This analysis draws out an interesting interaction between the quality of climate disclosures, the structure of the asset management industry and the scope for rapid growth in the role of capital markets in climate investment. Poor disclosures force investors either to form crude portfolios – which cannot send particular finely graduated price signals – or to seek active management – which, being costly, is not available to all. Neither is ideal. It is only when disclosures have reached true maturity that the full panoply of modern asset allocation techniques can be brought to bear. That underscores just how vital it is to make progress on disclosures. There are as yet few comprehensive studies of the relative performance of current strategies. Indeed, there is a genuine question about how such performance should be measured, given that one motivation for investing in climate-based funds is the desire to generate a measurable beneficial environmental impact alongside a financial return – so-called ‘impact investing’. There has been a long and lively debate about whether achieving this requires a willingness to sacrifice financial gain. Some funds explicitly recognise this possibility in their construction, for example granting explicit concessionary rates to climate-positive projects. But others dispute the existence of such a tradeoff, noting the range of non-financial tools such as investor engagement that can act as ways to achieve impact.
The acquiescence of the UK labour force in accepting lower real wages is quite remarkable for those of us who grew up during the wage-price spirals of the 1970s and 80s. It explains in part why unemployment has stayed much lower than we would have expected, given the weakness of output growth. Much of the labour force has priced itself into work. The public sector has also been addressing its finances. There was clearly a greater structural deficit in the fiscal position than anyone thought pre-crisis and the Government are trying to reduce public expenditure and raise income to get back onto a sustainable footing. I should note that no consolidation at all would have been unsustainable and was never an option. Nevertheless, as the May Inflation Report noted, it is likely that the consolidation has weighed on output over the past three years and will continue to do so. The financial sector also has its balance sheet problems. The major banks in particular have been re-structuring, reducing wholesale market borrowing, improving their liquidity positions and building up capital. I believe every large UK lender has at least one non-core portfolio they are running down, and commercial property lending is typically a common factor. Finally, the corporate sector. In aggregate, UK businesses continue to save rather than invest, running up a significant and on-going corporate surplus. But like the household sector, there are different sub-groups. Some, especially large companies, are cash rich and profitable but not investing as much as they perhaps could.