Climate Security: Risks and Opportunities for the Global Economy

STEPHEN W. BOSWORTH: (In progress)—the economy, economic security, energy and this question of global warning. A set of lengthy views that has received a considerable amount of attention that I think deserves even more.

Our panel today—we’re very fortunate to have with us Foreign Secretary Margaret Beckett from the United Kingdom. I’m not going to introduce all of our panel, because you all have their extensive biography sitting in your hands and it would be redundant for me to simply read them.

We also have with us Jacques Aigrain, the chief executive officer of Swiss Re; and Mark Tercek, who’s the managing director of the Goldman Sachs Group, Inc.

What we’re going to do is, I’m going to ask each of the three panelists to speak for a few minutes to give us some of their thoughts. The panel and I will then for a brief period of time “talk among ourselves” as they say. You’re welcome to listen in. (Laughter.) And then we will open it up to questions from the audience.

I should say at the outset that I would ask you to turn off your cell phones, blackberries and other kinds of electronic appliances. This meeting is on the record. And also, I should note that participants around the country and around the world are viewing this meeting via a live webcast on the council’s website. I can give you the URL for that website if you’re interested in doing both simultaneously. (Laughter.)

So, without further ado, let me ask Foreign Secretary Beckett if she would initiate our conversation, please.

MARGARET BECKETT: Thank you.

BOSWORTH: And you can stand or sit.

BECKETT: I’ll stand if you don’t mind.

BOSWORTH: Good.

BECKETT: I think that—(off mike). British politicians speak and think best on their feet. (Laughter.)

Good morning and welcome to you. And can I begin by sincerely thanking the Council on Foreign Relations for hosting this morning’s event because we, government and business alike, face an immense challenge: our climate is becoming more unstable. Scientific evidence is overwhelming. And if you haven’t already done so, I urge you to go out and read it. I’ve no doubt you will come to the same conclusion as virtually every serious scientist in the world.

Only a few weeks ago, such a scientist, Professor John Holdren, who is the newly elected president of the American Association for the Advancement of Science, summed up pretty well where the scientific consensus now is. He said, “We’re not talking any more about what climate models say might happen in the future. We are experiencing dangerous human destruction of the global climate, and we’re going to experience more.”

British Secretary of State for Foreign Affairs Margaret Beckett.

It is now literally only one or two fringe scientists—and a rather larger number of paid propagandists—who still try to deny that climate’s changing as a result of human behavior. And it’s worth being absolutely clear about two aspects of that threat. The first, and perhaps the most serious, is its immediacy. The planet is changing now. Temperatures are rising. We’re already seeing changes in rainfall, an increase in the frequency and severity of extreme weather events, melting sea ice and permafrost, retreating glaciers.

This is a problem for today, not tomorrow—for us, not just for our children. What we do now will be all important. And meanwhile, the investment decisions we’re making in the normal course of events will determine our emissions for decades ahead, setting the boundaries of the climate problems we’ll face.

The second characteristic of the threat is its sheer scale. Global warming is not a localized problem. I still sometimes meet people in the UK who think it won’t affect them because they live on a hill. (Laughter.) But it really isn’t about building higher flood defenses around Battery Park. This is a global problem with devastating global effects. And that’s why foreign policy departments, treasury departments and defense and security departments are getting engaged. That’s why the direct instructions of our prime minister—the UK’s recently made it one of our top strategic international priorities.

And let me give a few examples of what I mean when I say climate change is a foreign policy issue. Where rain falls around the world is changing. That is already changing crop yields and fresh water supplies. In turn, diminished water and food security puts extra pressure, for example, on fragile states such as sub-Saharan Africa, and exacerbates already high water stress in the Middle East. A dramatic reduction in rainfall was a major trigger for the tragic conflict in Darfur, which is preoccupying the international community just this week.

Or imagine if rising sea levels, as predicted, displaced millions of people in Bangladesh. That is bound to raise tensions in an already volatile region. Or look at the global economy—Swiss Re estimates that weather made more severe by climate change could cost 150 billion U.S. dollars a year in the next decade—but I’ll leave Jacques to say more about that. Melting permafrost will hit existing as well as planned infrastructure, and patterns of fishing and agriculture will be disrupted.

I know that how China performs over the next decade is of direct interest to investors and exporters here in the U.S. as it is in Europe, but China is particularly vulnerable to climate change. Recent reports estimate a decline in available agricultural land, of which they already don’t really have enough, on the order of 13 to 15 percent, and a drop in rain yields of as much as 30 percent. Impacts on such a scale would not only be a problem for China, but for the world. And more directly, large parts of Shanghai—the financial capital where massive investment is taking place and new infrastructure—are close to existing sea levels.

So climate insecurity means greater global insecurity. That’s a problem for politicians like me, but it’s a problem for business too. It makes managing commercial risk much harder. And it means tackling global warming is a business imperative, not a business choice. And the second equally basic commercial imperative for action: staying competitive.

The International Energy Authority estimates that about 17 trillion U.S. dollars will be spent in the energy sector between now and 2030. Meanwhile, Tony Blair’s spoken of a green industrial revolution. And in California I understand they call it a clean tech revolution. If they’re right, then a good chunk of that 17 trillion U.S. dollars will be spent on low-carbon technologies, new ways to get power, new ways to move around. We will be transforming the very foundations of our economy and this is already beginning to happen.

Last year, for example, there was a record worldwide investment in new renewable energy capacity of some 38 billion U.S. dollars. There are now estimated to be 115,000 jobs in the U.S. renewable energy sector, as opposed to 83,000 in the U.S. coal industry.

By 2015, four clean energy markets here—biofuels, wind power, solar and fuel cells are estimates to have grown from their currents markets of 40 billion U.S. dollars to 167 billion U.S. dollars. For the audience here on Wall Street, these may still look like relatively small figures, but they do indicate the way the wind’s blowing and so do the policies that governments are adopting.

Let me give you a flavor of the kinds of measures we’re taking in the United Kingdom. We’re introducing a five-level building code for sustainable housing. Level five will require all new homes to be carbon neutral—an obligation on suppliers of electricity and transport fuel to source a percentage of their products from renewable sources. There’s a commitment that by 2012, the entire government office estate will be carbon neutral, which has huge implications for where we spend our 150 billion pounds annual procurement bill.

An investment of some 500 million pounds, to be matched by the private sector, in a new energy technologies institute, plus a new environment transformation fund, 50 million (pounds) for micro generation, 25 million for carbon abatement demonstration, 10 million for hydrogen and fuel cell demonstrations. And it’s the same story across Europe.

New, wide efficiency standards are coming in on 14 products identified as priorities by the EU climate change program including consumer electronics, lighting, heating and white goods. The European emissions trading scheme already covers 11,000 power plants and businesses. It’s nowhere near as strong as it ought to be and as it will be, but nevertheless, in its first year it made trades worth 7.2 billion euros.

And of course, it’s not just in Europe. Globally, carbon trades were up 500 percent in the first six months of this year compared to the same period last year. Here in the U.S. you’ve seen unprecedented state-level and city-level actions in support of climate change—most of it driven by an increasingly informed, concerned and engaged public opinion—an emissions trading scheme in seven northeastern states; mayors in 294 cities pledging to meet the Kyoto targets; new and pioneering legislation on emissions passed just this month in California, which should trigger a low-carbon transition in the world’s seventh-largest economy.

And we in Europe are linking with like-minded people here. In the summer, Tony Blair and Governor Schwarzenegger agreed on a groundbreaking plan of action to work together on climate change, including to a possible link between our respective emissions trading regimes.

We’re making up with other countries, too. Last year, the EU and China agreed to build a near-zero emissions coal-fired power plant in China and we’re now discussing with India the possibilities there for carbon capture and storage. As I’m sure you realize, China and India have among the world’s largest coal reserves and greatest energy needs. China, by the way, is also the world’s biggest investor in renewable energy. Seven billion U.S. dollars in 2005, 17 billion (dollars) if you include hydroelectric.

Some progressive companies and investors are already aware of the curve—ahead of the curve. They’ve seen the opportunities in clean technology markets. Last year, BP established an alternative energy business unit with plans to invest 8 billion U.S. dollars in renewables over the next decade. And General Electric launched its eco-imagination campaign—a plan to double investment in climate-friendly technologies and reach 20 billion U.S. dollars in annual sales by 2010.

The largest IPO in the last quarter of 2005 was the Sunnyvale-based SunPower, which by the end of its first day of trading had market capitalization exceeding 1.5 billion U.S. dollars. And of course, conversely, companies whose products don’t meet the increasingly stringent environmental standards set down by governments, and expected by consumers—or don’t take into account the rising costs of carbon—will increasingly struggle against domestic and global competition. That’s something of which shareholders are becoming more aware.

In 2004 and ‘05, a record two dozen climate change resolutions were filed by shareholders. Three of the U.S.’s five largest public pension funds, and the largest private pension fund, now routinely support such resolutions.

But I don’t want to give you the wrong impression. This is not—and it never can be—a case of governments putting a few basic conditions and leaving to market to get on with it. A successful response to climate change requires a deeper level of engagement between investors and policymakers.

Let me just reiterate the scale of the challenge we’re facing: the former chief economist of the World Bank, Sir Nicholas Stern, will shortly publish one of the most significant and wide reaching analyses so far of the economic impacts of climate change. And one of the key emerging findings of his work is that while it won’t cost the Earth to solve climate change, it will cost the Earth—literally and financially—if we don’t.

As governments, we’re trying to put in place policies and frameworks that will allow private capital to flow towards a low-carbon economy. That will require mutually reinforcing interventions at the national, regional and global levels. In effect, the most ambitious and complex public-private partnership ever attempted, but it will only work if we get the right mix of incentives, penalties and expectations.

We as policymakers need to know from you what kind of interventions and what combination of policy instruments will work. We need to know where we can target public finance so that it triggers the largest flow of private capital. We also need to know how we can best stimulate the emergence of the complex financial instruments needed to reduce technology risk under conditions of commercial and political uncertainty in emerging economies.

The changes we need to see are not yet happening fast enough. The first phase of Kyoto was not synchronized with natural cycles of capital stock replacement. The EU emissions trading scheme is important in the transition to low carbon, but it’s not yet having a noticeable effect on long-term investment decisions. And the equally important energy investment framework agreed at the Gleneagles G-8 Summit is taking shape too slowly.

