Learning to Bargain on Climate
In a recent issue of her email newsletter, The Marginalian, Maria Popova shares these emotions that welled up inside her as she participated in a swearing-in ceremony to become a naturalized citizen of the United States of America, now officially herself a part of:
this imaginative experiment in freedom, flourishing, and dignity for all
The experiment that Maria is referencing is, of course, our American experiment with a new sociology of social choosing through politics as the rule of law through Constitutional representative self-government accountable to the will of the people expressed at the ballot box, through election cycles and protest in the public square.
Freedom is an important part of this experiment, because this "imaginative experiment" is constantly being attacked by those who choose to be free from accountability to the consensus of the electorate according to the Rule of Law, so they can assert their will on us.
All too often, in our rhetorical battles over freedom: freedom for who? freedom from what? freedom to do what? to who?, dignity gets lost.
Because while freedom can feel ambiguous in its meaning, emotionally, dignity never does.
We may find ourselves at odds with each other over what it means to be free, but we feel no ambiguity about dignity.
Consider the crisis of inaction on climate that we are fighting our way through, as humanity, today.
When we talk about our right to be free from the cataclysms of catastrophic climate change, there is contentiousness in the resulting conversation.
If we talk instead about the dignity of continuing, ongoing into a climate secure future of energy sufficiency complete with habitat longevity and social equity, there is no such continuousness.
We all agree on dignity.
But not politics.
Politics is a decidedly undignified affair.
So, how do we choose to live together in dignity? What are the sociologies of social choosing through which we can make social choices that bend us along an arc that leads to dignity?
Climate change can show us the way.
Climate change is a catalytic circumstance now prevailing in our times that is challenging us to innovate our sociologies of social choosing by showing us the limitations of social choosing through the default sociologies of politics and the capital markets, that are together bending us towards Growth through Creative Destruction at a time when we need to be "transitioning away from fossil fuels in a just, orderly and equitable manner", per COP28.
Transitioning away also means transitioning towards. We need to be rapidly redesigning and reconstructing our global energy supply ecosystem to be purpose-rebuilt for energy sufficiency complete with habitat longevity and social equity on a planetary scale in the 21st Century, and beyond, hospicing energy extraction from hydrocarbons enterprises as we replace them with new energy technology companies "in a just, orderly and equitable manner".
How are we going to choose to do that?
What are our choices for making that choice?
This is the question that inaction on climate is bringing urgently forward. It is a question that in the whole history of humanity has never before been properly explored. It is becoming the core question of our time.
It is a BIG question that goes to the very heart of what it means to be human in the world, together, and apart, in society, through economy, using money for enterprise and exchange of technology solutions to the everyday problems of everyday people living our best lives under the circumstances then prevailing, every day.
It is a complicated question that points to a whole made up of parts, each with its own subparts, within nested layers of interactive and interlocking complexity.
It is a dangerous question that challenges the power of powerful incumbents who will "not go gentle into that good night" but will, instead "rage, rage against the dying of the light" of their own personal wealth and social ascendancy. (Dylan Thomas).
It is a courageous question that calls on each of us, and all of us, to deconstruct much of what we have been taught to know as familiar, letting go of much that we have learned to hold dear, that makes us feel comfortable and secure in the perilous insecurity of being human in the world, so that we can make space for new learning, and a better way of making social choices socially, that is more fit to our changing purposes; and more right for our changing times, in the times that are now.
Here is a diagram that shows us that better way, lets us see the Incumbencies that will oppose us in accepting it, maps out the complexity of its parts and subparts and sets us off in search of the right new narrative for being human, together and apart, in society, through economy using money on a planetary scale in the 21st Century, and beyond.
If we look for the root causes of the climate inaction crisis through the lens of this map, we can see that the sociology of Civil Society is telling us, curatively, that climate is changing because when we burn hydrocarbons to release the energy that is being used by Nature to hold carbon atoms into hydrocarbon molecules, we are also releasing those carbon atoms into earth's sky chemistry. The consequent increase in carbon density in earth's sky chemistry is inhibiting rates of radiant cooling of the earth which is shifting the point of geothermodynamic balance against solar heating that is increasing overall average temperatures of air, land and sea that is changing the long term, large scale patterns of wind and weather that we call climate that is changing the habitats on earth so that we humans will no longer be able to live in them.
That shows us that we have to change what energy choices are being distributed to people through enterprise.
Consulting this map also shows that default thinking of climate activism as political protest is not working because the sociology of Government is redistributive and corrective, righting the wrongs in how business does business, while letting business otherwise go about its business of doing the business that is popular with people.
Climate action, however, requires predistributive intervention to change the choices that enterprise offers to people, disqualifying as not financeable businesses that are extracting energy from hydrocarbons, not because the energy extracted is not fit to purpose at the point of purchase, but because the consequences of that extraction are inconsistent with our living dignified lives in a world of energy sufficiency, habitat longevity and social equity..
This way of mapping out our sociologies of social choosing shows that this kind of predistributive social choosing is the domain of Finance, and the sociologies of social choosing that society uses to choose where the money can should and will be made to flow into enterprise, for its use in doing its work, for a time, at a cost, and on terms, to form the businesses that form the technologies that form the choices that form the economy that forms society and our shared future.
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If we want to be forming a future of habitat longevity, and human dignity, we need to be flowing money into new energy technology enterprises, and out of energy extraction from hydrocarbons enterprises.
