contents of those bottlebanks cannot be sold for a price that justifies the transport to the factory, and are instead tipped in a landfill? That is not an uncommon result. Or what if the carbon released in the travel to the bottlebank, in the transport of the broken glass to a reprocessing factory, and in the conversion of the broken glass into useful product exceeds the carbon that would have been released if those products had been produced from raw materials? Was the act of recycling moral in those circumstances? A rules-based approach to environmental morality is insufficiently flexible to be realistic. Policy to deal with global warming requires consideration of real impacts in real and variable circumstances, not one-size-fits-all dirigisme.

Another approach is to apportion equally to every member of the human population rights to emit their share of a "sustainable" level of greenhouse gases, and condemn as immoral any activities that cause a person to exceed their allocated emissions rights. But why would equal allocation be fundamentally moral? Communist economies (in China or the Soviet Union), by ensuring all had very little, were not inherently more moral than capitalist economies, where even the poorest are better off than were the majority under communism, but where allocation is inherently unequal.

The Lib Dem dominated Richmond Council has decided to charge higher parking fees for high polluting vehicles. This means a family with two such cars could pay up to £750 a year - three times the normal parking fees.

The council says it is not about raising tax and their aim is revenue neutral. But the decision will hit hard large families who need such cars to go about their daily business. High parking fees will inevitably force not only 4*4s but larger people carriers out of the borough but less "gas-guzzlers" should not come as a result of extortionate parking fees. A large family doesn't fit into a smaller car and that will lead them to buy more than one car which will cause as much CO2 emissions as a bigger car. Also, a full "gas-guzzler" is better than any other vehicles occupied by one person.

The Tree Council is calling for historic trees to be awarded "blue plaques" like historic buildings, concerned that "historic trees are left to wither and die".

Are blue plaques (or something equivalent) supposed to stop trees from withering and dieing? Can the Tree Council hold back the forces of nature?

The joy of protecting buildings is that owners are prevented from carrying out many essential improvements. Now owners of properties on which "historic trees" are located are to be faced with the same constraints.

The Independent writes that  carbon emissions from government departments have risen by 13% and the Treasury's CO2 rises by 130% in the last five years. Gordon Brown showing leadership on tackling climate change?

It has emerged from a leaked proposal that the EU Commission is admitting its Emissions Trading Scheme (ETS) would only delay aviation emissions three to six months by 2050.  ETS would only reduce the growth of airtravel by less than 3% over a 15-year period. This shows that quotas will not deliver necessary results in tackling climate change. Airlines will be making huge profits enabling them to buy as many carbon permits as they require. ETS only promotes "business as usual" with more profits to "dirty" industries.