Prof Alex Edmans: Does divestment from fossil fuels really work?

Finance expert Professor Alex Edmans is sceptical that divesting from fossil fuels will make an impact and reduce carbon emissions.

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Hannah: Hello and welcome to Solving for Climate, a podcast where we chat to scientists and innovators developing solutions to climate change. I'm data scientist Dr Hannah Ritchie and I'm presenting solo today because entrepreneur Rob Stewart can't join us. So once again this might start to sound a bit like a TED talk so strap yourself in…

On today's podcast we're chatting about the thing that makes the world go round, money! So climate solutions require cash and this is coming from lots of different pots. There's private investment, there's government finance, pension funds, it's open season.

So our guest professor Alex Edmans works at the London Business School and serves on the World Economic Forum's Global Future Council on Responsible Investing. He will help us untangle pension pots and interestingly he reckons divestment from fossil fuels isn't doing much good.

So before we dive in, we now have transcripts of each episode available. And actually we've been very surprised by the number of people that want to read the podcast rather than actually listen to our voices. So we've listened to you and you can subscribe to the link in the episode description. There you'll find the transcripts and an update each time we publish a new episode.

So money and climate change, where do the two meet? I think one of the most obvious ones is the money we need not to tackle climate change but to adapt to the climate changes we're already seeing and we'll see in the future.

So you might hear about and see lots of headlines from the international climate negotiations where there's lots of to-ing and fro-ing and arguing about who owes money, how much do they owe, should rich countries help lower income countries to adapt to climate change. So rich countries have actually committed to providing developing countries with at least $300 billion a year by 2035 for climate mitigation, which is addressing climate change, but also adapting to the impacts.

So in order for us to move away from fossil fuels to low carbon energy, we obviously need to invest money into those solutions. Now, some of the trends and numbers here are quite interesting. The world now invests around just over $2 trillion each year into low carbon energy solutions. For fossil fuels, that's around $1 trillion every year. So for every dollar we invest in fossil fuels, we invest more than $2 into low carbon energy solutions.

So that's a bit of a mixed story. It's very positive that investment in low carbon energy is growing and how vastly it weighs investment in fossil fuels. But we are still investing around a trillion dollars, which is quite a lot of money into coal, oil and gas every year. So there's lots to talk about when it comes to money and we'll get into the solutions, whether we, the little guy or gal, should change where we bank, how sustainable funds are growing, and why banks are starting to consider climate risk with Alex.

Hannah: Professor Alex Edmans, welcome to Solving for Climate.

Alex: Thanks so much Hannah for having me on, it's great to be here.

Hannah: It's great to have you. I think later on we'll zoom out a bit into the kind of macro of where the money's going and where it's not going, but I wanted to get quite concrete for our listeners. So many of them will be wondering, they have a bank account, there's lots of discussion of should they be moving their money based on whether a bank invests in fossil fuels or not? Do you think they should and does it make a difference?

Alex: So unfortunately, the impact of moving money is much smaller than one might think. So we often like to think that investing is a bit like customer boycotts. So if I don't like the way that McDonald's treats its animals, then I'm not going to buy burgers from them. Those burgers will sit on the shelves. That will reduce the revenues for McDonald's and therefore that will have an impact on their activities. But sadly, that's not the same with our money.

Why? Because if I own some stocks and if I was to sell my shares in a fossil fuel company, I can't sell unless somebody else buys. So it's not a boycott where the money gets just left there and it doesn't go to the company, it still stays within the company, it's just that somebody else holds it. And in fact it might work in the opposite direction because if I am somebody who cares about climate, by holding shares, by having a seat on the table, I could vote for climate friendly directors who take climate change seriously. If I was to dump my shares, then who might hoover them up?

It might be a hedge fund who cares only about financial returns and they might just allow a company to keep polluting because that's what's going to maximize short-term profit. So what might seem intuitive and what has a lot of support by people are taking climate really seriously, the idea of divesting from fossil fuels, it might unfortunately have some counter-intuitive effects.

Hannah: For a personal individual that has their own bank account, if they have money in a bank that invests in fossil fuels, you're saying the impact of them taking their money out doesn't have a huge impact. Is that also the same in the opposite direction? So if they put their money in a bank that was very pro low carbon solutions and was making investments in that direction, does that actually have a positive impact or is it the same as the negative?

