Remarks to: Royal Society, 6-9 Carlton House Terrace, Wednesday, 6 March 2024 by The Rt Hon The Lord Mayor of London, Alderman Professor Michael Mainelli   

KEY MESSAGES:

• Welcome this series of three seminars which seek to develop deeper links between the science and business communities
• Identify the financial mechanisms that are effective in protecting nature – set-asides, forms of land value capture, performance bonds
• Highlight Connect to Prosper and its emphasis on multi-disciplinary networks solving global problems

Ladies and gentlemen, good evening.

My sincere thanks to the Royal Society for hosting us tonight, and to Sir Mark Walport for his warm words of welcome earlier. With so many scientists in the room, I’m reminded of Newton’s first law – a body in motion will remain in motion. But I will try to keep to my allotted time…

Don’t worry, I’ll leave the bad science puns there. After all, all the good ones argon…

I am thrilled that the Royal Society – the world’s oldest continuously existing scientific academy – and the City of London Corporation – the world’s oldest democratic workers’ and residents’ cooperative – are working together on this project, a series of seminars looking at planetary boundaries, monitoring nature, and overshoot on large ecosystems – each designed to prod and probe accepted thinking, in doing so identifying research gaps and building connections between the science and business communities.  

This should be viewed as an entirely natural collaboration between the Square Mile and the Royal Society. Indeed, going back many centuries, the City has been the traditional home of science. New Learning in the 15^th Century, Gresham College in the 16^th Century, the Royal Society in the 17^th Century.

It’s almost 360 years to the day that Samuel Pepys, upon being admitted to this Society, wrote of his meeting with Lord Brouncker, your first President, where it was “a most acceptable thing to hear their discourse and see their experiments; which were this day upon the nature of fire, and how it goes out in a place where the ayre is not free, and sooner out where the ayre is exhausted, which they showed by an engine on purpose.”

By firing up our own metaphorical engine, and avoiding asphyxiation in the process, my mayoral theme for the year – Connect to Prosper – seeks to reinforce the connections between the science, tech, and business worlds. We even have a strontium ion optical atomic clock on the Mansion House staircase to keep us on schedule!  Over the course of the year we’re celebrating the many “Knowledge Miles” of the Square Mile and reviving London’s proud coffee house tradition.

One in which Jonathan’s Coffee House, opened in 1680, grew into the London Stock Exchange, Lloyd’s Coffee House, founded in 1686, became Lloyd’s of London, and the Virginia and Baltick Coffee House, opened in 1744, spawned the Baltic Exchange. These were hubs of learning and creativity – penny universities, as they were known – in which great minds like Sir Isaac Newton, Sir Hans Sloane, and other members of the Royal Society – all frequent custodians of the Grecian Coffee House – were nurtured.

Because with London home today to 40 learned societies, 70 higher education institutions, 130 research institutes, and over 24,000 businesses, with more than 300 languages spoke, the City of London is the world’s “coffee house” – a place where people come together, from across the globe, to find solutions to our planet’s biggest challenges. A centre that trades in goods, and ideas, in equal measure.

What I would like to do in my short pitch is to consider:

• Economics, nature, and valuation;
• Look at what financial mechanisms don’t work;
• Look at what financial mechanisms might work.

The difficulty in valuing nature isn’t a new problem; it was neatly summed up by a fellow of this Society – Adam Smith – over two centuries ago:

“Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it.”

As the economist, Jeffrey Sachs, has noted:

“the market price of a species will generally not reflect the species’ societal value as part of Earth’s biodiversity. Market prices do not reflect the value that society puts on avoiding the extinction of other species, only on the direct consumption value of those species…the rate of interest diminishes the incentive for the resource owner to harvest the resource at a sustainable rate. If the value of the resource is likely to grow more slowly than the market rate of interest, the blaring market signal is to deplete the resource now and pocket the money!”

As expected from this theory, slower-growing animals and plants are especially endangered today.  Consider, as an example, slow-growing megafish like bahaba and giant yellow croaker. Their slow growth makes them a “poor investment” – even in managed fisheries – and their large size makes them easy prey.

Great work has been done on valuation, much of it heroic, not least the Dasgupta Review, or Pavan Sukhdev’s “The Economics of Ecosystems & Biodiversity” (TEEB) work from 2007 to 2011. Yet I take issue with market valuation mechanisms that lead to a single number being chosen for the value of life on earth or an ecosystem. Using a market approach needs a market. 

Perhaps we could place a market value on one of your kidneys, assuming you have two, but would you feel comfortable with me placing a singular market value on your heart, or for that matter, your brain? If we sell the earth, where are we going to buy a new planet to move onto instead? 

As a former Master of the Worshipful Company of World Traders, it reminds me of many of our meetings:

“Psst…hey buddy…do you want to buy a planet….?”

Another approach to valuing nature is to use financial options. For instance, take the local issue of the Thames Barrier replacement. Option theory can evaluate an engineering replacement for the Barrier versus much more extensive use of set-aside lands in Kent and Essex, if we can value human lives, flood destruction, and wetland biodiversity – just for starters.

As The Economist concluded in 2021:

“Clear thinking about nature can benefit from framing it in economic terms: as an asset and input to production, the overuse of which is a problem of incentives and property rights. Building the political will to prevent irreparable damage to the environment, though, may require an appeal to values that are beyond the purview of economics.”