As investors, you need to know what governments expect from the policy instruments we construct and how much political effort and commitment we’ll apply to ensure the goals are achieved. You need to be able to anticipate the future direction of policy and assess whether it’s likely to survive changes in government. You need to understand how policymakers see the geopolitical interplay of climate and related resources and how we are likely to respond.

At present, the quality of communication between the public and private sectors is insufficient to deliver such a high degree of shared understanding. And there’s no greater challenge to those of us who are developing the policies and building the markets that will deliver the transition than to break through the invisible barriers that obstruct communications between government and business and engage at a far deeper level than has hitherto been achieved. And that in itself demands a change in mind set.

It will not be enough simply for you to call in general terms for policies that often use the climate-change jargon long, loud and legal, or to press for this tax incentive or for that particular subsidy. This needs to be an exercise not in lobbying, but in building shared ownership of this complex and audacious project whose goal is to redesign the way we produce and consume energy, achieve mobility and use land.

The challenge for those of you on the front line of the financial transition is to influence government thinking upstream long before it’s fully formed, across a broad spectrum from finance and energy ministries to their counterparts in foreign policy—agriculture, transport, innovation, trade and development. And you must not only do this yourselves. You should look along your own value chains and encourage your clients, your customers and your partners to do the same.

I hope that today’s discussion will be part of that deeper engagement, not least because the need is not only for action, but for action now. (Applause.)

Mark Tercek, Jacques Aigrain, Margarett Beckett, and Stephen W. Bosworth discuss political, economic, and financial risks associated with climate change from a global perspective.

BOSWORTH: Jacques.

JACQUES AIGRAIN: Well, thank you very much, Foreign Secretary, for setting the stage.

I will have the maybe less appealing task, to a certain extent, to speak in terms of the economic risks and the economic dimension of the risks. And Mark will have the pleasure of speaking about the opportunities, as I think that from a business perspective we actually would both see that there is a very serious case for action now, as the foreign secretary underlined, but there is actually a possibility to address it in a constructive fashion and an economically viable fashion.

First of all, let me underline how much as a firm and a partner we have appreciated the leadership of Prime Minister Blair and your administration over the last few years. The momentum which has been gained on this topic by the leadership opinion of Tony Blair, we feel, at the time of the Gleneagles Summit and then for during the presidency of the European Union last year was tremendous in terms of creating the awareness and building the appropriate level of attention on the part of both the private and public sectors.

Indeed, we share your perception of the risk. Let me just give a little bit of a sense of what it means in terms of concrete economic consequences. The insurance and the reinsurance industry unfortunately, to a certain extent, is of course the final payer for the events’ consequences. And anyone who would like to suggest that the climate change has had only marginal impact on the economy should maybe just remember the events of last year in the U.S., or actually the previous one, in 2004.

Last year alone cost about $80 billion. And that, of course, excludes the gigantic subsidies by the fellow states reacting really constrictively to the necessity of the people involved, which was probably in excess of 150 billion (dollars). So economically speaking, we’re speaking of probably $230 billion for the events of Hurricane Katrina and Rita in the U.S. last year.

And that was, from an insurance claims standpoint, the largest-ever accumulation of claims, sizably larger than the tragic events of September 11 th. That was just on the back of actually approximately $45 billion the previous year, which were actually an accumulation of so-called “moderate” hurricanes. Wait for the big one.

Nobody can suggest that climate change is the only reason for any single event, and we are not suggesting that. We can never specifically create a causality, but it adds to the probability substantially. The risk is that we have the long-term pattern, which has deteriorated by a mix of probably long-term trends, which have been observed over the centuries, and aggravated and accelerated by human activities.

During the last century the average sea temperature, which is the single most important determinant of windstorms, has increased by 0.6 of a Celsius degree, which is extremely—as it is an average dimension—extremely notable. The consequences for the entire ocean—(word inaudible)—is pretty dramatic.

From an economic perspective in the short term, this issue of windstorms anywhere in the world—they are accumulating and accelerating in their strength in Asia, and the floods in Europe are also more common and more devastating (is a visible piece ?). What would worry us most is actually more dramatic events related to the melting—as you mentioned very well, Foreign Secretary—of the ice cap in—(inaudible)—Greenland, where it is losing sizably on a yearly basis. Obviously the west Antarctica situation.

To just give you a dimension, Greenland would actually cause the entire sea anywhere in the world to move up six meters. The foreign secretary mentioned that in Bangladesh, this kind of event would have a quite devastating effect, particularly for the nearly 20 percent of the country that would cease to exist. I was in Singapore last weekend, and there the authorities reminded me that two meters and 25 percent of the country is under water. You are speaking indeed there of extreme developed economies by contrast to poor economies—(inaudible). Six meters and you don’t have too much to think about, what does it mean for Brooklyn, or actually a large part of London? So it’s not a matter of poor countries or rich countries. It’s a matter for every country.

Let me turn quickly to the case for indeed early actions rather than late actions. There is a body of thought in perfectly good intellectual analysis on the part of some communities of interested parties or intellectuals to suggest that as the probability weighted risk leads to an uncertain benefit of huge investment for climate transmitigation versus economic cost. Wouldn’t it be better to invest today the same amount of money in pure economic development, making thus both the emerging and the developed worlds in a better economic situations to face adjustments should the negative events occur?

One can have some intellectual sympathies for the argument, but it seems to ignore, in our analysis, the tail factor. In our industry, the insurance industry, the tail factor is a critical point of focus. It is the way we assess and look at any risk. And frankly, it’s not unique to us. I would suggest that when it comes to global financial stability, it’s exactly what the regulators are looking at, and when it comes to national defense, it’s the very reason we have armies. If it wasn’t for tail factors, frankly, we could save on it. So the same dimension does exist.

It looks to us and a number of very good analysts, in particular by the—in Australia, and a very good business case study has been published recently there—demonstrate vividly that early action would be less expensive than actually late actions. And that’s what we would suggest is critical to the development. And early action goes indeed along the lines mentioned by the foreign secretary with regards to the development of steady, reliable, clear, and long-term-oriented policies and regulations.

As a private sector—(inaudible)—by definition, we would like to see everything targeted to market solutions and market economy. However, market solutions and market economies require a clear line of sight on matters where investment stakes dictate in many instances. So we need policy centers today that are going to cause the environment of the investment decisions to be indeed reliable and steady for the long term. And, as mentioned very well by the foreign secretary, the weather doesn’t have borders, so it needs to be multilateral in the decision process and the interpretations.

Very quickly turning to the last point, which I believe was mentioned already, on concrete short-term impact, which is probably of almost greater immediate interest to the investors in this room. CO2 emissions, greenhouse gas emissions, (planet?)—(word inaudible)—concerns have become a clear liability. The foreign secretary mentioned the number of proxy fights. There has been actually quite vocal actions on the part of the major pension funds in the U.S. as well, in terms of calling for effective actions and disclosure—quite a number of companies, and in practically the entire oil and utility sector. This is not going to disappear.

There is a pressure on the part of the investors community as well as a pressure on the part of the social body of the land, even more marked in the U.S. than it is in Europe because of the (tortured?) system, which is developing. You most probably have read today in the newspaper or yesterday in the news that California has launched a class-action suit against the automobile industry—that the potential—(inaudible)—of the automobile industry and the pollution and climate change consequences within the state. You won’t be surprised that as an insurer I don’t exactly like that kind of action. (Laughter.) But while the—for the moment, in terms of legal systems, the causality are very difficult to prove. During both the events of last year and this development of yesterday, we are seeing (the authority?) moving to the court, rather than just being an intellectual argument in the university. So those are serious matters with serious financial consequences for a gigantic part of the economy. It cannot be ignored and postponed to a later date.

But again, before passing on to Mark’s potentially more (pleasing ?) views, I would—(inaudible)—to suggest that the last 15 years in many different aspects have demonstrated that if we find the right framework of regulations for the economy to find solutions, usually our talents and our brains translate into viable solutions. We effectively consider the faster impact than what would be dreamed of, and with much better economic returns than what would have been expected.

Thank you. (Applause.)

BOSWORTH: Thank you.

Mark, please.

MARK TERCEK: Thank you.

Well, I’d like to begin, too, by thanking the foreign secretary for a great introduction to the topic, the council for hosting this event, and to Jacques. Swiss Re—as Goldman Sachs thought about its approach to this topic, Swiss Re’s early leadership was very influential. So thank you very much for the opportunity to be here.

As Jacques said, I have the easier job of talking about opportunities. (Laughter.) And as we think about it at Goldman Sachs, we really do think there is some reason to be optimistic. There are lots of opportunities for business in this broad area. There are risks as well. But if you step back—if we step back and think about the bigger picture, the science really is resolved. The technological solutions are well developed. The regulatory frameworks are understood and presumably could be implemented quickly. Yet, not enough is happening, and we think there’s a big opportunity for the broad business community to step up and be a force for action. And so that’s what I’d like to talk about a little bit today.

Now, I’m going to talk a little bit more about Goldman Sachs because—if I may—because that’s the story I know best. (Laughter.) But I really don’t mean to put us on a pedestal. We’re simply trying to be smart business people looking after our opportunities and managing our risks in a sensible way. And as we look across the landscape, we see most of our competitor, peer institutions, the big financial institutions, in their own way attacking the problem. And as we talk to our clients, the same thing is true. So I think in the days ahead, you’ll see many companies taking very dramatic action to move things forward. They’ll be encouraged, as Jacques was saying, by investors, and that’s appropriate. That’s an important part of the dialogue.

But if I can, let me just tell you a little bit about Goldman Sachs. Last year, we thought it was appropriate and important for us to do something about environmental risks broadly, and climate change in particular. We’re an investment bank, and so we weren’t sure exactly how to proceed, so we consulted with the thought leaders in the environmental community, and it was a very powerful consultation. We learned a lot.

We were encouraged to make a statement about where we stood and what we thought and what we would do—a very interesting exercise, and not an easy one, because we’re a consensus-driven organization, and these are difficult topics. But in November we published a statement—again, we had a lot of help—and in it we recognized various environmental risks that really do impact our business and the businesses of our clients. And on climate change in particular, we said that we recognize that science has largely resolved that man-made greenhouse gases were largely responsible for climate change and global warming, and that while voluntary initiatives are very important, they would not be sufficient, and that regulatory action would be needed as well.