Alex: Yeah, so I don't see there being a huge asymmetry between the negatives and the positives. So your idea might be, okay, I'm going to save with this bank. This bank is going to then take my money and invest it to finance renewable energy.

But again, it's not that clear because it may well be that if the bank were to finance renewable energy, that might be displacing financing from elsewhere. So there's quite a lot of capital nowadays, which is available to finance these clean energy startups. So it's not necessarily clear that this is going to be additive. It may well substitute for other forms of financing. And actually, who might you want to finance? It's not clear that it might be green companies. It could be brown companies.

And you might think, well that's a bit bizarre, shouldn't we want to divest from brown companies? Not necessarily, because those are the ones that desperately need to green up their operations. So if you have a steel manufacturer, if you are able to finance them so that they can make their steel production more efficient, that can actually have a much bigger impact than a company which is clean to start with. It doesn't have so much room to grow.

Hannah: This divestment story is a very popular one, I would say, right? So I remember when I was at university, there was endless debates of whether the university should be divesting from fossil fuels. And you see this a lot, and this is a very common narrative, but I'm guessing that your response when it comes to universities or other organisations on divestment is the same, that it doesn't have that much of an impact?

Alex: Yeah, so there's a couple of issues here. There's number one, does it have an impact? And number two, if it has an impact, is that an impact on the right direction? So let's start with number one. Well, does it have an impact? Well, not necessarily, because if you sell, somebody else buys and the person who buys might care less about climate than you. So then given that seems quite logical, why is it that divestment has become so popular?

Because it seems to be a relatively low cost form of activism. So I, as an individual, I might think I don't need to give up meat, I don't need to give up flying and going on nice holidays, I don't need to give up Californian red wine, I can just move my money, that could be relatively costless. But actually, what I think it takes from citizens are actions which do have some consequences in terms of our lifestyles. And I believe that if we do that collectively, that may well have a significant aggregate impact.

But number two, even if we did have an impact, it's not clear that it's going to be positive. As I mentioned, if we were to starve some brown companies of capital, then we actually starve them of the money they need in order to green up their operations. And also it's not clear whether you should classify a company as black or white to begin with. So, for example, I have been on the investment committee for Royal London Asset Management for nearly 10 years. And when we put our portfolio through a tool,

which tells you which of your stocks are contributing most to climate change, the one that came out worst was Taiwan semiconductor. Why? Well, when you manufacture semiconductors, this releases per-fluorocarbons to the atmosphere, and that is even worse than carbon dioxide for trapping in heat. So you might think, well, we should dump it. But semiconductors, they could be used in solar panels. And solar panels obviously have a huge effect on the planet in terms of decarbonization.

Think about some medicines. Some of the medicines which have massive carbon footprint because they are shipped all around the world, they can also help in terms of the fight. For example, one drug with a huge carbon footprint is the contraceptive pill. And that's something if we address overpopulation that has positive impacts quite apart from the reproductive freedom and social benefit of this drug.

Hannah: Is there any element where there are just some clear-cut cases where it makes sense? Like I can see the argument for a steel company for example, we're gonna need steel therefore it's a benefit to us for these companies to innovate and produce greener steel even if it's not completely low carbon. What would be the case for say a coal company? It's very very hard to green a coal company.

Alex: Yeah, so I think there will be some companies which it is relatively black and white where you can make a case for decommissioning or not funding. So there are banks which say, yes, I can understand that natural gas and oil, that is something where right now we don't have enough renewable energy to meet the world energy demands, but something like coal at a time in which we do have more transition fossil fuels such as natural gas, let's have a policy not to lend to any coal companies.

One might also think the same about say the tobacco industry. That is something where there's a lot of resources used in terms of production. The health consequences are quite negative and severe and there isn't so much of an offsetting benefit. In contrast with say alcohol there are some trade-offs there.