Scientists are known to be excellent at solving problems. As the joke goes, it’s because we work with solutions every day, so in that spirit let us turn to mechanisms that might work.

We’re learning that technical costing approaches just create analytical work to little effect. We need simple economic mechanisms and restrictions like carbon markets, reserves, corridors, and set-asides.

ESG analysis is insufficient. We need strong carbon markets and analysis.

Reserves help limit human sprawl and give diverse species a habitat. Corridors are for roaming species, and as an example, elephant corridors appear to work.

In fact, Pollinating London Together, a collaboration between the City of London’s livery companies and other organisations, is already creating biodiversity corridors for pollinators across the City.

And another economic mechanism we can deploy is hard set-asides. Want to build a new golf course? Go for it – but put two new golf courses worth of land into set-aside.

Remembering Mark Twain’s famous quip – “buy land, they’re not making it anymore”, land value capture may help here. Land value capture seeks to ensure the fair distribution of increases in the value of privately-owned land between landowners, the local community, and government.

If you want to see it in action, and at the same time shatter a common misconception, I challenge you to search London and Hong Kong on Google Maps. You’ll see the M25 equivalent. You’ll see the swathe of greenery that surrounds one metropolis but not the other. And you’ll see the surrounding sea. But trying guessing which is greener. Spoiler alert – despite our “green belt”, it’s Hong Kong, not London.  Why? Because Hong Kong uses land value capture in the form of a land value tax – in this particular case, an annual rent equal to 3% of the rateable rental value and extremely high rates for greenfield land. Land value tax not only represents a more progressive form of taxation, but also encourages the use of brownfield land and dis-incentivises urban sprawl.

The Square Mile, rightly, is known for its leadership in financial and professional services, but we’re also the biggest centre for tech in the country, with a workforce that includes scientists, engineers, and technicians, as well as bankers, insurers, lawyers, accountants, and actuaries. 

Connect to Prosper, with its emphasis on multi-disciplinary networks solving global problems, shines a spotlight on these other areas of strength – the ‘Knowledge Miles’ I mentioned earlier – with experiments, lectures, and discussions on topics from artificial intelligence to fusion. The Connect To Prosper initiatives we’ve launched from our Mansion House base seek to offer practical solutions in a number of areas:

The Ethical AI Initiative, using ISO standards. 

• GALENOS, accelerating global mental health research.

• The Smart Economy Networks Initiative, using international X-Road standards.

• The Constructing Science Initiative, for life science laboratories.

• The Green Finance Initiative, which is reinforcing carbon markets.

• Our Space Protection Initiative, a combined technology and financial services initiative using space debris retrieval insurance bonds to keep space “clutter free.”

Our City of London cares deeply about nature. To paraphrase the Royal Society’s motto “nullius in verba” – don’t take my word for it, look at our actions.

At the local level, we were the first government body to introduce a clean air act in 1953, and we’re on track to reach net zero in our own operations by 2027, while supporting net zero for the whole Square Mile by 2040.

At the global level, we’ve consistently been ahead of the curve, playing a significant role in 1997 in gaining agreement to the international use of carbon emissions trading markets to avoid climate change at COP3 in Kyoto. We attended Rio and every COP thereon.

And our City Carbon Credit Cancellation Service, C4S, launched just this week, empowers businesses and individuals to actively contribute to carbon reduction by enabling them to purchase and cancel genuine ETS carbon credit.

With 15% of global assets under management – despite having less than 1% of the global population – the UK can make a huge difference in investing funds. But we face a number of challenges.  As a society, too often we let the perfect be the enemy of the good.

COP – a platform to discuss carbon – is a case in point. As a conference, it is not about clean water, or indigenous rights, or gender equality – as important as those issues are. It is about greenhouse gases. We scientists want to break problems down and search for practical, obtainable solutions.

And one final mechanism. Talking about assets done by non-specialists is often vague and dangerous. For any significant asset we expect seven not-so-precise pieces of evidence: cost, ownership, disclosure, value, existence, responsibility, and benefit – a fishy COD-VERB.  

Cost – to whom? Ownership – who has it? Disclosure – what risks? Value – who assesses worth? Existence – what proof? Responsibility – who maintains? Benefit – cui bono? Don’t use a financial analogy unless you can follow through on it…

The comedian, Jay Leno, once joked:

“According to a new UN report, the global warming outlook is much worse than originally predicted. Which is pretty bad when they originally predicted it would destroy the planet.” 

Sadly, that was in 2007.

So far, we’ve failed to find a way to make nature pay as a financial investment.  Yet we do have ways to calculate what it’s worth, and mechanisms that help us move a little way forward.  I don’t need to tug at your heartstrings or remind you of the importance of finding solutions.

But the question is, do we as society want to enforce carbon prices and hard set-asides with steep payments? Or do we just like the paperwork of ESG?

Be in no doubt – by combining the abundant talent of the scientific community with the unrivalled financial nous of the City’s business community, we stand the best chance of enacting meaningful change.

Am I pessimistic or optimistic about the outlook? A number of people walk into the Royal Society and are asked this very question: “optimistic or pessimistic?”:

The scientist says “pessimistic: the task is too complex.”

The economist says “pessimistic: nature doesn’t pay.”

The politician says “pessimistic: there’s no global consensus.”

But this Lord Mayor says optimistic; pessimism is for better times.

Thank you.