Thursday, November 15, 2012

Nirad Chaudhuri and the cost of bringing up children

The acerbic, scholarly and always entertaining and impressive Indian writer, Nirad Chaudhuri, was invited to to give a lecture at the University of Stirling in Scotland in 1978 (if I recollect aright), when it was my honour, as one of the few Indians at the university who was interested in literature, to be able to ask him to my room for afternoon tea. At the door, as he was leaving, he said, that as a fellow-Indian of my father's age, he had the right to ask me a personal question, and I of course concurred. "How long have you been married?", he asked. "Well over two years", I replied. "So why don't you have children yet?" Well, I was a student and so, embarrassedly and apologetically offered, "We can't afford it". At which, he raised his hand (he was of rather short stature) all the way up to my shoulder, turned me around to face him, and retorted "Afford it? Afford it?! Since when can anyone AFFORD children?. No, no. You either have children or you don't. Forget about "afford"!". I can't say that that was the only reason, but my wife and I did have our first child after that - and it was when we still couldn't really "afford" a child! It turns out that, according to the latest research regarding the cost of bringing up children, Niradbabu was quite right. The cost, in the USA anyway, is close to US dollars two million! What such calculations leave out of the equation, because such things simply don't compute, is the joy (and heartache! and therefore the maturity!) that children bring - and not only to parents! And, of course, eventually (too soon!) children grow up and, in most cases, become contributors to the family and to the world. Sphere: Related Content

Sunday, November 04, 2012

My response to Project Syndicate

As I have just arrived at A Rocha’s Mwamba Field Study Centre and Bird Observatory, following a presentation that I was asked to make on the link between the nature of the international financial system and ecological challenges, a friend sends me the following
Achim Steiner, Susan Burns
Sovereign Environmental Risk
27 October 2012
NAIROBI – Until the global financial crisis erupted four years ago, sovereign bonds had traditionally been viewed as reliable, virtually risk-free investments. Since then, they have looked far less safe. And many observers within and outside the financial sector have begun to question the models upon which credit-rating agencies, investment firms, and others rely to price the risks tied to such securities.
At the same time, it is increasingly obvious that any reform of risk models must factor in environmental implications and natural-resource scarcity. Indeed, a recent investment report underlined that the fall in prices in the twentieth century for 33 important commodities – including aluminum, palm oil, and wheat – has been entirely offset in the decade since 2002, when commodity prices tripled.
It is likely that growing natural-resource scarcities are driving a paradigm shift, with potentially profound implications for economies – and thus for sovereign-debt risk – worldwide. Indeed, many countries are already experiencing an increase in import prices for biological resources. Financial markets can no longer overlook how ecosystems and the multitrillion-dollar services and products that they provide – ranging from water supplies, carbon storage, and timber to the healthy soils needed for crop production – underpin economic performance.
In addition, we are living in a world in which over-exploitation of natural resources, unsustainable consumption, and the condition of many ecosystems have become incompatible with accelerating demographic growth, as the human population increases from seven billion today to well over nine billion by 2050.
Studies such as the The Millennium Ecosystem Assessment and The Economics of Ecosystems and Biodiversity (TEEB), conducted on behalf of the G-8, have improved our understanding of the economic, ecological, and social value of the goods and services provided by ecosystems, and have proposed better methods for pricing them. Yet this new thinking has yet to influence significantly the behavior of bond investors and rating agencies.
Some might assume that bond markets are shielded from the effects of climate change, ecosystem degradation, and water scarcity. With more than $40 trillion of sovereign debt in global markets at any given time, that is a very high-risk game.
In order to address the gap between reality and perception, the United Nations Environment Program Finance Initiative (UNEP FI) and the Global Footprint Network (GFN), together with a number of institutional investors, investment managers, and information providers, have launched E-RISC, or Environmental Risk in Sovereign Credit analysis.
The project will take center stage at a gathering of investors in London on November 19, providing an early glimpse of how environmental criteria can be factored into sovereign-risk models and hence into the credit ratings assigned to sovereign bonds.
E-RISC highlights the situation in several countries – including Brazil, France, India, Turkey, and Japan – demonstrating how importers and exporters of natural resources such as timber, fish, and crops are being exposed to the increasing volatility that accompanies rising global resource scarcity. Indeed, the E-RISC report estimates that a 10% variation in commodity prices can lead to changes in a country’s trade balance amounting to more than 0.5% of GDP.
Meanwhile, the economic consequences of environmental degradation can be severe. The report estimates that a 10% reduction in the productive capacity of soils and freshwater areas alone could lead to a reduction in the trade balance equivalent to more than 4% of GDP.
Clearly, environmental risks are potentially large enough to affect countries’ economies in ways that could influence their willingness or ability to repay sovereign debt. In addition, these risks vary widely across countries, including countries whose current credit ratings suggest similar levels of sovereign risk.
This suggests that the findings and methodologies applied in the E-RISC project bring added value to traditional sovereign-risk analysis, by providing insights into relevant but currently unaccounted-for parameters. Credit-rating agencies, institutional investors, and asset managers are encouraged to see how such factors can be incorporated into their own risk models.
The time has come for a better understanding of the connection between environmental and natural-resource risk and sovereign credit risk. Only then will investors, rating agencies, and governments be able to plan over the medium to long term with the knowledge needed to ensure long-term economic growth and stability.
This article is available online at:
Copyright Project Syndicate -

