“It's too late to be a pessimist“
When it comes to responding to the climate crisis, technology is our best ally, says Martin Stuchtey, professor of resource management and founder of The Landbanking Group. Systemic change will, however, be inevitable. Our opportunity: take responsibility, rethink prosperity and leverage business.
Martin, speaking to you today remotely, I see you’re wrapped up warm in your home office? The current energy crisis is causing people to feel the impact of the climate emergency first hand.
Yes, it's becoming real now. What we are experiencing is a completely new manifestation of the problem. In Zoom conferences, we are now outdoing each other with our bobble hats. We always knew that the necessary changes would be very deep, that it would be a structural break, the transition to a completely new systemic logic. And we expected the transition period to be rough.
What we didn’t know, though, was in what guise the change would come. And we didn't know how fundamentally our lifestyles would be shaken up. The energy crisis, supply chain disruptions and supply inflation are all giving us a taste of that now.
You say we are technologically capable of solving the climate problem, even without massive wealth loss, but time is running out. Basically, though, you’re optimistic?
We have some friends in this transformation: the regenerative power of the planet, the creativity of open societies. In the short term, though, technology is our best friend. It is a necessary factor for a rapid transformation, but we need more than that.
In some areas, we can see how powerful technology can be as a driver of change. Take the global energy transition. In 2015, the year of the Paris Climate Agreement, none of the required technologies – renewables, storage, electromobility, green hydrogen, green ammonia, green ethanol, digital grid control – were commercially viable. Today, about one quarter are market-ready and commercially competitive. We expect that, by 2030, that proportion may even rise to three quarters.
Technology creates momentum.
An incredibly strong technological wave is driving us – one that also makes it easier to believe that the geopolitical energy shortages we now face can be translated into an accelerated energy transition. Technology creates momentum.
Does the so-called Putin effect of an accelerated energy and climate turnaround really exist?
In the long run, yes. One can argue that the current conflict will push back the peak in fossil fuel use by two to three years but it will also bring forward the phase-out (the so-called phase-down scenarios) by significantly more years. The reason for this is that the conflict has occurred at a time when alternatives to fossil fuels are competitive. Even liquid natural gas (LNG) is currently only a bridging option in economic terms because renewables have become so attractive. If that had caught us a decade ago, it would have been the end of the energy turnaround. Now it will be an accelerator in the long term.
But it's about much more than energy …
That's right. Not only do we need to transform our energy sector; we must transform the global economic model, the industrial sector, the resource sector, the land use sector. Something comparable has yet to happen. We still lack the necessary technologies.
All in all, however, it has to be said that we would be in a position to solve a large part of the problem with the expected technology stock – but we will not do so unless we switch to a completely different form of market control. As societies and economies, we need to define a completely new set of values and adjust where we are headed. What, actually, is success in terms of growth and in terms of prosperity? We need to understand prosperity as the sum of the gains from produced, human and natural capital. Only then will we have sufficient incentive to see spending on increasing natural and human capital as an investment.
According to one study*, four-fifths of investments in urgently needed transformation measures that make economic sense do not pay off for the individual investor.
Thinking out of the current context, it is indeed the case that part of the required investments – we’re talking about a global financing gap of two trillion US dollars per year – cannot be covered by the capital markets.
If investors were to make a serious risk assessment, they would have to choose between uncertainty one and uncertainty two. On the one hand, there is that uncertainty that comes with unproven technologies and new business models when you bet all your chips on the energy transition, the industry transition, the mobility transition, the land use transition.
On the other hand, there is uncertainty two, which is that we will soon be sitting on a huge mountain of stranded assets, assets that have become worthless. That's what we should be looking at when we realise that many of the predictions that science and politics are giving us are really true. And in this way, entire business models, entire industries, entire infrastructure categories are coming under massive pressure.
The capital markets are not pricing in these uncertainties with the necessary consistency. But very soon they will have to.
I believe that the capital markets are not pricing in these uncertainties with the necessary consistency. But very soon they will have to.