And just saying that I think was a useful thing. It certainly got us in a lot of dialogue that we found productive. But by the various observers—you know, think tank types, academic types, activists, et cetera—they were pleased that Goldman Sachs, which is thought of as a very commercial-minded organization, would stick its neck out and make that kind of statement. And I think for us, too, as you think about opportunities, we’re in the business of recruiting and keeping the best, brightest young people we can find, and our actions here resonated with our employees and with our potential recruits, as well, of course, as with clients. I just mention that because that’s one of the many opportunities that are available to companies.

But we made our statement about recognizing the problem, and then we said, “Well, what should we do?” And we said, well, first and foremost, we should get our own house in order. We started with our own environmental footprint. And I think most of my colleagues, certainly myself—we thought of ourselves as a very energy-light business. But as we dig in—and we have a long way to go—we learn our footprint is not so light. And so what’s ensued is a very vigorous, disciplined, aggressive, but still early-stage pursuit of understanding the impact we have and exploring how to reduce our impact.

Here, though, it’s a fantastic story. The more we learn and explore, the more we learn we can run our business in a better way, a lower-cost way, and it’s been completely a positive, happy story. We’re now building a new building across from the World Trade Center site. It will be a—(inaudible)—building. We’re proud of that, but it’s absolutely in our own bottom-line interest to aim that high. The building’s—on a present-value basis, the incremental investment will more than pay for itself.

So that was the first step: our own footprint.

Then we said, okay, what business are we in? What businesses are we in, and what can they do? And we think this is a good framework for how business should think about it. You know, different businesses can approach this situation in different ways. We’re an aggressive investor. And so at the time Hank Paulson was our CEO—and so he announced that we would invest at least $1 billion in the alternative energy space. This was in November. We’ve just about gotten there. Again, a happy story. That extra push from our policy gave our folks in that area a little extra momentum to get moving, and we’ve assembled the portfolio. We haven’t disclosed everything we’ve done, but we’re really playing each of the alternative energy spaces. We feel very good about the portfolio we’ve accumulated. We think we’ve been a spur to others. Indeed, the hardest thing now to keep that up is the competition from other investors. I think it’s a very happy story. And soon we’ll be seeing, I’m sure, taking profits in these investments. Some of the activists we’ve worked with might be surprised, but it will be a very good way to underscore the commerciality of this effort.

So that was one enterprise, or effort—our investing.

Of course, we’re also in the investment research business. We follow companies around the world, and we said, this is a tool we can use. Here we’ve begun in Europe, and again we have a long way to go, but we’re introducing sector by sector what we call ESG research—environmental, social, and governance research. There was some skepticism internally about whether our institutional investors wanted this, would care about it, et cetera, but some of these things are chicken-and-egg things. Once we produced that research, we’ve uncovered tremendous interest, and that’s given us confidence that as we roll this product out in the U.S., where I’d say there would have been even more skepticism, we think it will find a receptive audience. And again, we believe investors can be a powerful force here. We encourage them to do so. We hope we can give them some tools.

On the trading business—this is a little more straightforward. Our traders are in the business of pursuing economic opportunity. We’re big commodity traders, so of course we’re active participants in the EU ETS carbon trading market. But more importantly, we hope to have an active dialogue, particularly in Washington, about how comparable regulatory schemes can be set up in the U.S. And we hope our expertise as traders can help policymakers, and we’re optimistic that that’s on the horizon.

And then finally, and perhaps most interestingly, but more behind the scenes, is our work as investment bankers. That’s my background. My entire career has been as an investment banker. And we said in investment banking we would—we pledged that business selection and our dialogue with clients would include a focus on environmental opportunity and risk. This is not always so easy. Some of our clients might have preferred we didn’t make the inquiries we’ve made. But anecdotally, there are a whole bunch of great stories where we’ve uncovered situations that made our bankers nervous. We’ve talked to the clients about those situations. Again, sometimes they might have preferred we didn’t initially raise the topics. But what we’ve been able to find in almost every case is a happy ending. And the client has focused a little more attention on the economic exposure arising from environmental risks, worked to find resolution, and learned like we’ve been learning that the resolution is usually a very happy story: improve your business operation and improve how people feel about the company.

You know, a lot of these anecdotes, by the way, have to do with supply chain management. There has been supply chain management sloppiness out there, and some bad environmental practices, therefore, are supported, for example, by U.S. companies. But if folks dig in on the supply chains, they fix that problem, and they also come away with a much better handle on their supply chain which makes their business stronger.

So these are the kinds of things we’re doing. When we published our statement last year, it was a difficult exercise internally. Some people on the outside, I think, thought that Hank Paulson just imposed it, but that’s not the kind of organization we have. It’s a consensus-driven one. Building the consensus to do this took time and effort, and we had our own skeptics. However, having done it on the needs of our businesses—and we feel very good about this—we’re very confident looking forward. We think these programs that I’ve just outlined will endure in good times and bad, because they simply make good sense for us as business people. Now, that’s the primary way we’re trying to do this. We don’t view this as a headquarter-driven phenomena. We don’t view it as a foundation or charitable phenomena. This is just good business.

And as we talk to our clients about it, we’re very encouraged to see that our clients increasingly see it exactly the same way. And again, if you just read the paper, you’ll see every day great things being done by a whole host of companies. Goldman Sachs seeks no special attention here. This morning, I saw in the paper that Marsh Mac is organizing training for board members on disclosures and risks that are connected to environmental liability. I think that’s very interesting. It would make sense that a Marsh Mac would launch such an initiative. It plays to their business strengths and focus. And you can imagine boards of directors planning a very useful program and then acting accordingly going forward—and so on, and so on. We think the Wal-Mart example is powerful. There are a long list of powerful examples.

So, we hope that we can be a catalyst to the business community to step up and do more. We think regulators should do the same. We urge investors to do the same. But businesses are pretty good—good businesses, at least, are pretty good at global opportunities, and this is a global situation we’re talking about. Businesses are good at pursuing opportunities. They’re good at managing their risks. They are supposed to be good at understanding how investment today can make sense if there’s a good payoff down the road. And so we’re hopeful that the business community will increasingly step up and have a big impact on the dialogue.

Thank you.

BOSWORTH: Thank you very much, Mark.

(Applause.)

Let me just say before we go on that I am supposed to tell you all that this meeting is organized in collaboration with the British Consulate-General, the Rockefeller Brothers Fund and the Partnership for the City of New York, in addition, of course, to the Council on Foreign Relations.

You’ve all stressed to role of the private sector—basically market forces—in solving this problem. And I think, fundamentally, everyone in this room would agree with that as a starting point. But we all know that markets don’t like uncertainty. And in this particular case, one of the major causes of uncertainty—well, let me mention two major causes of uncertainty. One is, what is going to happen in the huge developing countries of the world—namely China, and I would add India—if we move forward—the industrialized world or the post-industrialized world—if we move forward in this direction? What assurance do we have that they are going to act in a way which does not simply offset any global gains that we may have achieved? That seems to me is a point of policy uncertainty.

There is, however, another source of uncertainty which has to do with what one anticipates will be the price of oil on the future since other energies tend to be priced off oil. We’ve been hearing for years about how various alternative energies, some of them clean. We’re just a few dollars a barrel away from becoming economically viable.

We’ve seen in the last couple of weeks actually, again, the volatility that occurs in the oil sector. And oil is now far from cheap, but it’s less expensive than it was just two weeks ago. Is there any value—and this is a hypothetical question, actually, but it comes out of past experience. Would there be any value as governments try to set a framework within which companies can plan, make investments, et cetera, for governments to conclude that the price of oil is too important to be left to the vagaries of the market and that somehow government should step in to ensure that oil is never sold—at least not internationally—at less than a given price? This is actually a problem that was addressed some years ago when the International Energy Agency was set up. The U.S. at that point was talking about massive investments in alternative energies. And the fear was that as we did that we’d drive down the price of oil, and we would lose our competitiveness because everybody else would be sucking up then cheap, imported oil.

So we actually negotiated something called the minimum safeguard price for imported oil. Unfortunately, we were never—we got agreement on the concept, but we were never able to get agreement on an index formula for a price. And I think that agreement still exists, and I think the minimum safeguard price is about $7 a barrel. (Laughter.)

But let me pose that as a question. You’re all talking about the need for increased cooperation between governments and the private sector, particularly for governments to set a framework of some certainty within which the private sector can respond. So first, China and India, how can we be sure? What can we do to encourage them to act in ways that are reinforcing of our policies?

And secondly, what about cheap oil? Do we really want it to come back again?

Foreign Secretary.

BECKETT: Well, if I can talk about China and India first. You’re absolutely right. For those who’ve followed some of the technical discussions on these issues, there’s a classic diagram of what should happen to the world’s emissions to try and tackle climate change. But part of the background diagram is it shows how they speedily, in essence from the developing world, could overtake and wipe out and gains from reduced emissions in the developed world, unless we are all moving together. And that is exactly why you referred, Jacques—and thank you for your kind remarks—to the role that the U.K. played last year in our G-8 and EU presidencies. That is exactly why at Gleneagles we instigated, with the agreement of all participants, a Gleneagles Dialogue in order to try to find a way to explore some of the ideas which could command acceptance and support from the developing world as a whole, not just China and India but Brazil and other major players.

And so the Gleneagles summit consisted not only of the G-8 but of what were known as the Plus Five—in other words, China, India, South Korea, South Africa and Mexico. And the whole idea was that these are already major but also fast growing entity users, and people who indeed could, through their emissions, wipe out any gains that we can make.

There will come a time, I anticipate, when there will be negotiations like the ones that led to the Kyoto Protocol on very much a global scale. But in the interim, what we need is explanation of ideas to be carried out by political players who are not looking over their shoulder all the time thinking I better not say that, because that might be held against me in the negotiations, and that might be (quite an advantage ?). We need to give people the intellectual space to explore what are the kind of agreements to which we could get the Chinas, the Indias and so on to accept. And that, as I say, is the hope of the Gleneagles Dialogue.

We had one weekend last November in London, a very constructive and helpful meeting. And we have a further meeting—the second meeting now will take place in Mexico at the beginning of October. The Japanese, if I recall correctly, have already agreed—no, the Germans, I think, has the next one. And the Japanese have agreed to have a report back from that process during their G-8 presidency. And so that’s—the sequence of events is already in place.

