18 Aug 2021

Forest fires and the Olympian flame

Harold Hutchinson

Head of UK Research

How can we ensure that the torch of human progress continues to burn bright for future generations? In his latest blog entry, Harold debates how we need to carefully manage the physical, human and natural capital to secure a planet worth living in for our children and grandchildren. 

The Olympic flame is a powerful symbol of the continuity between the ancient and the modern. It captures the better part of human endeavour through the generations, “facing tempests of dust but fighting to the end”, to borrow the lyrics from M83’s Outro. Deeper resonances in the metaphor elicit the core challenge of our age – to ensure a sustainable future for our children and grandchildren.

In essence, that race against time boils down to judicious management of our inheritance. The torch we carry consists of physical assets (such as machines and buildings), human capital (our population, together with its level of health and education), and natural capital (the Earth’s primary resources, our biosphere with its ecosystems that provide us with many services, including fresh water and pure air).

The real social value of our flickering flame needs to be understood as a matter of urgency. Clean air is ‘free’, but its social worth is huge - 9 out of 10 people breathe air that exceeds safety guidelines, according to the World Health Organisation (WHO). Air pollution prematurely kills an estimated seven million people worldwide annually. For context, global Covid-19 cumulative deaths since the outbreak of the crisis are currently under four and a half million. Understanding and accounting properly for our balance sheet of assets is the starting point for sustainability analysis.

With that message appreciated, how should we carry the torch through time? Perhaps the simplest answer is to ensure the flame continues to burn, undimmed. Preservation of capital is a basic mantra of sensible wealth management. This would be one way to meet the UN sustainability criterion set out in Our Common Futurethe Brundtland Report (1987). It defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.

After the great scientific and artistic works gifted to us, often against great odds, by those who came before us, is that the legacy we want to leave for the future?

An implication is that we need to pace ourselves carefully, setting aside sufficient funds annually to prevent impairment of our stock of physical, human and natural capital. Otherwise, we dim the flame for the future, or worse still, allow it to flicker out altogether. In other words, wealth preservation implies a ceiling on our immediate consumption, leaving some of our income to ensure we conserve our inheritance.

Can we go further, and create a brighter light for our descendants? That seems a noble ambition in the Olympian tradition. In principle, the answer is yes, but if we want our global capital to grow, actual consumption will need to be less than the ceiling, leaving headroom for growth investment. What might this imply? More machines, better health and education, or greater investment in nature itself? Ultimately, that will depend on the relative value of physical, human and natural capital, the distribution of these assets across the globe, and the prospective investment returns from each. These will vary over time and place.

Given the massive damage we have inflicted on our natural capital in recent decades, prospective investment returns from restoring and then enhancing it are high. It is currently being impaired at a truly alarming rate (one study referred to in the Dasgupta Review suggesting the global stock of natural capital, per person, fell almost 40% over 1992-2014). When you grasp the terrible consequences of destroying nature, investing in it is a real bargain. So, nature should be one of the prime focuses for now. Beyond this, globally, the highest social returns available to us right now are probably to be found in education.

Restoring our atmosphere, land, forests, rivers, and oceans, forms part of the Olympian task we now face. The alternative is unthinkable – literally, no torch to pass on, and instead “some kind of hell on earth” to use a phrase of Professor Tim Palmer of Oxford University. After the great scientific and artistic works gifted to us, often against great odds, by those who came before us, is that the legacy we want to leave for the future? It is time to wake up from our perilous escapade, to rekindle the sacred fire of progress, and to hand on a baton of which we can be proud to our descendants.

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Disclaimer: The blog does not aim to give investment advice, but is designed to afford relevant longer-term context to investors, encouraging a broad perspective where uncertainty is high and a spirit of learning is important. The views expressed are those of the author, not those of Investec.