Are our capital markets structured in such a way that they are geared to such long-term goals?
Our current market order makes it difficult to invest in these long-term assets and infrastructures. We lack a number of fundamental incentives, including a predictable carbon price and clear rules on which external costs producers must permanently bear so that society isn’t left with the costs. This includes taxonomies. And it also includes new rules in world trade, so that we can exit the spiral of inter-regional wage and price dumping.
One example is the EU’s proposed carbon tariff, the so-called carbon border adjustment mechanism. But we are still very far from a coherent regulatory framework that lays down the necessary rules and incentives for investors in order to close the two-trillion-dollar gap.
Hard evidence doesn't seem to be enough. After all, the effects of climate change are tangible, the numbers are on the table, yet there is little action. Who has the most leverage here, then?
Politics of course. We come from an economic reality in which we were primarily concerned with distribution issues. Now we have to deal more with questions about the future. More specifically, we need to think about what a value generation model will look like in future? The business community also understands that there is a much more pressing question than what the next environmental regulations will be that may generate costs. No, the central question is: How do we grow into a system where businesses can continue to exist and make a profit?
The central question is: How do we grow into a system where businesses can continue to exist and make a profit?
And this is where a clandestine, if not yet productive, alliance has been formed between companies that are calling for this kind of clarity, this new market order – because otherwise we will be forced to invest past our strategic goals. Companies will no longer be able to implement the strategic goals they set themselves because the current conditions make this financially unfeasible and they are unable to explain this to their shareholders. The ability of politicians to quickly create a reliable regulatory framework here will translate directly into a competitive advantage.
Here we live in an almost tangible incongruity between what is strategically understood and called for and what the capital markets need. And so business has virtually become the driver of politics by demanding that governments help establish the kind of market for strategic action. Politics has a huge opportunity to take this up.
Unfortunately, they seem to be preoccupied with completely different issues right now.
I believe that the geopolitical conflict we are currently experiencing is also creating opportunities – even though the daily noise prevents of from hearing this sometimes. We're seeing a bloc forming in the world, which is creating a political confrontation for the foreseeable future, but also creating competition for resources that will be formative for years to come.
It will be a competition for net-zero resources, we will be competing to find the fuel for the next economy: renewables and their derivatives, like green hydrogen, sustainable biomass, recyclates, but also functional metals that we need for the energy and mobility transition. This is the stuff the future is made of.
If we want to stock up on it, we have exactly two options: on the one hand, of course, to enter into new partnerships, for example with African countries. There is, however, far more potential in transforming our economy by making it more circular and thus more resilient. Above all, though, in building a dematerialised new model of prosperity. Until now, this has only ever been a dream. There is now more concrete pressure than ever to make the transition – not only out of an ecological and climate policy responsibility, but especially out of a prosperity responsibility.
You say that companies are already much further ahead, driving politics - is that a very Western view?
All globally active corporations are caught in a terrible trap at the moment: on the one hand, they have to strive to meet the demands of their shareholders. At the same time, they realise that they are increasingly at risk in their various markets. Between expansion activities in China and reinvestment in our European decarbonisation. Between cost pressure in growth markets, but at the same time avoiding plastic waste.
Companies are on very thin ice.
Companies are on very thin ice and the only way to restore certainty and predictability is to create national and international regulatory frameworks. These allow us to play by long-term rules without always being attacked by those who do not have to abide by the same rules.
Keyword system transformation: how must markets be designed? Is “responsible growth” even possible?
That's a big question. Do we need degrowth, a decline in growth? It's true that we're on the wrong road at the moment. The current growth model won't get us anywhere near net zero.
Empirically, it seems difficult to change the entire basic logic of our macroeconomic management in the few years we have left. And it is also impossible to do in logical terms: why would we want to have less of something that we fundamentally reject as logical in its progression, namely growth?
I believe there is an alternative that is consistent with our need for growth. It is the concept of “capitals”. The basic idea is to stop believing that we need to achieve annual growth of three and a half percent in the amount of goods and services produced and then correlate that with everything we want – more employment, more income, a better life. Instead, we define capital more broadly by taking the sum of productive capital, of human capital and of natural capital – and the annual improvement of that, that's prosperity.