And secondly, I would say, in many parts of the rather large Chinese government, many of the points that we’ve been discussing this morning are well understood. And my former department, the Department of Environment, Food and Rural Affairs, conducted a study with the Chinese department of agriculture which led to some of the figures that I produced. And there are many players in China very, very conscious at the national level of these problems. Many of the investment decisions, however, are taken at the regional level or local level. And so that’s why there has to be a cascade down of concern. So we’re not there in terms of it working out, but we certainly are moving, I think, in the right direction.

With regard to the issue of minimum guaranteed oil price, I think that’s a question I should leave to the business community. I wouldn’t as a politician wish to step into a territory that’s—the one thing I will say is I have a quite a vivid memory some years ago, when we were not in government in the United Kingdom, of engaging any discussion with an oil company who were telling me—we were talking about how you plan for the future and how bad in the past politicians have been and looking ahead 10, 20, 30 years and the way the business community has to do and how we, as a party, were trying to do that. And they said we know exactly what you mean. We had lots of earnest discussions about the fact that we knew the oil price would never get back up to $18 a barrel. (Laughter.)

BOSWORTH: Jacques.

AIGRAIN: Well, on the India and China, I won’t have the depth of knowledge as the foreign secretary has. But I’m struck by the fact that they are totally extremely conscious of the challenge. I would just take one economic view, which is under no circumstances should we dare to restrict the growth opportunities of both countries, which is effectively our future. And we hopefully can always remember that per capita consumption is, of course, the worst of anywhere in the U.S., followed by Europe in terms of per capita, which is really the index that we should consider.

Now, we should all try to emulate the Japanese scale and have a per capita consumption and an efficiency of the society as a whole in terms of every dollar of GDP, which is as good as the Japanese have seen it. But let’s not totally confuse the scale of their growth needs and, thus, the expansion of energy use with the absolute amount that we are speaking about. Let’s help them gain from every new plant, every new utility, every new factories, every new building an efficiency which, over time, will make actually their strictures potentially better than ours.

With regard to the oil price—(laughs)—of course, I have a very simple view from an entrepreneurial standpoint, which is no price control, please. (Laughs.) Let it to the market in either ways. And it applies the other way around. We do not believe at Swiss Re that subsidies of alternative energy is a good solution either. Create an environment which is a fair playing field. Create an environment where everything is done in a balanced economic perspective. There are today, effectively—(inaudible)—subsidies in many of the—(inaudible)—sectors. In Europe, part of the—(inaudible)—some of these (commission?) channels in the U.S., and so those have to be eliminated.

And the last point that I would make, which touches on this issue of the rising competitions between fossil fuels versus alternative energy is the question on the table is not so much alternative energy, it is clean energy sources. So it goes to the footprint work that Mark was referring to. It goes to buildings which are carbon neutral and efficient. And we have a similar experience, very positive from an economic perspective. And it goes to working very hard on finding technical solutions so that using even coal can be done in a clean fashion. And there are a lot of progress there. And that’s an area where maybe regulation makes sense, which is to clearly mandate. But the level of solutions be dictated at the level which constantly improves.

Thank you.

BOSWORTH: Mark?

TERCEK: I don’t have very much to add to the foreign secretary or Jacques’ views. But with regard to China and India, it’s easy to look forward and to see the scale of the problem. But it’s very awkward for a U.S. citizen to get on a soap box and lecture those countries when, as Jacques said, you know, we’re contributing more greenhouse gas emissions by an enormous margin than any other country, and we’re the country that has not signed Kyoto and hasn’t really come up with a federal regulatory program that can address all of this.

So my personal view is that we need federal regulations here. There are many approaches to it, but we urgently need this. And I think they could be a powerful catalyst to business then to accelerate the kinds of things I was talking about. And then one would hope we could build on that and exercise some leadership in the developing part of the world. But I think one must precede the other.

High oil prices—it’s easy, I think, to understand in theory the benefits that would result from a steady oil price, and in terms of encouraging alternative energy sources, a steady high energy price. But I don’t know if that’s politically viable, because, as we see, high energy prices today, the political dialogue seems to be focused on achieving exactly the opposite. So I just don’t know if that’s a practical approach. But there’d be many benefits in theory, for sure, that would result from that.

BOSWORTH: Thank you. Let me now open it up to the audience for questions. Please wait for the microphone, which will be arriving only a few moments after I recognize you. Stand, state your name and affiliation, and please be concise; one question per person, and a short question preferably. Back there in the back.

QUESTIONER: Jim Damon (sp) from the Ireland World Report.

We’ve had a debate in this country for the past eight years on whether global warming even exists. And we sort of see, in the kind of reports the press has had concerning the politicization of this at the national level, with people talking about global warming, being ordered by the executive branch not to talk about this.

So I was wondering if you could comment on this and how you see this, because I know, Madame Secretary, your colleague, Mr. Ashton, in June made a comment about how global warming was related to causing Katrina. And that’s precisely the kind of debates and arguments we’ve been having in this country, and I wonder how we can get beyond this.

BOSWORTH: Foreign Secretary?

BECKETT: Well, it’s true. I mean, it’s not only in the United States. There are various parts of the world where people have continued to argue about whether or not it is real. But I can only really repeat what I said in my opening remarks, which is that it is now extremely hard to find a serious scientific argument as to whether or not this is happening.

I entirely share Jacques’ view. And I’m sure that whatever John Ashton said, he would have been careful to have specified that you can never—it’s not fair to say—I’ve never met a scientist who will say, “That storm, that flood, is due to climate change.” But when you see a pattern, then you know that there is an influence there. And I think that’s the thing that we are seeing with increasing vigor.

And the other thing that I think is seriously alarming now to many in the scientific community, and leading to louder expressions of concern than we’ve seen before, is the feeling—again, Jacques referred to the possible implications of melting the Greenland ice cap.

All of the modeling and predictions is that although such an event would be catastrophic, it would be a long way away. What is really alarming scientists at the present time is their growing perception that all of this is happening much faster than they thought and much more seriously than they thought.

And I remember only a couple of years ago, I was actually doing a slide show for the British cabinet and conveyed these problems to my colleagues more directly. And I wanted to use a slide about the ice cap on Mount Kilimanjaro, because it’s a nice dramatic photograph. And I was told—and I’m not sure; we’re not absolutely certain that this is totally climate change; there could be other factors. But I had a picture then for the ice caps the previous year.

About a couple of weeks after I’d done the presentation, one of our major national newspapers published another photograph of Mount Kilimanjaro, and the ice cap was, like, 15 or 20 percent of what it had been in the previous photograph that I had been thinking of using.

This is accelerating away from it. That, I think, is the concern. And all all of us can do is to try to make sure that that case and that argument is consistently understood. I personally have taken the view for a long time that different views in different governments across the world will be influenced more dramatically by the views and the pressures of the business community than by anything else. That, if I may say so, is why I’m here.

BOSWORTH: Yes.

QUESTIONER: Steven Kass from Carter Ledger Milburn. Apropos of the secretary’s comment, I wonder whether the advice and counseling that Goldman Sachs and Swiss Re are giving to its clients includes, either for itself or for its clients, advice on persuading the Bush administration to open its eyes and ears. (Laughter.)

TERCEK: You know, there are—Goldman Sachs itself isn’t directing these efforts, but there are underway a number of, I think, very interesting efforts by business leaders to build a consensus among themselves and go public, if you will, with support for the federal regulations that we’ve been talking about. And so I’m hopeful that you will see that in the public in short order.

There are some very sincere and energetic efforts underway. But, of course, it’s a difficult thing to do. It’s difficult for business leaders to reach a consensus among themselves about what a regulatory framework might look like, because any regulatory framework you can design will impact different companies differently. There will be winners and losers.

And so I don’t know how far businesses can go in articulating a specific policy recommendation, but I’m pretty confident you’ll hear more and more support for such regulation. Already in Senate hearings, you saw the CEOs of utilities that would be directly impacted calling very clearly for regulation and explaining that it simply was necessary for them to be smart about the long-term capital investments that they’re making.

And so some of those businesses suggested—CEOs suggested they weren’t necessarily in favor of regulations, but because they thought they were coming anyway, the sooner they were here and clearly understood, the better. So I think you’ll see the business community doing more and more. And it’s already acting.

QUESTIONER: I’m Richard Gardner, Columbia University. I’d like to ask Margaret Beckett if she’d be willing to take this on. What would you like to see the next U.S. administration do specifically—(laughter)—by way of an international undertaking? Would you want to engage the next president in a new Kyoto treaty for the time frame beyond 2012, taking specific commitments to limit greenhouse gas emissions?

And how do you get around the political problem that the United States Senate made it very clear a few years ago it will not ratify any international agreement unless the developing countries, such as China, India, Brazil, take some commitment, not the same commitment we do, but some commitment over the years ahead?

BECKETT: Well, first of all, what I would like to see the next administration do is to engage fully in the international dialogue that I spoke about. Some of the best science, some of the best ideas—I mean, we were talking about emissions trading. That’s not a European idea. That’s an American idea. It’s just you aren’t expressing it and we are. Thank you.

You know, I would like—I understand completely; I’m very conscious. I’ve spent six years up to my eyebrows in all of this for the U.K. government, and I’m very conscious indeed of the genuine concerns that are felt in the United States government and the genuine feeling that the way that the Kyoto protocol agreement was put together was not satisfactory.

But my argument is if you don’t like the way the previous regime was shaped and you think it’s full of flaws, then get involved in shaping the next one, and the earlier the better, because that way maybe—and, you know, there is huge intellectual powers in the United States. I don’t need to tell you that.

And so what we would really like is the maximum amount of engagement from the United States government in trying to solve some of these problems which beset all of us and trying to get involved in the discussions about what new framework we could have. It may or may not be—I’d be quite surprised, to be honest, if it’s exactly like the Kyoto Protocol. But what it needs to have is a very clear framework of agreement, clear understanding as to what people are able and prepared to do, and clear and serious goals and targets.

As to the issue of the Senate, yes, again, one of the things that I’ve often said to earnest environmental campaigners across the world is that the American Senate absolutely refused to ratify the Kyoto protocol and that it’s not yet clear that a majority of opinion there has changed.

But again, I go back to the general thesis, which is that the pressure will come, I believe, from the bottom up, from the business community, from the population and so on. And that’s what politicians do. They respond to a changing political climate, as well as a change in climate in itself. And it’s precisely because we understand that argument, first of the scientific necessity of developing countries taking action, as we were discussing a moment ago, and second, the political feeling that this cannot just be.