There's obviously a significant carbon footprint to manufacturing drinks. There's some health consequences, but there is also a social benefit in a world in which might be increasingly online. The ability to bring people together and to encourage interactions, both for person and professional, is something where there are arguments for both sides. But there are particular industries, such as coal and tobacco, where one might think, yes, it is quite clear that we should try to invest in these as little as possible.

Hannah: So I think many of our listeners are very worried about climate change and want to make a difference. They might feel bit disheartened hearing this because they've been told that where they put their money matters and they can have a difference. That doesn't seem to be the case. Your argument is that that's not as big as they might assume. What would your advice be for individuals? What can they actually do? What can they actually control in trying to move us to a better position?

Alex: Yeah, so that's really important. And the reason for me trying to be more cautious about the impact of money is not because I don't think climate change is important. It absolutely is important. But to try to direct the actions to the ones that really have consequences. And this is where think personal consumption decisions are really important. So if we are to choose not to fly, do we actually need to make that flight? Can we instead do this by taking a train or do we even need to make that trip at all? Yes, it's summer. We would like to go on foreign holidays could we instead go to the south coast of England there's lots of other places that we could travel instead?

Hannah: So if we zoom out a bit to beyond the individual level to the kind of macro level, could you give us a very brief summary of how much investment is going into low carbon solutions, how much going into fossil fuels and where this is coming from? Is this coming from banks? Is this coming from governments? What does the kind of headline picture look like?

Alex: Yeah, so there is still significant investment into fossil fuels. And why? Because fossil fuels are a cheap source of energy. And like standing in the corner of the governments and the investors who are financing them, what might they say? Is it just about making money? No, they will say, well, we do need economic development and energy is an important factor of reduction, just like raw materials and labour. Right now, let's say in Africa, there’s 600 million people who have no access to electricity. So we cannot deny them of one of the main causes of economic development.

So we do need to finance electrification just like we've had in the West for many, many centuries. So that's one of the arguments is that these things are nuanced. As a government, I might want to keep allowing coal production. This might be the case and say in China. As a bank, I might think it's responsible to finance this.

But unfortunately the challenge is that this is going to have an externality. So what is an externality? That is something where even in the long term you don't bear the consequences of your actions. Now there's many social actions that you might take where you do bear the consequences of the long term. If I am to mistreat my employees, if I'm not going to pursue a diverse and inclusive corporate culture, then my employees will leave and then I will suffer in the long term.

Yet sadly for climate, here the main people who will suffer will be other companies, other nations, other citizens. And so it may well be that a company or a government is acting in the interest of its own citizens, but it's making some externalities elsewhere in the system.

Hannah: And that, I guess, leads us onto carbon tax, right? So like one of the potential solutions to this is to price the externality, right? So to put a price on carbon and say, in the future, a ton of carbon will cause this amount of economic damage, therefore if we put that price on carbon today, that will, I guess, increase the cost of high carbon goods relative to low carbon goods, and that's one potential solution to this. Are you in favor of a carbon tax? What role do you think it could play?

Alex: I'm strongly in favour of this. I think this is the perfect solution. I think virtually any economist thinks that this is the ideal solution. Why? This means that people will internalise the negative effect of their actions. So if I choose to take a flight, then I will need to pay for that in the carbon that is going to be generated by that particular flight. And if I choose not to install carbon scrubbers because it's expensive, I'm going to have to pay that in terms of high emissions. So this seems to be a market solution.

You're not banning anything, but you are just meaning that people will face up to the consequences of their actions. But while that is something which is great in theory, it's the perfect textbook solution, unfortunately it's something that governments may be unwilling to put into practice. Why? Because there are winners and losers. So people who are going to be operating in the fossil fuel industry, they might be 55 year old workers who are not easy to retrain, they might be out of jobs.

But I do think that even though this is a difficult solution, this is the best solution. So often governments will say, well, it's down to you as investors to move your money where you want to invest it. And this is why divestment has become quite popular. But that may well be government just abdicating responsibility from actions that they themselves should be taking.

So one might think, well the government should perhaps ban tobacco rather than to tell people we'll divest from tobacco companies and simply government should tax carbon and if there are losers from it that must be taken seriously because people might not be able to retrain and this is going to affect not just them but their families.

