Earth Inc

A Framework for Effectively Communicating Climate and Earth system Science to Business

This report is intended to be a wake-up call for the business and investment communities alerting them to: 

  • The very real risks to their asset bases that are now arising due to the escalating impacts of climate change and to the immediate need for concerted action without which there is the very real potential for the collapse of civilization prior to midcentury. 
  • The very substantial business opportunities that arise as a result of taking the necessary remedial actions to restructure and retool the management of global energy and the planet’s resources. 
  • The overly optimistic projections that arise from the one dimensional consensus science-based assessment structure as opposed to a multi-dimensional businesslike approach to risk management. 

To help communicate this effectively, the report is framed in business terminology and language, conceiving modern civilization as a multi-divisional corporation called Earth Inc.


Earth Inc. 

Is it a viable investment opportunity? 

Introduction 

Earth Inc. appears to be in very serious trouble: 

The scientific and governmental communities that have examined our current circumstance have concluded that our modern civilization is in extremely serious trouble as a result of the accelerating pace and extent of climate change, sea level rise, and ocean acidification. 

But these important conclusions have not been successfully communicated to the business and investment communities. As a result, the majority are failing to respond to the very severe threats to their asset bases, or to take advantage of the very real business opportunities that are arising. 

Using the first business principle of identifying a market need, the corporate community should recognize that there has never been a greater emerging market demand than that being brought about by climate change: namely, the desire for food, water, shelter and security of every individual on the planet, together with a viable future for their children. 

To address the failure of communications, in this report we aim to overcome the roadblock by framing the situation in business language and terminology, thereby allowing the business and investment community to fully assimilate what the scientists have been trying more and more desperately to convey to society. 

To reduce it to basic components, the approach is as follows: 

Modern civilization, and its relationship with the planet that hosts it, is considered as a single, gigantic multi-divisional corporation, known as Earth, Inc. 

A group of investors is considering a substantial investment in Earth Inc. and has hired a team of business analysts to evaluate: 

  • The current state of the business and its present return on investment potential. 
  • The potential of the business and its assets if it is substantially restructured. 

What follows is a short version of the analysts’ hypothesized report as delivered to the investors of Earth Inc.

And this is why we are losing, and eventually will lose, control; quite possibly by mid-century. The majority of official assessments are of linear change and the response at best is shallow linear in nature; the reality is the rate of change is increasingly non-linear. The consequence is that the linear response and the non-linear reality are progressively diverging. This compresses the time to respond effectively – in other words, we have already lost decades and are suddenly well behind the curve.

Review of the forward financial prospects of Earth, Inc.

Our first step was to conduct extensive due diligence on the major characteristics of the subject, and then generate, in selective line-entry discussive format, 5-years of pro forma profit and loss statements for Earth Inc. Neglecting completely all other potential impacts on these projections, and focusing entirely on climate issues, our conclusion was that in the short term there is likely to be only marginal impact on P&L projections due to the size of the entity to absorb those impacts. We do however have specific serious concerns: The financial operating system of Earth Inc. is fiat and ‘confidence’ is critical in a fiat system. Based on other findings, that will be discussed later, confidence in future earnings potential could rapidly erode as the risks that the scientific community has identified and projected start to emerge. The standard business practice of 5-years of projections is entirely unsuitable for evaluating Earth Inc. This is due to the size of the entity and the cause and effect time lag; in particular, the potential risk timeframes, on the basis that course correction to avert severe problems will take many decades. We note that it is likely that very severe problems will arise within two decades if significant action is not commenced almost immediately. Research and development time to bring essential solutions to commercial readiness is already very short. Much of the current prevailing economic system appears to assume that there are infinite resources that can be utilized at an unconstrained rate. This is far from the reality, with the exception of solar (but restricted to certain areas), wind, hydrological and geologic power sources, as well as various emerging nuclear fusion technologies. Together these represent significant but as yet not fully recognized and utilized assets of Earth Inc. Nearly all other resources are strictly finite and in some categories those resources are already in a state of high stress; a perfect example would be fresh water. In particular, we draw your attention to the very significant unfunded liabilities that arise as a result of the failure to properly maintain the environmental assets of Earth Inc.

Our next step was to construct in overview form a simple pro forma balance sheet with the standard definition of ~ Assets – Liabilities = Stockholder Equity. Our findings were very disturbing: Certain assets, specifically various types of fossil fuels, have been used to convert what was formerly an agrarian based society into an industrial based society. The conversion from manual labor to mechanization, and in particular the development of mass agriculture, has allowed the customer base (the carrying capacity of the planet) to expand at an exponential rate. Please note our later discussed due diligence finding of the particular exposure of primary customer-based infrastructure located in coastal regions which are going to require protection from sea level rise or which may have to be abandoned and relocated.

