Sustainable Investing in the Anthropocene State of Missouri Pension Funds June 12, 2012

1. Context: Not your grandmother’s SRI/ESG talk 1. Context: Not your grandmother’s SRI/ESG talk 2. Long View Implication: This time IS different 2. Long View Implication: This time IS different

Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist. - Kenneth Boulding, Economist, Quaker, Co-Creator of General Systems Theory

The most powerful force in the universe is compound interest. - Albert Einstein*

May 30, 2011

Exponential growth leads to ecosystem crisis ” Safe Operating Space”, J. Rockstrom, National Center for Ecological Analysis and Synthesis

Ecological Overshoot: We use 1.5 planets ” Footprint Network.org

GDP growth does not equal well-being Source: Redefining Progress

Sustainability Optimum Efficiency 100% 0% Resilience Source: Lietaer, Ulanowicz, Goerner 2008 We know what sustainability looks like Collapse of Financial System

Economic Efficiency Economy Finance What’s wrong with this picture? Desired Outcome Planet

Lost in finance: So clever, so ignorant Our economy has become an anti- economy, a financial system without a sound economic basis and without economic virtues. - Wendell Berry

Money, Banking, Finance & Investment: Designed for growth

Landing the plane will be a turbulent affair

Stranded Assets: our $20 T “Big Choice” 2 degree warming limit: 565 GtC02 “Proved Reserves” have 5X this amount 74% owned by States, 24% by companies At current market value, $20 trillion choice Source: Potsdam Institute and “Unburnable Carbon”, Carbon Tracker Report

$20 Trillion of denial goes a long way…

Ecological overshoot = Financial Overshoot What’s the off balance sheet ecological debt? What’s the P/E of a “steady state” economy? What’s the debt capacity of the steady state? What’s the unfunded pension liability of a SS?

Financial reform: Rearranging deckchairs May 26, 2011

1. Context: Not your grandmother’s SRI/ESG talk 1. Context: Not your grandmother’s SRI/ESG talk 2. Long View Implications: This time IS different 2. Long View Implications: This time IS different

The situation is hopeless, but I could be wrong. - Ted Turner, quoting his former Foundation head.

Towards a Regenerative Economy Holistic frame: nature as model Redefine wealth: natural/social capital The humble retreat of finance Public interest in capital investment – an opportunity for leadership

A unique moment in history for Fiduciaries Years of focus on fiduciary duty of prudence has generated myopic investment herding behaviors, undermined intergenerational pension equity… - “Reclaming Fiduciary Duty”, James Hawley, Keith Johnson, Ed Waitzer

What’s different this time Cycles within seismic shift -- downside shock bias Caution: Steady state = revaluation Long run not sum of short runs Uncertainty different than risk There is “no sideline”

What’s different this time Schumpeter’s “creative destruction” on steroids MPT built on flawed assumptions Index benchmarking and tracking strategies exposed Asset class diversification a mirage

ESG framework: Integrated reporting Unparalleled Leadership: Jochen Zeitz 2010 Earnings: Euro 202mm 2010 “E P&L”: (Euro 145 mm)

Investment themes for the Anthropocene Reassert owner responsibility: Active concentrated ownership of resilient cash flow/dividends Diversify systemic risks

Investment themes for the Anthropocene Low carbon energy infrastructure Ecosystem regeneration Technology Emerging markets Distress/opportunistic

Investment is the bridge to the economy we need. And the steering wheel. We are called to be the architects of the future, not its victims. - R. Buckminster Fuller- R. Buckminster Fuller

Thank you