But is the government going to be financing this and being able to have that transition? And that's noticed as a transition which is not just going to be the case for carbon. There will be many jobs which might be displaced by artificial intelligence. We've seen also this when we had say the tractor that displaced some jobs in the agriculture industry. So that is something where I don't think it's unrealistic for the government to say, this is our responsibility to address the people who will be losing from a carbon tax. But sadly, some governments just don't want to do this because they don't want to deal with the hassle.

Hannah: Yeah it's funny there's the kind of quote that economists never agree on anything but the one thing they agree on is a carbon tax. When you speak to economists it just makes obvious sense that you would do this. I guess one of the strongest arguments against a carbon tax is that it disproportionately affects people on lower incomes, right? And if you increase the cost they might not have access to low carbon energy or low carbon alternatives and therefore if you basically just increase the price of the current technologies and current energy they have that will impact them the hardest. Is there a way to avoid that?

Alex: Yeah, so first, that's an important concern and it's often easy for people who are more affluent to think about climate and just to say some big things about regulation not understanding there are people who might live in energy poverty. So what the solution would be is to take the proceeds of that carbon tax and give this as lump sum distributions particularly to low income households to enable them to invest in maybe this be heat pumps or may this be solar panels or just pay for renewable energy which is going to be more expensive.

So you might think well haven't I just neutralized what I'm taxing to begin with, no. Why? Because what you're doing is you're changing incentives at the margin. So the average low-income household will still be as well off as before, but when they think, do I want to take the foreign holiday or the domestic holiday, they know that the domestic holiday will be significantly more affordable, that will change behaviour in a way that is not going to be necessarily negative to their incomes.

Hannah: So there's a very obvious, for many of our listeners, there's a very obvious climate moral responsibility reason why banks or companies, investors should invest more in low carbon solutions. But those companies also often have a financial duty to provide financial returns. How do the returns of low carbon solutions compare to fossil fuels? Is there some trade off there?

Alex: Unfortunately, there is a trade-off. So I wish there wasn't. And we often hear the phrase climate risk is investment risk. If you invest in fossil fuels, you will lose in the long term because these are going to be out of the favour.

But unfortunately this is not the case in the data. Now it is the case for many things that have a social impact. My first book was called Grow the Pie because it highlights that if we do things to benefit society the pie grows and investors are better off and that's why it is in the company's interest to diversify its workforce and treat its workers well.

But the big thing with the environment is its externality. You can pollute the environment and it's somebody else who suffers the consequences. So sadly, some of my own research finds that the companies that emit more carbon deliver systematically higher long-term returns. Why? They're able to get away with it.

They realise there's no carbon tax, they're not investing in carbon scrubbers, they're emitting as much as they want to and other people are losing, it's not them. Now some people look at my evidence and they say, well, that's what happened in the past. In the future, things will change because the government will get its act together and pass some regulation. But I would think we need to be realistic, not necessarily optimistic. Because I learnt about climate change 30 years ago when I was at primary school.

And in the intervening 30 years we haven't seen government action despite everybody knowing that climate change is a problem. And therefore we do need to confront the fact that there is a trade-off. Now who loses in this trade-off? You might think, well it's nameless, faceless capitalists who are making money while the planet burns.

But the investors may well be pension funds. They may well be mum and pop investors investing for their retirement. It's not necessarily clear that we want to take money away from a teacher or a nurse or a firefighter and invest it in renewable energy when right now this delivers perhaps lower returns than fossil fuels because of government action. So it's not clear which way to go.

Yes, you might think that I don't care about the income so much of these retirees because climate change is such a big issue it's worth that sacrifice. I'm not going to tell you which trade-off you should make. All I'm saying is that there is a trade-off and that's something we do need to confront rather than sweep under the carpet.

Hannah: You mentioned pension funds there and I think many people's response to your answer would be, that's probably true for investors that are looking for a short-term return, but the great thing about pension funds is that they have this long-term scope and climate change is also a long-term problem, so these go really, really well together and pension funds are the kind of answer to this. What does the kind of global perspective of pension funds look like and their involvement in climate investment?