This way of mapping our sociologies of social choosing also allows us to see that Finance is not one thing, but actually six different sociologies of social choosing about money for enterprise, each with its own unique decision making logic, and its own unique language for expressing its own unique logic.
These six parts to the whole of Finance as a sociology for social choosing predistributively, can be identified as:
This is new, unfamiliar and not intuitive. It is not what we are being taught to see Finance as being.
Putting to one side the novelty of the naming conventions, the first five sociologies of money, after a moment of reflection, probably do make some sense to most of us, even if the presentation confuses a bit as being not conventional.
But the sixth on the list, Fiduciary Money negotiating for assurance, almost certainly gives everyone pause. Yes, we know what pensions are. They are so-called Institutional Investors. But we do not see them as sociologies of social choosing in their own right. They are just the biggest players in the capital markets, flowing money into Growth, like everybody else.
It is the Capital Markets that we are being taught to see as the dominant and default sociology of social choosing through Finance, flowing money - including pension trust money, which we are being taught to see as no different than any other kind of money - into enterprise according the language and logic of Growth through Creative Destruction.
And this is a problem. Because we cannot make the choice of "transitioning away from fossil fuels in a just, orderly and equitable manner", per COP28, through the language and logic of Growth through Creative Destruction in the Capital Markets.
Transition is not Growth.
Destruction is not orderly. Neither is it equitable. Or just.
The capital markets do not hospice obsolete technologies. They bankrupt them.
Catastrophe is not a bad thing in the logic of the capital markets. It is a necessary part of innovation for evolving prosperous adaptations to life's constant changes. The new must bankrupt the old. That is the way of the world when money is made to flow into enterprise according to the logic of the capital markets.
And today, that is the primary way that money is being made to flow into enterprise as equity. Lots of money also flows as debt, through Banks, but debt is only the monetization of what a borrower already owns. To acquire, or build new, you need equity.
Transitioning away is transitioning towards, and transitioning towards is building new. Climate action requires equity. Debt can also be part of the total financing, but Debt requires Equity. So Equity is key to building a new energy economy for habitat longevity.
Conventional wisdom teaches us to believe that we can only flow that much equity into enterprise through the capital markets. But that is only because conventional wisdom also teaches us to believe that we can only flow pension money into enterprise through the capital markets.
What our innovative new way of mapping the sociologies of social choosing is showing us is that conventional wisdom is wrong, on both counts.
Pension money can be made to flow into enterprise without flowing through the capital markets.
And pension money made to flow into enterprise without passing through the capital markets can provide the equity we need for transitioning away from climate catastrophe and towards habitat longevity.
Which gives us a compelling reason to inquire and learn about how pension money can be mobilized for climate action by exiting the capital markets, and flowing into enterprise, directly.
This new learning is made easier by two current variations on the theme of pension money flowing into enterprise through the capital markets.
One is Private Equity. The other is the Canadian Model of Pension Investing through Private Equity.
Private Equity is an alternative to public markets equity, that combines the unique characteristics of Fiduciary Money, that is vast in size, programmatic in purpose and forever in time, to use the technologies of spreadsheet math, desktop publishing and digital communication to negotiate going-private transactions with public companies through financial engineering for what is called "value creation". Private Equity Funds use pension and endowments money to buy enterprises out of public markets ownership, setting them free from their social contract with those public markets to always be growing their share price, placing them into private ownership where they can be "engineered" to "create value", before being sold back into the public markets, either directly, or by way of trade sale to an existing public company that needs to make an acquisition in order to grow its assets, cash flows and share price.
The usual private equity formula involves some combination of:
The Canadian Model is a variation on this theme in which the pensions acquire ownership directly, executing their own form of financial engineering for value creation leading to eventual profit extraction through gain on sale, usually with a bit less ruthlessness than is too often practiced by third-party Private Equity Asset Mangers.
The new innovation that we need is to upgrade Private Equity, and the Canadian Model, from ownership for extraction to stewardship of change, deploying fiduciary money directly into enterprise by mobilizing the vast size, programmatic purpose and forever time of pension and endowments trusts to use the technologies of spreadsheet math, desktop publishing and digital communication to negotiate equity paybacks to an actuarial/fiduciary cost of money, plus opportunistic upside (for Actuarial Compliance as to income ongoing into a secure future), from enterprise cash flows prioritized by contract for suitability to the times, longevity over time and fairness all the time (for Fiduciary Faithfulness as to safety ongoing into a dignified future), to flow the right money into the right enterprises for their use in doing the right work, for the right time, at the right cost, and on the right terms, to form the right businesses for forming the right technologies for forming the right choices for forming the right economy, and keeping it ongoing into a dignified future.
In the specific case of climate action, that means flowing the right fiduciary money into the right energy enterprises for doing the right work of transitioning away and towards, for the right time, at the right cost and on the right terms for forming the right energy businesses for forming the right energy technologies for forming the right energy choices for forming the right energy economy of energy sufficiency complete with habitat longevity and social equity on a planetary scale in the 21st Century, and beyond...
That innovation in how money is made to flow will also innovate new public spaces for a new public conversation about where fiduciary money can and should be made to flow.
When pension trust money is made to flow into enterprise through the capital markets, it makes no sense to have public conversations about what shares to buy, and when to sell.
But as pension money gets redirected into enterprise through negotiated agreement on equity payback from prioritized cash flows, it becomes important to discuss which enterprises our pension fund fiduciaries can and should be negotiating with, and what terms they can and should be negotiating for, so that this money is alway being made to flow towards dignity. For us all.