The phrase in the Kyoto agreements is common but differentiated. We all have a common responsibility, but some of us are better able to bear it, particularly in the early stages, than others. And that runs through the Kyoto agreement, and it’s very important as a basis. And there’s huge suspicion in the developing world that we are trying, exactly as Jacques indicated, trying to stop them developing.

And that is bound to be their key priority. If you’ve got billions of poor people, raising their standard of living, giving them enough to eat is your top priority. And what we have to make sure people understand is that climate is threatening that very capacity.

But I would just make one other observation, which is that the nature of the argument put by some U.S. policymakers has somewhat evolved over the years. As you say, in the beginning it was that we aren’t going to take this action because the developing countries are not.

We have gone through a period where people were arguing that actually it’s not fair to poor developing countries and that America is really on the side of these poor developing countries that the nasty Europeans are beating up, saying you’ve got to take action about climate change. I think we’ve gone back again to the recognition that actually we all have to take action, and there’s no free ride for anybody.

BOSWORTH: There on the aisle, please.

QUESTIONER: Thank you. Mary Ann Van Buren (sp), the director of investor engagement for a series on the Investor Network on climate risk.

When the trustees of the largest American funds wrote to the 50 largest fund managers around the world, all but a handful said—they were asked about their capacity to assess climate risk to investments; it was even pre-opportunity days. And they said, “We only measure and we only work 12 to 18 months out.”

So if that’s particularly true, Mr. Tercek, I’d be interested in your views as to how to bring the longer term, even if it’s 24 months, how to bring that into the shorter term and, you know, the constant pressure that we’re all under in every job that we hold to act faster and quicker and always shorter term. So I think so many would agree in this room on where we’re going, and yet how do we bring it into the mechanisms that govern the world that you work in?

TERCEK: I’m not familiar with the response you got, of course, but it doesn’t ring true to me in terms of my work as an investment banker with the CEOs and boards directing companies around the world. I see companies all the time grappling with much longer-term frameworks for decision-making.

You know, I mentioned utilities that make capital investment decisions with 50-year lives. So they’re not thinking in 24-month periods, to be sure. And I also think that—I’m not sure when your survey was taking place, but I think a lot has changed since then.

I think investor groups like Ceres and the Carbon Disclosure Project and many others do a very good thing by using their clout to direct companies to focus even greater attention on the risks and opportunities we’re talking about. And I think you can expect well-run businesses to be focused on those topics.

BOSWORTH: I fear we’re going to have to draw this to a close, because we have a convergence of events here at the Council today. And before asking that we thank—you join me thanking our panel—I want to make the point, everyone has to leave through this door. There are dogs in the back. (Laughter.)

Foreign Secretary, Mark, Jacques, on behalf of the audience, I would like to thank all of you for what I think has been an exceptionally stimulating, informed, even erudite discussion. And I personally would hope that I can hear more of this, because I think this subject is—in the immediate future and in the longer term, it is one that is fundamental to the health of this world.

So thank you all. Please join me in thanking them. (Applause.)

© COPYRIGHT 2006, FEDERAL NEWS SERVICE, INC., 1000 VERMONT AVE.

NW; 5 TH FLOOR; WASHINGTON, DC - 20005, USA. ALL RIGHTS RESERVED. ANY REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION IS EXPRESSLY PROHIBITED.

UNAUTHORIZED REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION CONSTITUTES A MISAPPROPRIATION UNDER APPLICABLE UNFAIR COMPETITION LAW, AND FEDERAL NEWS SERVICE, INC. RESERVES THE RIGHT TO PURSUE ALL REMEDIES AVAILABLE TO IT IN RESPECT TO SUCH MISAPPROPRIATION.

FEDERAL NEWS SERVICE, INC. IS A PRIVATE FIRM AND IS NOT AFFILIATED WITH THE FEDERAL GOVERNMENT. NO COPYRIGHT IS CLAIMED AS TO ANY PART OF THE ORIGINAL WORK PREPARED BY A UNITED STATES GOVERNMENT OFFICER OR EMPLOYEE AS PART OF THAT PERSON’S OFFICIAL DUTIES.

FOR INFORMATION ON SUBSCRIBING TO FNS, PLEASE CALL JACK GRAEME AT 202-347-1400.

THIS IS A RUSH TRANSCRIPT.

STEPHEN W. BOSWORTH: (In progress)—the economy, economic security, energy and this question of global warning. A set of lengthy views that has received a considerable amount of attention that I think deserves even more.

Our panel today—we’re very fortunate to have with us Foreign Secretary Margaret Beckett from the United Kingdom. I’m not going to introduce all of our panel, because you all have their extensive biography sitting in your hands and it would be redundant for me to simply read them.

We also have with us Jacques Aigrain, the chief executive officer of Swiss Re; and Mark Tercek, who’s the managing director of the Goldman Sachs Group, Inc.

What we’re going to do is, I’m going to ask each of the three panelists to speak for a few minutes to give us some of their thoughts. The panel and I will then for a brief period of time “talk among ourselves” as they say. You’re welcome to listen in. (Laughter.) And then we will open it up to questions from the audience.

I should say at the outset that I would ask you to turn off your cell phones, blackberries and other kinds of electronic appliances. This meeting is on the record. And also, I should note that participants around the country and around the world are viewing this meeting via a live webcast on the council’s website. I can give you the URL for that website if you’re interested in doing both simultaneously. (Laughter.)

So, without further ado, let me ask Foreign Secretary Beckett if she would initiate our conversation, please.

MARGARET BECKETT: Thank you.

BOSWORTH: And you can stand or sit.

BECKETT: I’ll stand if you don’t mind.

BOSWORTH: Good.

BECKETT: I think that—(off mike). British politicians speak and think best on their feet. (Laughter.)

Good morning and welcome to you. And can I begin by sincerely thanking the Council on Foreign Relations for hosting this morning’s event because we, government and business alike, face an immense challenge: our climate is becoming more unstable. Scientific evidence is overwhelming. And if you haven’t already done so, I urge you to go out and read it. I’ve no doubt you will come to the same conclusion as virtually every serious scientist in the world.

Only a few weeks ago, such a scientist, Professor John Holdren, who is the newly elected president of the American Association for the Advancement of Science, summed up pretty well where the scientific consensus now is. He said, “We’re not talking any more about what climate models say might happen in the future. We are experiencing dangerous human destruction of the global climate, and we’re going to experience more.”

British Secretary of State for Foreign Affairs Margaret Beckett.

It is now literally only one or two fringe scientists—and a rather larger number of paid propagandists—who still try to deny that climate’s changing as a result of human behavior. And it’s worth being absolutely clear about two aspects of that threat. The first, and perhaps the most serious, is its immediacy. The planet is changing now. Temperatures are rising. We’re already seeing changes in rainfall, an increase in the frequency and severity of extreme weather events, melting sea ice and permafrost, retreating glaciers.

This is a problem for today, not tomorrow—for us, not just for our children. What we do now will be all important. And meanwhile, the investment decisions we’re making in the normal course of events will determine our emissions for decades ahead, setting the boundaries of the climate problems we’ll face.

The second characteristic of the threat is its sheer scale. Global warming is not a localized problem. I still sometimes meet people in the UK who think it won’t affect them because they live on a hill. (Laughter.) But it really isn’t about building higher flood defenses around Battery Park. This is a global problem with devastating global effects. And that’s why foreign policy departments, treasury departments and defense and security departments are getting engaged. That’s why the direct instructions of our prime minister—the UK’s recently made it one of our top strategic international priorities.

And let me give a few examples of what I mean when I say climate change is a foreign policy issue. Where rain falls around the world is changing. That is already changing crop yields and fresh water supplies. In turn, diminished water and food security puts extra pressure, for example, on fragile states such as sub-Saharan Africa, and exacerbates already high water stress in the Middle East. A dramatic reduction in rainfall was a major trigger for the tragic conflict in Darfur, which is preoccupying the international community just this week.

Or imagine if rising sea levels, as predicted, displaced millions of people in Bangladesh. That is bound to raise tensions in an already volatile region. Or look at the global economy—Swiss Re estimates that weather made more severe by climate change could cost 150 billion U.S. dollars a year in the next decade—but I’ll leave Jacques to say more about that. Melting permafrost will hit existing as well as planned infrastructure, and patterns of fishing and agriculture will be disrupted.

I know that how China performs over the next decade is of direct interest to investors and exporters here in the U.S. as it is in Europe, but China is particularly vulnerable to climate change. Recent reports estimate a decline in available agricultural land, of which they already don’t really have enough, on the order of 13 to 15 percent, and a drop in rain yields of as much as 30 percent. Impacts on such a scale would not only be a problem for China, but for the world. And more directly, large parts of Shanghai—the financial capital where massive investment is taking place and new infrastructure—are close to existing sea levels.

So climate insecurity means greater global insecurity. That’s a problem for politicians like me, but it’s a problem for business too. It makes managing commercial risk much harder. And it means tackling global warming is a business imperative, not a business choice. And the second equally basic commercial imperative for action: staying competitive.

The International Energy Authority estimates that about 17 trillion U.S. dollars will be spent in the energy sector between now and 2030. Meanwhile, Tony Blair’s spoken of a green industrial revolution. And in California I understand they call it a clean tech revolution. If they’re right, then a good chunk of that 17 trillion U.S. dollars will be spent on low-carbon technologies, new ways to get power, new ways to move around. We will be transforming the very foundations of our economy and this is already beginning to happen.

Last year, for example, there was a record worldwide investment in new renewable energy capacity of some 38 billion U.S. dollars. There are now estimated to be 115,000 jobs in the U.S. renewable energy sector, as opposed to 83,000 in the U.S. coal industry.

By 2015, four clean energy markets here—biofuels, wind power, solar and fuel cells are estimates to have grown from their currents markets of 40 billion U.S. dollars to 167 billion U.S. dollars. For the audience here on Wall Street, these may still look like relatively small figures, but they do indicate the way the wind’s blowing and so do the policies that governments are adopting.

Let me give you a flavor of the kinds of measures we’re taking in the United Kingdom. We’re introducing a five-level building code for sustainable housing. Level five will require all new homes to be carbon neutral—an obligation on suppliers of electricity and transport fuel to source a percentage of their products from renewable sources. There’s a commitment that by 2012, the entire government office estate will be carbon neutral, which has huge implications for where we spend our 150 billion pounds annual procurement bill.