That rate of growth must ultimately taper and plateau due entirely to the limits of associated resources required for its continuance, unless compensating technological advances are adequately funded to supply the needs of the growing population. Changes and anomalous variations in weather patterns will induce increasingly frequent, persistent, and widespread crop failures. With reduced food stores, increasing global demand, and the four to six-month period from planting to harvesting crops, critical shortages will be increasingly likely and last for extended periods. Given the daily need for food, periods as short as two years, could dramatically reduce the global customer base and trigger resource wars. The rapid growth of Earth Inc. has only been possible because full cost accounting has not been carried out. For example, the impacts from the extensive use of fossil fuels to propel growth are beginning to significantly disrupt the climate, moving it toward conditions that are becoming increasingly inhospitable to the continued successful operation of Earth Inc. The fundamental reason is that the burning of fossil fuels releases carbon dioxide into the atmosphere, and as the atmospheric concentration of CO2 increases, the temperature of the planet increases, storm tracks and water resources are displaced, sea level is increased and ocean acidification disrupts the living marine resources.

Full cost accounting would have required the expense of the removal from the atmosphere of the carbon dioxide produced by the burning of fossil fuel to be recognized. This would have to be paid for by the person or entity responsible at an enormous cost and the continued growth of Earth Inc. would only have been possible by developing alternative, and preferably, renewable, sources of energy. The consequence of ignoring full cost accounting is that the pro forma balance sheet of Earth Inc. has huge unfunded, and unacknowledged, liabilities. The liabilities are the forward cost of removing the excess carbon dioxide from the atmosphere, which is now deemed essential by many scientists. This will require the creation of the biggest business, by orders of magnitude, Earth Inc. has ever seen, literally dwarfing any former division. Moreover, this is required in a timeframe, that would appear nigh on impossible. Billions of tons of carbon dioxide have to be captured and removed from the atmosphere, and then sequestered indefinitely.

Those liabilities grow daily with the continued use of fossil fuels, and it is becoming increasingly evident that Earth Inc. is either on the verge of, or has actual entered, metaphorical bankruptcy. Metaphorical bankruptcy is characterized as the progressive inability of Earth Inc. to sustain its customer base until, at a minimum, its operations (i.e., modern civilization) collapse as the planet becomes increasingly inhospitable.

There are other unfunded liabilities that are increasing as a consequence of the current operating mode of Earth Inc. but carbon dioxide removal, termed CDR by the scientific community, is by far the largest.

Due diligence discovery

To fully understand the forward viability of Earth Inc., in particular the operating characteristics, we conducted extensive due diligence. Our focus was on identifying the trends, supported by observable and documented changes, that characterize forward operating conditions as either favorable or unfavorable, and in particular the measures that would be required to correct unfavorable trends. In addition to identifying trends, we also sought to identify the rate of change where it was either available or could be derived - the rate of change for many factors is actually more important than the ultimate magnitude of the projected changes.
Two issues from our findings stood out above all others: We detected several disturbing instances now exhibiting the start of non-linear trends. On the basis of De Bono logic, this suggests that the climate as a whole is now changing in a non-linear way. Scientists have not yet been able to fully agree on this conclusion, but, given the potential impact on Earth Inc.’s balance sheet ignoring the risk while waiting for confirmation puts substantial capital (i.e., Earth Inc.’s investments in communities, infrastructure and production capacity) at great risk. The current response to the emerging non-linear risks by management (read governments) is more appropriate to the characteristics expected to a shallow, linear rate of change. If this situation continues, the response will progressively diverge from that required, with the consequence that, year-on-year, Earth Inc. will fall increasing behind in making essential changes to its operating procedures.

Observed examples of non-linear areas are:

  • the volume decline of Arctic sea ice, which is a critical operating characteristic;
  • the discharge of meltwater from Greenland, which has impacts on sea level rise and on ocean circulation patterns, which in turn alters weather patterns for Europe;
  • the discharge of meltwater from Antarctica, which further amplifies the rate of sea level rise; and
  • the rate of change of temperatures over land, which, when we reexamined the observations, indicated a shift to a severe exponential rate of increase, suggesting the Earth system may have already passed, or be passing, through a very significant ‘tipping point’ from which it will be difficult to recover. The consequence of the as yet not widely recognized acceleration in the rate of temperature change and its associated influence on the likelihood of weather extremes, is that the official bodies for setting and recommending forward policy, and the vast majority of the public and business leaders believe that serious impacts to Earth Inc.’s performance will not occur until around 2100. The reality is that the timeframe has shifted, and the changes now being identified will have grown by mid-century, or even before, to become dangerously disruptive.

This shift to a non-linear rate of change creates a significant problem for the directors of Earth Inc. because the shift will make the remediation needed to ensure the viability of forward operations much more difficult. The consequent compression of the timeframe for effective remediation will upend former plans rendering them inadequate. 

Envisionation presents Earth Inc

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