A whole new way of thinking about prosperity. Can we live this in our society?
After six years with Systemiq, in which we showed how system change can be thought through, I am now trying to show very specifically as an entrepreneur with the Landbanking Group how the infrastructure for this kind of welfare society would look.
We assign a value to the ultimate asset, the scarcest resource of the 21st century, namely land and nature. By valuing square meter by square meter with state-of-the-art technology and determining the ecological value of soil, water, biodiversity and climate. We create ecosystem contracts between farmers, foresters, and other land trustees and design them to be capitalisable and securitisable so that people can invest in ecosystem vitality. Turning nature into an asset and directing our capital flows into it – that will crack one of the biggest problems there is to crack, which is the turnaround of land use. Not only does it save 14 gigatons of CO2, it also covers the entire global justice issue, and it covers the biodiversity issue, which we are not discussing at all and which will be the first to blow up in our faces.
We can create a whole new value and wealth narrative.
In this kind of model, all the challenges can be mapped and we can offer a solution. By saying a healthy environment is extremely valuable and worthy of investment, we can create a whole new value and wealth narrative.
And yet, we consumers will want to continue to consume …
We fundamentally need to stop thinking of our economy as a product economy, where I want a product, say a shirt, but as a benefit economy, where I want a benefit, which is to wear a shirt. This allows us to radically decouple product and economy. That works at all levels, including consumer goods. My daughters, for example, borrow their clothes without losing coolness or social acceptance, and also without experiencing themselves as materially worse off. On the contrary, they find it liberating, a gain in opportunities – they can swap more quickly, get to know people and are part of a network.
The same goes for new infrastructures, by which much more than just energy and transportation is meant. Science tells us: the ultimate infrastructure is the functioning of planet Earth. If that breaks down, we can't live here anymore.
We don't have to buy up land to do that. We need to enter into contracts with the provider of nature's services, the trustee of nature, just as we have so far entered into contracts with the provider of transportation services, for example. These contracts must be trustworthy and long-term, because the service creates long-term value, it creates prosperity, a good life. This means that this resource revolution can also take place – without having to abandon the concept of an affluent society. Without anyone perceiving it as a step backwards, and without us having to torture ourselves through distribution struggles and acrimonious degrowth debates. It is still associated with a positive narrative of prosperity.
At the same time, this new narrative demands a willingness to rethink quickly. Is there still a lack of awareness of this urgency, when everyone can know how little time is left?
It is too late to be a pessimist. We have been catapulted from our ideological ethics right into the middle of responsible ethics. We are taken back to the responsibility that we bear, that each individual bears, and that is proportional to our possibilities. It lies with the CEO and the politician, but also with the grade 11 student or the potential climate activist. Given our situation, it's no longer enough to simply play by the rules. Everyone must now play to win, and that includes, in particular, many business leaders accepting that responsibility.
Given our situation, it's no longer enough to simply play by the rules. Everyone must now play to win.
The first law of system change is that you always need everyone: it takes consumers to bully producers, and it takes producers to give consumers options, it takes politics to stake out the field for producers, it takes producers to show politics it can be bolder and go further. It takes the whole dynamic: civil society to force us to be honest, science to give us clarity on what the consequences of inaction would be, politics that is willing to be guided by science as well. All actors must do their best. That's about role models and about a sense of cohesion in an increasingly polarised world.
Are these words meant as a jolt to Europe, to the West?
We have put ourselves in a terrible predicament by waiting so long to resolve the major structural challenges. Climate, biodiversity, social division, North-South conflict, rapprochement with China and Russia; we simply postponed all these issues because they were so difficult.
With the Ukraine war, quite a few dreams have been shattered for us. All the premises that our generation grew up with: soft power, change through trade, development toward a liberal model of society. We in Europe thought the whole world would love it. But this model clearly did not have sufficient positive appeal. Now we need not only a commitment to the Green Deal, to decarbonisation, to our liberal values. Now we also need to show that we can do it.
