1. Pensions & Resilient Investment David Korowicz Risk/ Resilience & Feasta, The Foundation for the Economics of Sustainability 11 th May 2011

2. Pensions ► We are naturally concerned about our future welfare-food, shelter, health, security, infrastructure- and increasing expectations of discretionary consumption. ► State pensions first introduced in 1889 (Bismark)-a feature of a new kind of economy. ► Pensions are the means by which people directly, or via employers and governments, defer current consumption to invest, via financial markets, in expected future consumption of goods and services. ► In a Pay-As-You-Go system, assumption society can support welfare into the future. ► Currently widespread concerns: Demographic changes Underfunding- 75% DB plans in Ireland

3. Investment in financial assets is growth & systems dependent ► Equities valuation (P/E) growth dependent. ► Servicing debt (interest+principal) Is a call on future growth ► The operational fabric of complex society is maintained or enhanced ► The operational fabric includes: Critical infrastructure, supply chains, monetary stability, global discretionary income... (€72 billion IAPF data 2009)

4. Welfare & Macro-System Stability Globalised Economy ► Self-organised ► Growth adaptive ► De-localising & Integrating ► Increasing Complexity ► Increasing Co-dependence ► Increasing production flow rate Understood through Non-equilibrium thermodynamics National economies exist via integration with globalised economy

5. Three largest Occupational Groups UK Census 1911 UK Census 2008 Domestic Service Sales Personnel Agriculture Middle Managers Coal Mining Teachers Food Ratio of food expenditure to income Urban Britain 1904* UK Household Survey 2008 63% 10.4% Primary food production-a few % of population *British Board of Trade (1904)‏ in Poverty in Britain in 1904: An early social survey re-discovered Gazeley & Newel PRUS Working paper 38/ 07 Occupation, Energy, Food

6. Transportation Oil & Natural Gas ELECTRICITY Potable & Waste Water Emergency Response Government IT &TELECOM Banking & Finance Infrastructure Interdependencies Switches, control systems Storage, pumps, control systems, compressors e-commerce, IT Pumps, lifts, control systems Signalization, switches, control systems e-government, IT Medical equipment Water for cooling, emissions control Water for production, cooling, emissions control Fire suppression Cooling Fuel transport, shipping Chemicals transport Transport of emergency personnel, injured, evacuation Communications SCADA Trading, transfers SCADA Communications Location, EM contact Generator fuels, lubricants Heat Fuels, lubricants Fuels, Heat Currency (US Treasury; Federal Reserve )‏ DOE; DOT Regulations & enforcement FERC; DOE Personnel/Equipment (Military)‏ Financing, regulations, & enforcement SEC; IRS FEMA; DOT DOT EPA Detection, 1 st responders, repair Financing & policies Miriam Heller, NSF (2003)‏

7. Critical Infrastructure Economies of Scale Institutions of Trust Monetary Stability & Intermediation Production flows Energy & Resource flows Behaviour adaptation

8. Conditions maintaining stability at risk Highly Unstable Credit System & Imbalance Peak Oil Peak Food

9. Even this assumes stable prices, investment, general system stability Energy declines implies reverse economic growth-unless substitute/ efficiency Reduced energy flows forces a positive feedback on energy flows

10. Implications-financial assets (McKinsey &WEF 2010) ► Debt cannot be serviced in real terms ► Global banking system insolvent (real) ► Debt deflationary spiral+higher prices +interest rate hikes ► deflationary cyclone ► Rapid decline in discretionary consumption ► Global banking contagion (derivative links) Leading to supply-chain contagion ► Rising monetary opaqueness ► Tiny exit window ► Pensions in financial assets doomed

11. Empirical Energy & food prices Warnings Stock & bond markets Actions Asset dumping New Assets Emergency measures Psychologica l Confidence to Fear Empirical Energy & food prices Warnings Stock & bond markets Actions Asset dumping New Assets Emergency measures Psychologica l Confidence to Fear Adaptation opportunity Government & central banks unlikely to be prepared

12. Critical Infrastructure Economies of Scale Institutions of Trust Monetary Stability & Intermediation Production flows Energy & Resource flows Behaviour adaptation

13. We are 100% invested in one view of the future It is untenable By habituation, our dependencies, thus vulnerabilities obscured What would we do, in the final days of macro-system stability to protect our future welfare?

14. Resilient Investment Resilient investmentResilient investment is the conversion of current financial and other assets adaptive to large-scale market and general welfare stability into assets that serve to protect the foundations of personal and societal welfare into the future should that stability collapse. ► Core Assets ► Localisation ► Social Capital ► Human Capital ► Co-dependency & interdependence ► Natural Capital ► De-financialise ► Low complexity Definition

15. Investment Considerations ► Timing ► Discount Rate & investment returns ► Resilient investment in not green investment ► Avoidance of stranded assets ► Limited vehicles for fast conversion