Alex: Yeah, so in theory pension funds would be the solution. Why? Because they have a multi-decade horizon. But again, I wanted to be realistic about what their impact might be because we have had issues which we've known for a very long time and yet the long run could be even longer than the horizon of a typical pension fund. So in 1950, we saw the first evidence that smoking causes cancer. And there's 75 years have elapsed since then.

Tobacco companies have been earning out size profits all the time so if you're a pension fund and you did not invest in tobacco you would have sacrificed some returns. Now you might still think well there was a moral benefit for this but all I'm here to do is to say well there is still a return sacrifice and it's the same for fossil fuel again despite there being a lot of knowledge about climate change at least since I was a kid, why, because even though we know this we also know that governments are notoriously sluggish to act and it may well be that these consequences are not going to manifest even within the long time horizon of a typical pension fund.

And then finally you also have the issue of potential trade-offs is that even if I care about my pensioners and I know that my pensioners in 30 years time don't just care about their income but also the state of the planet, whether it be two degrees warmer. There are potential trade-offs in that we do want to also have economic development in Africa. We don't want to have some unrest that you might have seen, say, in France when you are taking too strong action against climate. So even if you care about something other than money, sadly, climate also has trade-offs not just with financial returns, but with some of these other objectives.

Hannah: So currently it's seeming a bit gloomy, and you mentioned that governments tend to be quite slow. Let's assume that they did move relatively quickly. What would be your advice on how to fix this?

Alex: Yeah, so I think climate change is such a big issue, it needs action from lots of different people. So I first talked about the individual. I've also talked about the government in terms of a carbon tax. Let me now think about what companies and investors can do, even though I've tried to temper my enthusiasm. So let's give an example. So let me go back to 2007.

So why am going back to 2007? That was a time where people did not pay so much attention to carbon footprints. So people were not doing things in order to improve their image. They might just be doing things because they thought it was the right thing to do. Now, Walker's Crisps, they decided to calculate the carbon footprint of a packet of crisps from throwing away a crisps packet, sorry, from planting a potato tuber to throwing away a crisps packet.

And they found the biggest source of carbon emissions was drying the potatoes. Why? Because they bought their potatoes by moist weight. And so farmers kept the potatoes humidified to maximise their weight and then walkers needed to dry them a double whammy of carbon emissions. So they switched to buying by dry weight.

And this saved not only the farmers keeping them humidified but also the drying costs. That saved half a million pounds per year in terms of money in addition to carbon emissions, right now that would be millions given how high energy prices are. So why I like that is that was something motivated by climate impact but it led to the company making money down the line. Now all companies try to save money. Maybe they might hire McKinsey to tell them how to reduce their headcount.

They would have never thought about how they buy their potatoes. And you can think of lot of analogies of this in the modern day about, the circular economy. If I'm making cement, do I use fresh limestone? Or do I use waste limewater, which is a byproduct of the paper manufacturing process? Many things, when I think about how can I cut my carbon footprint, they might be win-wins. If I choose as a company not to have as many flights in terms of business travel, that also saves us in terms of the bottom line.

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Hannah: So XLinks have this big project, and I've had it on my radar for some time, the Morocco to UK Power Project. The plan is to transport renewable energy from sunny Morocco to the dreary UK. In June, the UK government decided not to go ahead with a contract for difference for the project. And there's a but incoming. But Xlinks are still looking at other delivery options. And they're also doing feasibility work on separate projects which could benefit other parts of Europe. To find out more, you can follow their journey on LinkedIn by searching Xlinks, capital X, lowercase links.

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Hannah: What's your perspective of trying to change a company from the inside? Like we've seen some almost climate activists sit on boards of companies. There's sometimes a backlash to that, right? Like often if you're seen as even being associated with a company that in people's eyes seem negative for the climate, you get quite a lot of flak for it. But is there a positive from it? Does it actually work?

Alex: I think there is a positive for this and I think it's important not to have this black and white thinking which are brown companies, brown let's never associate with them because they're evil. That would be like a government saying I'm not going to be investing in an underdeveloped area. Those are the companies which need the most, hand holding the most reform. And so there's an example of Engine No. 1, this hedge fund which got three climate friendly directors elected to the Exxon board who understood the importance of developing renewable energy.