An investment of some 500 million pounds, to be matched by the private sector, in a new energy technologies institute, plus a new environment transformation fund, 50 million (pounds) for micro generation, 25 million for carbon abatement demonstration, 10 million for hydrogen and fuel cell demonstrations. And it’s the same story across Europe.

New, wide efficiency standards are coming in on 14 products identified as priorities by the EU climate change program including consumer electronics, lighting, heating and white goods. The European emissions trading scheme already covers 11,000 power plants and businesses. It’s nowhere near as strong as it ought to be and as it will be, but nevertheless, in its first year it made trades worth 7.2 billion euros.

And of course, it’s not just in Europe. Globally, carbon trades were up 500 percent in the first six months of this year compared to the same period last year. Here in the U.S. you’ve seen unprecedented state-level and city-level actions in support of climate change—most of it driven by an increasingly informed, concerned and engaged public opinion—an emissions trading scheme in seven northeastern states; mayors in 294 cities pledging to meet the Kyoto targets; new and pioneering legislation on emissions passed just this month in California, which should trigger a low-carbon transition in the world’s seventh-largest economy.

And we in Europe are linking with like-minded people here. In the summer, Tony Blair and Governor Schwarzenegger agreed on a groundbreaking plan of action to work together on climate change, including to a possible link between our respective emissions trading regimes.

We’re making up with other countries, too. Last year, the EU and China agreed to build a near-zero emissions coal-fired power plant in China and we’re now discussing with India the possibilities there for carbon capture and storage. As I’m sure you realize, China and India have among the world’s largest coal reserves and greatest energy needs. China, by the way, is also the world’s biggest investor in renewable energy. Seven billion U.S. dollars in 2005, 17 billion (dollars) if you include hydroelectric.

Some progressive companies and investors are already aware of the curve—ahead of the curve. They’ve seen the opportunities in clean technology markets. Last year, BP established an alternative energy business unit with plans to invest 8 billion U.S. dollars in renewables over the next decade. And General Electric launched its eco-imagination campaign—a plan to double investment in climate-friendly technologies and reach 20 billion U.S. dollars in annual sales by 2010.

The largest IPO in the last quarter of 2005 was the Sunnyvale-based SunPower, which by the end of its first day of trading had market capitalization exceeding 1.5 billion U.S. dollars. And of course, conversely, companies whose products don’t meet the increasingly stringent environmental standards set down by governments, and expected by consumers—or don’t take into account the rising costs of carbon—will increasingly struggle against domestic and global competition. That’s something of which shareholders are becoming more aware.

In 2004 and ‘05, a record two dozen climate change resolutions were filed by shareholders. Three of the U.S.’s five largest public pension funds, and the largest private pension fund, now routinely support such resolutions.

But I don’t want to give you the wrong impression. This is not—and it never can be—a case of governments putting a few basic conditions and leaving to market to get on with it. A successful response to climate change requires a deeper level of engagement between investors and policymakers.

Let me just reiterate the scale of the challenge we’re facing: the former chief economist of the World Bank, Sir Nicholas Stern, will shortly publish one of the most significant and wide reaching analyses so far of the economic impacts of climate change. And one of the key emerging findings of his work is that while it won’t cost the Earth to solve climate change, it will cost the Earth—literally and financially—if we don’t.

As governments, we’re trying to put in place policies and frameworks that will allow private capital to flow towards a low-carbon economy. That will require mutually reinforcing interventions at the national, regional and global levels. In effect, the most ambitious and complex public-private partnership ever attempted, but it will only work if we get the right mix of incentives, penalties and expectations.

We as policymakers need to know from you what kind of interventions and what combination of policy instruments will work. We need to know where we can target public finance so that it triggers the largest flow of private capital. We also need to know how we can best stimulate the emergence of the complex financial instruments needed to reduce technology risk under conditions of commercial and political uncertainty in emerging economies.

The changes we need to see are not yet happening fast enough. The first phase of Kyoto was not synchronized with natural cycles of capital stock replacement. The EU emissions trading scheme is important in the transition to low carbon, but it’s not yet having a noticeable effect on long-term investment decisions. And the equally important energy investment framework agreed at the Gleneagles G-8 Summit is taking shape too slowly.

As investors, you need to know what governments expect from the policy instruments we construct and how much political effort and commitment we’ll apply to ensure the goals are achieved. You need to be able to anticipate the future direction of policy and assess whether it’s likely to survive changes in government. You need to understand how policymakers see the geopolitical interplay of climate and related resources and how we are likely to respond.

At present, the quality of communication between the public and private sectors is insufficient to deliver such a high degree of shared understanding. And there’s no greater challenge to those of us who are developing the policies and building the markets that will deliver the transition than to break through the invisible barriers that obstruct communications between government and business and engage at a far deeper level than has hitherto been achieved. And that in itself demands a change in mind set.

It will not be enough simply for you to call in general terms for policies that often use the climate-change jargon long, loud and legal, or to press for this tax incentive or for that particular subsidy. This needs to be an exercise not in lobbying, but in building shared ownership of this complex and audacious project whose goal is to redesign the way we produce and consume energy, achieve mobility and use land.

The challenge for those of you on the front line of the financial transition is to influence government thinking upstream long before it’s fully formed, across a broad spectrum from finance and energy ministries to their counterparts in foreign policy—agriculture, transport, innovation, trade and development. And you must not only do this yourselves. You should look along your own value chains and encourage your clients, your customers and your partners to do the same.

I hope that today’s discussion will be part of that deeper engagement, not least because the need is not only for action, but for action now. (Applause.)

Mark Tercek, Jacques Aigrain, Margarett Beckett, and Stephen W. Bosworth discuss political, economic, and financial risks associated with climate change from a global perspective.

BOSWORTH: Jacques.

JACQUES AIGRAIN: Well, thank you very much, Foreign Secretary, for setting the stage.

I will have the maybe less appealing task, to a certain extent, to speak in terms of the economic risks and the economic dimension of the risks. And Mark will have the pleasure of speaking about the opportunities, as I think that from a business perspective we actually would both see that there is a very serious case for action now, as the foreign secretary underlined, but there is actually a possibility to address it in a constructive fashion and an economically viable fashion.

First of all, let me underline how much as a firm and a partner we have appreciated the leadership of Prime Minister Blair and your administration over the last few years. The momentum which has been gained on this topic by the leadership opinion of Tony Blair, we feel, at the time of the Gleneagles Summit and then for during the presidency of the European Union last year was tremendous in terms of creating the awareness and building the appropriate level of attention on the part of both the private and public sectors.

Indeed, we share your perception of the risk. Let me just give a little bit of a sense of what it means in terms of concrete economic consequences. The insurance and the reinsurance industry unfortunately, to a certain extent, is of course the final payer for the events’ consequences. And anyone who would like to suggest that the climate change has had only marginal impact on the economy should maybe just remember the events of last year in the U.S., or actually the previous one, in 2004.

Last year alone cost about $80 billion. And that, of course, excludes the gigantic subsidies by the fellow states reacting really constrictively to the necessity of the people involved, which was probably in excess of 150 billion (dollars). So economically speaking, we’re speaking of probably $230 billion for the events of Hurricane Katrina and Rita in the U.S. last year.

And that was, from an insurance claims standpoint, the largest-ever accumulation of claims, sizably larger than the tragic events of September 11 th. That was just on the back of actually approximately $45 billion the previous year, which were actually an accumulation of so-called “moderate” hurricanes. Wait for the big one.

Nobody can suggest that climate change is the only reason for any single event, and we are not suggesting that. We can never specifically create a causality, but it adds to the probability substantially. The risk is that we have the long-term pattern, which has deteriorated by a mix of probably long-term trends, which have been observed over the centuries, and aggravated and accelerated by human activities.

During the last century the average sea temperature, which is the single most important determinant of windstorms, has increased by 0.6 of a Celsius degree, which is extremely—as it is an average dimension—extremely notable. The consequences for the entire ocean—(word inaudible)—is pretty dramatic.

From an economic perspective in the short term, this issue of windstorms anywhere in the world—they are accumulating and accelerating in their strength in Asia, and the floods in Europe are also more common and more devastating (is a visible piece ?). What would worry us most is actually more dramatic events related to the melting—as you mentioned very well, Foreign Secretary—of the ice cap in—(inaudible)—Greenland, where it is losing sizably on a yearly basis. Obviously the west Antarctica situation.

To just give you a dimension, Greenland would actually cause the entire sea anywhere in the world to move up six meters. The foreign secretary mentioned that in Bangladesh, this kind of event would have a quite devastating effect, particularly for the nearly 20 percent of the country that would cease to exist. I was in Singapore last weekend, and there the authorities reminded me that two meters and 25 percent of the country is under water. You are speaking indeed there of extreme developed economies by contrast to poor economies—(inaudible). Six meters and you don’t have too much to think about, what does it mean for Brooklyn, or actually a large part of London? So it’s not a matter of poor countries or rich countries. It’s a matter for every country.

Let me turn quickly to the case for indeed early actions rather than late actions. There is a body of thought in perfectly good intellectual analysis on the part of some communities of interested parties or intellectuals to suggest that as the probability weighted risk leads to an uncertain benefit of huge investment for climate transmitigation versus economic cost. Wouldn’t it be better to invest today the same amount of money in pure economic development, making thus both the emerging and the developed worlds in a better economic situations to face adjustments should the negative events occur?

One can have some intellectual sympathies for the argument, but it seems to ignore, in our analysis, the tail factor. In our industry, the insurance industry, the tail factor is a critical point of focus. It is the way we assess and look at any risk. And frankly, it’s not unique to us. I would suggest that when it comes to global financial stability, it’s exactly what the regulators are looking at, and when it comes to national defense, it’s the very reason we have armies. If it wasn’t for tail factors, frankly, we could save on it. So the same dimension does exist.

It looks to us and a number of very good analysts, in particular by the—in Australia, and a very good business case study has been published recently there—demonstrate vividly that early action would be less expensive than actually late actions. And that’s what we would suggest is critical to the development. And early action goes indeed along the lines mentioned by the foreign secretary with regards to the development of steady, reliable, clear, and long-term-oriented policies and regulations.