And that only works through a positive image of the future. We've managed so far to crush any positive image of the future. But the idea that we have to defend our liberal social model has traction. We do all want to keep our way of life. We need to rally around this central desire.
How do you intend to push all these actors? Signing agreements won't change anything. What is the first concrete step?
Banks have immense leverage and responsibility. Every one of us, every company, every bank is dependent on a successful society, and you can't remain neutral on some issues. If someone declares that we cannot afford to make a big deal out of ESG – not out of a factual calculation, but out of a purely political one – then that is a failure in leadership. It is absolutely foreseeable with a probability of 100 percent that the institution and the shareholders will be confronted with the results of such a decision in ten years' time. In the end, you always get the culprit. And the fact that we have escaped responsibility will lead to consequences.
So is the greatest lever the pressure of suffering after all? Maybe it's not big enough yet. And when it is big enough, it may be too late, keyword tipping points.
It's within our power. Could technology do it? Yes. Could the capital markets? Yes. Can we devise a set of rules to support it? Yes. The main issue is: we need to agree very quickly on a new set of goals. What do we measure our prosperity by? If you really think that through, it's as big as a second humanism, a second enlightenment. What is actually a successful society, and what is the way to get there? How do we want to live, what is important to us, what makes us credible? And we can't think about that without being shaken to the core. That is exactly what is happening right now.
And will we come out of it in one piece?
It is feasible and possible, and it is our decision.
The crucial difference may be that we don't have a century at our disposal, as the Enlightenment did, but only ten years.
Each of us is a change agent – we are the ones who have to operate and live the change. We just have to act responsibly. Perhaps that is the only distinction that should be made anymore. Instead of distinguishing between North and South, rich and poor, East and West, right and left, ask: is there someone standing here who is acting responsibly? Or is there someone standing there who is acting irresponsibly? Those who act with a sense of responsibility that goes beyond themselves, those are the warriors of light. And to bring them together and to bridge the gaps is valuable.
Instead of distinguishing between North and South, rich and poor, East and West, right and left, ask: is there someone standing here who is acting responsibly?
About Martin Stuchtey
Martin is the founder of Systemiq and The Landbanking Group. Prior to that, he spent 20 years at McKinsey, most recently as Director of the Center for Business and Environment. For many years he was a strategic advisor to the World Economic Forum WEF. He is a professor of resource strategy and management at the University of Innsbruck, and he is Deputy Chairman of the Alfred Herrhausen Gesellschaft Board of Trustees.
Martin is the author of numerous books, including "A Good Disruption – Redefining Growth in the Twenty-first Century" and "Breaking the Plastic Wave." He holds degrees from universities in South Africa, Germany and the UK. Martin is a father of six, an organic farmer and an avid alpinist.
Systemiq sees itself as a system change company. Based in London, Munich, Jakarta, Amsterdam, Paris, Brussels and Sao Paolo, it is dedicated to building an economy that creates prosperity for all, stabilises the climate and regenerates nature for future generations. At its core is the goal of accelerating the transition to circular industrial systems and scaling the transformation of five systems that shape how we live and work: Energy, Nature and Food, Materials, Urban Development, and Finance.
Systemiq is certified as a B Corporation, making it one of those companies that leverage business to solve social and environmental problems.
About The Landbanking Group
The Landbanking Group's mission is to restore nature on a planetary scale, where it becomes an attractive, investable asset. It is building the trust infrastructure for this new, much-needed market. Based on the latest earth observation technology, every square meter can be assessed in terms of biodiversity, water, carbon and soils, and assigned a natural capital account. These become activatable and tradable assets that allow companies and investors to become nature-positive.
… is responsible for digital communication projects in Deutsche Bank’s Newsroom and has always found it reassuring to have confidence in the innovative power of mankind. Since understanding how brutal the effects of climate change on our lives will soon be, Maike knows that it will take a lot more than just that.
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