But what is really interesting is how they sold that activism. They didn't say, let's do this because it's good for the planet and the planet is burning. Instead they said we need to do this because it's important for the company's long-term financial sustainability. In a world in which there will be a move away from fossil fuels and maybe in the future there could be a carbon tax, we need to really be on the front foot. And that was really important because they got other investors to support them.

And these are investors who do care about the incomes from pensioners. They can't just sacrifice their clients money for the pursuit of some social environmental goal. And it's also something which worked within the rest of the board. Why? There were three climate directors there, but there were only three out of a board with maybe 10. But if they're saying we're doing this to improve the company's long term sustainability, that is something where they could get the buy in from the rest of the board. What might not be so successful is try activists from the inside say well, let's stop the oil and gas company from extracting any more oil and gas.

That's certainly something which is so extreme. It's not going to be practical or realistic. But to say well, let's try to wind down our oil and gas at the same time as developing renewable energy, that's something which does have a significant climate impact, but it is also realistic. So this is something I call limitations aware engagement. This is not being defeatist, but realising that we live in a capitalist system where companies do need to make money, not because they're materialist, but because they have investors like pension funds and mums and dads, but they also can do something which is also good for the planet at the same time as delivering these long-term returns.

Hannah: The way we're discussing, we're often discussing tweaking the current financial system we have or trying to improve or reform it in some way for us to be able to tackle climate change. I think, and I've been asked this question a lot as well, is that the argument is that, well, capitalism got us into this mess. Capitalism is not going to save us from this mess. Shouldn't we just turn our back on capitalism? How would you respond to that?

Alex: So it's not clear what even turning our back on capitalism means. Because some people just misunderstand what capitalism is about. Because some of the solutions may well be capitalism. Which is innovation. So capitalism is about trying to find solutions to big problems. Now, maybe in the past those big problems were, let's have transport when people were going around on foot or horses. Nowadays, one of the big problems is climate change. And that's why we do have potential solutions such as green hydrogen, such as carbon scrubbers, such as solar reflectors being launched into the atmosphere, and that requires the free flow of money, which is capitalism.

What do we contrast capitalism with? Socialism or communism, where who is it who makes the decisions? It could be the governments who are directing money and we've just discussed how the government is not a good solution because the government has known about climate change and the damage from lung cancer for decades and not done anything about it. But if instead there are these opportunities you do find now a lot of investors who are going into the space and financing what you might think to be moonshot technology in the same way that in the past they were financing drugs which you might think make no sense but now we're able to do things like gene editing or correct people's vision or develop something like golden rice.

So I do think this is important. Now what we do need to recognise is that capitalism also acknowledges market failure. So capitalism doesn't say we want unfettered free markets. We also understand where the market fails and I would say that the government's failure to put in a carbon tax is not capitalism.

Because capitalism realises that we need to tax externalities and so governments might think, oh no, I'm pandering to big businesses because they're donating funds to me. No, you're not. You're not acting in what capitalism says you should do, which is the importance of laws and regulations so that people take into account the consequences of their actions. It's just like the referee of a football game. You do need to intervene in order to have stopped fouls and handballs. That is what's going to lead to the most competitive game where people are going to be able to compete on their passing and their dribbling and their shooting, not on these other things. And indeed capitalism, when it's free and fair, is that we're going to play by the rules and the rules involved are to take into account the long-term consequences of our actions.

Hannah: I briefly want to touch on lower income countries because a big part of this story is that as we touched on earlier there are many people in the world that effectively live in energy poverty or actually don't have access to modern energy so that's one element of the problem. And then the other element is that as people rightly get access to this energy if we rely on fossil fuels, CO2 emissions will go up, right? So the ideal solution is that we manage both of these problems at the same time and people can grow with low carbon energy sources. The issue there is that a lot of the low carbon technologies are very capital intensive, right? So they might cost very little once you install them, right? The sun is free, the wind is free, but you need the finance in the first place to build the wind turbines, to build the solar panels and the plants.

The issue there is that poorer countries often don't have access to a lot of capital. And if they look for external finance, often they're considered a risky investment, right? So they might end up with very, very high interest rates. Are there ways for us to overcome this?