As a private sector—(inaudible)—by definition, we would like to see everything targeted to market solutions and market economy. However, market solutions and market economies require a clear line of sight on matters where investment stakes dictate in many instances. So we need policy centers today that are going to cause the environment of the investment decisions to be indeed reliable and steady for the long term. And, as mentioned very well by the foreign secretary, the weather doesn’t have borders, so it needs to be multilateral in the decision process and the interpretations.

Very quickly turning to the last point, which I believe was mentioned already, on concrete short-term impact, which is probably of almost greater immediate interest to the investors in this room. CO2 emissions, greenhouse gas emissions, (planet?)—(word inaudible)—concerns have become a clear liability. The foreign secretary mentioned the number of proxy fights. There has been actually quite vocal actions on the part of the major pension funds in the U.S. as well, in terms of calling for effective actions and disclosure—quite a number of companies, and in practically the entire oil and utility sector. This is not going to disappear.

There is a pressure on the part of the investors community as well as a pressure on the part of the social body of the land, even more marked in the U.S. than it is in Europe because of the (tortured?) system, which is developing. You most probably have read today in the newspaper or yesterday in the news that California has launched a class-action suit against the automobile industry—that the potential—(inaudible)—of the automobile industry and the pollution and climate change consequences within the state. You won’t be surprised that as an insurer I don’t exactly like that kind of action. (Laughter.) But while the—for the moment, in terms of legal systems, the causality are very difficult to prove. During both the events of last year and this development of yesterday, we are seeing (the authority?) moving to the court, rather than just being an intellectual argument in the university. So those are serious matters with serious financial consequences for a gigantic part of the economy. It cannot be ignored and postponed to a later date.

But again, before passing on to Mark’s potentially more (pleasing ?) views, I would—(inaudible)—to suggest that the last 15 years in many different aspects have demonstrated that if we find the right framework of regulations for the economy to find solutions, usually our talents and our brains translate into viable solutions. We effectively consider the faster impact than what would be dreamed of, and with much better economic returns than what would have been expected.

Thank you. (Applause.)

BOSWORTH: Thank you.

Mark, please.

MARK TERCEK: Thank you.

Well, I’d like to begin, too, by thanking the foreign secretary for a great introduction to the topic, the council for hosting this event, and to Jacques. Swiss Re—as Goldman Sachs thought about its approach to this topic, Swiss Re’s early leadership was very influential. So thank you very much for the opportunity to be here.

As Jacques said, I have the easier job of talking about opportunities. (Laughter.) And as we think about it at Goldman Sachs, we really do think there is some reason to be optimistic. There are lots of opportunities for business in this broad area. There are risks as well. But if you step back—if we step back and think about the bigger picture, the science really is resolved. The technological solutions are well developed. The regulatory frameworks are understood and presumably could be implemented quickly. Yet, not enough is happening, and we think there’s a big opportunity for the broad business community to step up and be a force for action. And so that’s what I’d like to talk about a little bit today.

Now, I’m going to talk a little bit more about Goldman Sachs because—if I may—because that’s the story I know best. (Laughter.) But I really don’t mean to put us on a pedestal. We’re simply trying to be smart business people looking after our opportunities and managing our risks in a sensible way. And as we look across the landscape, we see most of our competitor, peer institutions, the big financial institutions, in their own way attacking the problem. And as we talk to our clients, the same thing is true. So I think in the days ahead, you’ll see many companies taking very dramatic action to move things forward. They’ll be encouraged, as Jacques was saying, by investors, and that’s appropriate. That’s an important part of the dialogue.

But if I can, let me just tell you a little bit about Goldman Sachs. Last year, we thought it was appropriate and important for us to do something about environmental risks broadly, and climate change in particular. We’re an investment bank, and so we weren’t sure exactly how to proceed, so we consulted with the thought leaders in the environmental community, and it was a very powerful consultation. We learned a lot.

We were encouraged to make a statement about where we stood and what we thought and what we would do—a very interesting exercise, and not an easy one, because we’re a consensus-driven organization, and these are difficult topics. But in November we published a statement—again, we had a lot of help—and in it we recognized various environmental risks that really do impact our business and the businesses of our clients. And on climate change in particular, we said that we recognize that science has largely resolved that man-made greenhouse gases were largely responsible for climate change and global warming, and that while voluntary initiatives are very important, they would not be sufficient, and that regulatory action would be needed as well.

And just saying that I think was a useful thing. It certainly got us in a lot of dialogue that we found productive. But by the various observers—you know, think tank types, academic types, activists, et cetera—they were pleased that Goldman Sachs, which is thought of as a very commercial-minded organization, would stick its neck out and make that kind of statement. And I think for us, too, as you think about opportunities, we’re in the business of recruiting and keeping the best, brightest young people we can find, and our actions here resonated with our employees and with our potential recruits, as well, of course, as with clients. I just mention that because that’s one of the many opportunities that are available to companies.

But we made our statement about recognizing the problem, and then we said, “Well, what should we do?” And we said, well, first and foremost, we should get our own house in order. We started with our own environmental footprint. And I think most of my colleagues, certainly myself—we thought of ourselves as a very energy-light business. But as we dig in—and we have a long way to go—we learn our footprint is not so light. And so what’s ensued is a very vigorous, disciplined, aggressive, but still early-stage pursuit of understanding the impact we have and exploring how to reduce our impact.

Here, though, it’s a fantastic story. The more we learn and explore, the more we learn we can run our business in a better way, a lower-cost way, and it’s been completely a positive, happy story. We’re now building a new building across from the World Trade Center site. It will be a—(inaudible)—building. We’re proud of that, but it’s absolutely in our own bottom-line interest to aim that high. The building’s—on a present-value basis, the incremental investment will more than pay for itself.

So that was the first step: our own footprint.

Then we said, okay, what business are we in? What businesses are we in, and what can they do? And we think this is a good framework for how business should think about it. You know, different businesses can approach this situation in different ways. We’re an aggressive investor. And so at the time Hank Paulson was our CEO—and so he announced that we would invest at least $1 billion in the alternative energy space. This was in November. We’ve just about gotten there. Again, a happy story. That extra push from our policy gave our folks in that area a little extra momentum to get moving, and we’ve assembled the portfolio. We haven’t disclosed everything we’ve done, but we’re really playing each of the alternative energy spaces. We feel very good about the portfolio we’ve accumulated. We think we’ve been a spur to others. Indeed, the hardest thing now to keep that up is the competition from other investors. I think it’s a very happy story. And soon we’ll be seeing, I’m sure, taking profits in these investments. Some of the activists we’ve worked with might be surprised, but it will be a very good way to underscore the commerciality of this effort.

So that was one enterprise, or effort—our investing.

Of course, we’re also in the investment research business. We follow companies around the world, and we said, this is a tool we can use. Here we’ve begun in Europe, and again we have a long way to go, but we’re introducing sector by sector what we call ESG research—environmental, social, and governance research. There was some skepticism internally about whether our institutional investors wanted this, would care about it, et cetera, but some of these things are chicken-and-egg things. Once we produced that research, we’ve uncovered tremendous interest, and that’s given us confidence that as we roll this product out in the U.S., where I’d say there would have been even more skepticism, we think it will find a receptive audience. And again, we believe investors can be a powerful force here. We encourage them to do so. We hope we can give them some tools.

On the trading business—this is a little more straightforward. Our traders are in the business of pursuing economic opportunity. We’re big commodity traders, so of course we’re active participants in the EU ETS carbon trading market. But more importantly, we hope to have an active dialogue, particularly in Washington, about how comparable regulatory schemes can be set up in the U.S. And we hope our expertise as traders can help policymakers, and we’re optimistic that that’s on the horizon.

And then finally, and perhaps most interestingly, but more behind the scenes, is our work as investment bankers. That’s my background. My entire career has been as an investment banker. And we said in investment banking we would—we pledged that business selection and our dialogue with clients would include a focus on environmental opportunity and risk. This is not always so easy. Some of our clients might have preferred we didn’t make the inquiries we’ve made. But anecdotally, there are a whole bunch of great stories where we’ve uncovered situations that made our bankers nervous. We’ve talked to the clients about those situations. Again, sometimes they might have preferred we didn’t initially raise the topics. But what we’ve been able to find in almost every case is a happy ending. And the client has focused a little more attention on the economic exposure arising from environmental risks, worked to find resolution, and learned like we’ve been learning that the resolution is usually a very happy story: improve your business operation and improve how people feel about the company.

You know, a lot of these anecdotes, by the way, have to do with supply chain management. There has been supply chain management sloppiness out there, and some bad environmental practices, therefore, are supported, for example, by U.S. companies. But if folks dig in on the supply chains, they fix that problem, and they also come away with a much better handle on their supply chain which makes their business stronger.

So these are the kinds of things we’re doing. When we published our statement last year, it was a difficult exercise internally. Some people on the outside, I think, thought that Hank Paulson just imposed it, but that’s not the kind of organization we have. It’s a consensus-driven one. Building the consensus to do this took time and effort, and we had our own skeptics. However, having done it on the needs of our businesses—and we feel very good about this—we’re very confident looking forward. We think these programs that I’ve just outlined will endure in good times and bad, because they simply make good sense for us as business people. Now, that’s the primary way we’re trying to do this. We don’t view this as a headquarter-driven phenomena. We don’t view it as a foundation or charitable phenomena. This is just good business.

And as we talk to our clients about it, we’re very encouraged to see that our clients increasingly see it exactly the same way. And again, if you just read the paper, you’ll see every day great things being done by a whole host of companies. Goldman Sachs seeks no special attention here. This morning, I saw in the paper that Marsh Mac is organizing training for board members on disclosures and risks that are connected to environmental liability. I think that’s very interesting. It would make sense that a Marsh Mac would launch such an initiative. It plays to their business strengths and focus. And you can imagine boards of directors planning a very useful program and then acting accordingly going forward—and so on, and so on. We think the Wal-Mart example is powerful. There are a long list of powerful examples.

So, we hope that we can be a catalyst to the business community to step up and do more. We think regulators should do the same. We urge investors to do the same. But businesses are pretty good—good businesses, at least, are pretty good at global opportunities, and this is a global situation we’re talking about. Businesses are good at pursuing opportunities. They’re good at managing their risks. They are supposed to be good at understanding how investment today can make sense if there’s a good payoff down the road. And so we’re hopeful that the business community will increasingly step up and have a big impact on the dialogue.

Thank you.

BOSWORTH: Thank you very much, Mark.

(Applause.)