I responded as follows:

Dear ….

Many thanks for this.

But this is too general to be of practical use at present.

It will become of practical use if and when the models being used can accurately predict the comparative rate at which different bond-issuing countries could be affected.

If the work focused on the 12 major countries issuing bonds internationally (or even the top 5), that would be quite enough to start with

I should also say that all this does not take into account that it is unclear to what extent price increases are driven at present by real scarcity of particular resources and to what extent the price increases are being driven at present by mere hoarding and gambling.

The latter create huge volatility, preventing proper investment in using and conserving the particular resource (well documented in the case of oil and gas, but also clear in each of the other 32 resources mentioned).

And the more we talk about resource scarcity without reference to hoarding and gambling, the more we strengthen the institutionalised tendency towards speculation.

Warm regards

Sphere: Related Content

Thursday, November 01, 2012

First visit to the UN Environmental Programme in Nairobi, Kenya

UNEP is located in an 140-acre campus, donated by Kenya, which is spacious and beautifully landscaped (the maintenance is presumably paid for by UNEP and not by Kenya).

In addition to the landscaped gardens, what are impressive are: 
 - the "green" building (not in the colour of the external walls, but in terms of its use of solar-generated electricity, water-use and so on), and 
 -  the 14 grand auditoria which are used for the "grand" meetings - e.g. the UN Security Council meeting a few years ago which recognised South Sudan.

Contrasting with the above are the badly-designed rooms for normal meetings - e.g. the briefing room  for our group. 

In what sense are the "normal" meeting rooms badly-designed?

Here is a short list:

 - there is sound pollution from neighbouring rooms, which compounds the problem of the sound system not being organised for presentations, only for rather formal sit-down discussions

 -  it is impossible to project slides high enough for everyone in even in these relatively small rooms to see comfortably

 - the rooms are unaesthetic (no colour coordination, no sense of what materials go togehter and what don't)

-  the rooms are poorly maintained- there are bit and pieces on the walls, patches and so on, broken equipment still hanging around (old and stripped-out fan sill on the ceiling, and so on).

Once one gets past the general ambience of the place, and is confronted with all the work that UNEP does on a limited budget, it is still evident that the organisation is highly bureaucratic, and that there is the usual wasteage of money.  Most startling was the depiction of how many agencies, organisations and groups are involved in the UN alone in environmental matters.  

It is also clear that UN groups have a huge problem in communicating all that they do even to groups that are interested and active in environmental matters.

There is of course a difference between activity and achievement:  apparently that there are some 500 conventions or treaties covering aspects of sustainability, so UNEP commissioned a study of 90 of the most important, and concluded that only on four of them had there been any substantial impact.

Sphere: Related Content