Alex: Yes, I think there's not ways to overcome it because those trade-offs exist, but I think there's a ways of trying to address it and manage it. And this is with rigorous objective analysis, which is to think about, well, what is the cost of installing this technology? And what is the benefit that we're going to get to later? Now, often we don't have this objective analysis. We might have emotion. We might have the idea that climate change is so, so important that we want to have the least emitting technology possible.

It doesn't matter how much it costs to install that technology, it's clearly going to be better in the long term to have something which is low emission than high emission. But this is not clear, because the cost is not just a financial cost, but it's also a resource cost.

Why? Because why is something expensive financially? Because it uses scarce resources. That may well be the equipment needed, the materials needed to construct solar panels. That is a cost to the environment. It's not the case that every home in the UK should necessarily have solar panels. I have one, but I have many, but that's because I work from home a lot. I have quite high energy consumption. I have a family. And so for me, I think I'm having a positive impact on the plant by doing that. But other houses might not benefit from that.

And that's also the same for developing countries. If you were to look at the cost of installing that technology, transporting that technology to that country, compared to how much use you're to have for this, sometimes it may well be that the benefits are not exceeding the cost and therefore it might be better to actually have the more polluting technology. And this is why think it's particularly important for high-income countries to take the hit. Climate change is a global issue. I think it is quite problematic to say I'm going to deny Africa the economic development from electrification that we've benefited from, maybe as a transition, they will be able to allow to use fossil fuels to a greater intensity than in the UK and the US.

And that's why I think it's particularly incumbent on us as a country to pass solutions such as a carbon tax and us as consumers to take actions which might be costly to ourselves, not signing a petition, not going on a climate march, but reduce our consumption, taking fewer flights, buying fewer things. I think these are things which will have significant impact, particularly when done on scale.

Hannah: Alex, thanks so much for joining us.

Alex: Thanks so much for inviting me, Hannah.

Hannah: So I think there's lots that we really, really agreed on. Maybe a few things where I don't think we disagree, but maybe we have a slightly different perspective. Often the narrative and message around this, especially for individuals, is that your personal individual behaviors and what you emit and how much you fly and what car you drive doesn't really matter. It's all about the big institutions. So the two big things you can do is vote the right leaders in and move your money.

His perspective is that the divestment narrative actually probably doesn't make a big difference. And what he was advocating for was actually individuals paying attention to the behaviours in their personal life. Probably the bit we agreed on the most was just the carbon tax. I think the one area where I don't think we disagreed, but our perspectives are maybe slightly different or maybe I'm just like a little bit more optimistic.

I felt like maybe people would walk away from the conversation with Alex feeling very pessimistic that the case for investment in low carbon solutions was very, very poor compared to fossil fuels. And the only way you could possibly get that to work is if you put in a carbon tax or you had very, very strong regulation pushing people in that direction. And I think there's some truth to that. But I think if you just step back and look at the data, investment in low carbon solutions and clean energy has been growing quite rapidly actually and is now vastly outpacing fossil fuels, right?

So every dollar we spend on fossil fuels, we spend two dollars on clean energy, and I actually just expect that to go up, and I expect the investment prospects for fossil fuels to either stagnate completely or actually go down. Maybe Alex wouldn't necessarily disagree with that, but I think maybe walking away from the interview, people would get the impression that the only reason you would ever make these investments is if you were like kind of have this kind of halo and want to do it just for the good of people and the planet.

And I actually think there are just like very credible investment reasons why. And I'm not convinced that, you know, the several trillion dollars going into clean energy is just because people, you know, feel this responsibility to do it. I think there is some financial benefit to be had there.

So thanks for listening to our fourth season of Solving for Climate. Goodbye.

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Xlinks have sponsored this series of Solving for Climate.

Hannah: Xlinks have quite an impressive team, led by a board that includes Sir Dave Lewis, former Tesco CEO, ex-Rolls-Royce chairman Sir Ian Davis, and founder of ACWA Power, Paddy Padmanathan. And to top it all off, Time Magazine recognised Xlinks as a world-top green tech company in their 2025 rankings. I hope they stuck that on their LinkedIn. To find out more, you can follow their journey on LinkedIn by searching Xlinks, capital X, lowercase links.