Let me just say before we go on that I am supposed to tell you all that this meeting is organized in collaboration with the British Consulate-General, the Rockefeller Brothers Fund and the Partnership for the City of New York, in addition, of course, to the Council on Foreign Relations.

You’ve all stressed to role of the private sector—basically market forces—in solving this problem. And I think, fundamentally, everyone in this room would agree with that as a starting point. But we all know that markets don’t like uncertainty. And in this particular case, one of the major causes of uncertainty—well, let me mention two major causes of uncertainty. One is, what is going to happen in the huge developing countries of the world—namely China, and I would add India—if we move forward—the industrialized world or the post-industrialized world—if we move forward in this direction? What assurance do we have that they are going to act in a way which does not simply offset any global gains that we may have achieved? That seems to me is a point of policy uncertainty.

There is, however, another source of uncertainty which has to do with what one anticipates will be the price of oil on the future since other energies tend to be priced off oil. We’ve been hearing for years about how various alternative energies, some of them clean. We’re just a few dollars a barrel away from becoming economically viable.

We’ve seen in the last couple of weeks actually, again, the volatility that occurs in the oil sector. And oil is now far from cheap, but it’s less expensive than it was just two weeks ago. Is there any value—and this is a hypothetical question, actually, but it comes out of past experience. Would there be any value as governments try to set a framework within which companies can plan, make investments, et cetera, for governments to conclude that the price of oil is too important to be left to the vagaries of the market and that somehow government should step in to ensure that oil is never sold—at least not internationally—at less than a given price? This is actually a problem that was addressed some years ago when the International Energy Agency was set up. The U.S. at that point was talking about massive investments in alternative energies. And the fear was that as we did that we’d drive down the price of oil, and we would lose our competitiveness because everybody else would be sucking up then cheap, imported oil.

So we actually negotiated something called the minimum safeguard price for imported oil. Unfortunately, we were never—we got agreement on the concept, but we were never able to get agreement on an index formula for a price. And I think that agreement still exists, and I think the minimum safeguard price is about $7 a barrel. (Laughter.)

But let me pose that as a question. You’re all talking about the need for increased cooperation between governments and the private sector, particularly for governments to set a framework of some certainty within which the private sector can respond. So first, China and India, how can we be sure? What can we do to encourage them to act in ways that are reinforcing of our policies?

And secondly, what about cheap oil? Do we really want it to come back again?

Foreign Secretary.

BECKETT: Well, if I can talk about China and India first. You’re absolutely right. For those who’ve followed some of the technical discussions on these issues, there’s a classic diagram of what should happen to the world’s emissions to try and tackle climate change. But part of the background diagram is it shows how they speedily, in essence from the developing world, could overtake and wipe out and gains from reduced emissions in the developed world, unless we are all moving together. And that is exactly why you referred, Jacques—and thank you for your kind remarks—to the role that the U.K. played last year in our G-8 and EU presidencies. That is exactly why at Gleneagles we instigated, with the agreement of all participants, a Gleneagles Dialogue in order to try to find a way to explore some of the ideas which could command acceptance and support from the developing world as a whole, not just China and India but Brazil and other major players.

And so the Gleneagles summit consisted not only of the G-8 but of what were known as the Plus Five—in other words, China, India, South Korea, South Africa and Mexico. And the whole idea was that these are already major but also fast growing entity users, and people who indeed could, through their emissions, wipe out any gains that we can make.

There will come a time, I anticipate, when there will be negotiations like the ones that led to the Kyoto Protocol on very much a global scale. But in the interim, what we need is explanation of ideas to be carried out by political players who are not looking over their shoulder all the time thinking I better not say that, because that might be held against me in the negotiations, and that might be (quite an advantage ?). We need to give people the intellectual space to explore what are the kind of agreements to which we could get the Chinas, the Indias and so on to accept. And that, as I say, is the hope of the Gleneagles Dialogue.

We had one weekend last November in London, a very constructive and helpful meeting. And we have a further meeting—the second meeting now will take place in Mexico at the beginning of October. The Japanese, if I recall correctly, have already agreed—no, the Germans, I think, has the next one. And the Japanese have agreed to have a report back from that process during their G-8 presidency. And so that’s—the sequence of events is already in place.

And secondly, I would say, in many parts of the rather large Chinese government, many of the points that we’ve been discussing this morning are well understood. And my former department, the Department of Environment, Food and Rural Affairs, conducted a study with the Chinese department of agriculture which led to some of the figures that I produced. And there are many players in China very, very conscious at the national level of these problems. Many of the investment decisions, however, are taken at the regional level or local level. And so that’s why there has to be a cascade down of concern. So we’re not there in terms of it working out, but we certainly are moving, I think, in the right direction.

With regard to the issue of minimum guaranteed oil price, I think that’s a question I should leave to the business community. I wouldn’t as a politician wish to step into a territory that’s—the one thing I will say is I have a quite a vivid memory some years ago, when we were not in government in the United Kingdom, of engaging any discussion with an oil company who were telling me—we were talking about how you plan for the future and how bad in the past politicians have been and looking ahead 10, 20, 30 years and the way the business community has to do and how we, as a party, were trying to do that. And they said we know exactly what you mean. We had lots of earnest discussions about the fact that we knew the oil price would never get back up to $18 a barrel. (Laughter.)

BOSWORTH: Jacques.

AIGRAIN: Well, on the India and China, I won’t have the depth of knowledge as the foreign secretary has. But I’m struck by the fact that they are totally extremely conscious of the challenge. I would just take one economic view, which is under no circumstances should we dare to restrict the growth opportunities of both countries, which is effectively our future. And we hopefully can always remember that per capita consumption is, of course, the worst of anywhere in the U.S., followed by Europe in terms of per capita, which is really the index that we should consider.

Now, we should all try to emulate the Japanese scale and have a per capita consumption and an efficiency of the society as a whole in terms of every dollar of GDP, which is as good as the Japanese have seen it. But let’s not totally confuse the scale of their growth needs and, thus, the expansion of energy use with the absolute amount that we are speaking about. Let’s help them gain from every new plant, every new utility, every new factories, every new building an efficiency which, over time, will make actually their strictures potentially better than ours.

With regard to the oil price—(laughs)—of course, I have a very simple view from an entrepreneurial standpoint, which is no price control, please. (Laughs.) Let it to the market in either ways. And it applies the other way around. We do not believe at Swiss Re that subsidies of alternative energy is a good solution either. Create an environment which is a fair playing field. Create an environment where everything is done in a balanced economic perspective. There are today, effectively—(inaudible)—subsidies in many of the—(inaudible)—sectors. In Europe, part of the—(inaudible)—some of these (commission?) channels in the U.S., and so those have to be eliminated.

And the last point that I would make, which touches on this issue of the rising competitions between fossil fuels versus alternative energy is the question on the table is not so much alternative energy, it is clean energy sources. So it goes to the footprint work that Mark was referring to. It goes to buildings which are carbon neutral and efficient. And we have a similar experience, very positive from an economic perspective. And it goes to working very hard on finding technical solutions so that using even coal can be done in a clean fashion. And there are a lot of progress there. And that’s an area where maybe regulation makes sense, which is to clearly mandate. But the level of solutions be dictated at the level which constantly improves.

Thank you.

BOSWORTH: Mark?

TERCEK: I don’t have very much to add to the foreign secretary or Jacques’ views. But with regard to China and India, it’s easy to look forward and to see the scale of the problem. But it’s very awkward for a U.S. citizen to get on a soap box and lecture those countries when, as Jacques said, you know, we’re contributing more greenhouse gas emissions by an enormous margin than any other country, and we’re the country that has not signed Kyoto and hasn’t really come up with a federal regulatory program that can address all of this.

So my personal view is that we need federal regulations here. There are many approaches to it, but we urgently need this. And I think they could be a powerful catalyst to business then to accelerate the kinds of things I was talking about. And then one would hope we could build on that and exercise some leadership in the developing part of the world. But I think one must precede the other.

High oil prices—it’s easy, I think, to understand in theory the benefits that would result from a steady oil price, and in terms of encouraging alternative energy sources, a steady high energy price. But I don’t know if that’s politically viable, because, as we see, high energy prices today, the political dialogue seems to be focused on achieving exactly the opposite. So I just don’t know if that’s a practical approach. But there’d be many benefits in theory, for sure, that would result from that.

BOSWORTH: Thank you. Let me now open it up to the audience for questions. Please wait for the microphone, which will be arriving only a few moments after I recognize you. Stand, state your name and affiliation, and please be concise; one question per person, and a short question preferably. Back there in the back.

QUESTIONER: Jim Damon (sp) from the Ireland World Report.

We’ve had a debate in this country for the past eight years on whether global warming even exists. And we sort of see, in the kind of reports the press has had concerning the politicization of this at the national level, with people talking about global warming, being ordered by the executive branch not to talk about this.

So I was wondering if you could comment on this and how you see this, because I know, Madame Secretary, your colleague, Mr. Ashton, in June made a comment about how global warming was related to causing Katrina. And that’s precisely the kind of debates and arguments we’ve been having in this country, and I wonder how we can get beyond this.

BOSWORTH: Foreign Secretary?

BECKETT: Well, it’s true. I mean, it’s not only in the United States. There are various parts of the world where people have continued to argue about whether or not it is real. But I can only really repeat what I said in my opening remarks, which is that it is now extremely hard to find a serious scientific argument as to whether or not this is happening.

I entirely share Jacques’ view. And I’m sure that whatever John Ashton said, he would have been careful to have specified that you can never—it’s not fair to say—I’ve never met a scientist who will say, “That storm, that flood, is due to climate change.” But when you see a pattern, then you know that there is an influence there. And I think that’s the thing that we are seeing with increasing vigor.

And the other thing that I think is seriously alarming now to many in the scientific community, and leading to louder expressions of concern than we’ve seen before, is the feeling—again, Jacques referred to the possible implications of melting the Greenland ice cap.

All of the modeling and predictions is that although such an event would be catastrophic, it would be a long way away. What is really alarming scientists at the present time is their growing perception that all of this is happening much faster than they thought and much more seriously than they thought.

And I remember only a couple of years ago, I was actually doing a slide show for the British cabinet and conveyed these problems to my colleagues more directly. And I wanted to use a slide about the ice cap on Mount Kilimanjaro, because it’s a nice dramatic photograph. And I was told—and I’m not sure; we’re not absolutely certain that this is totally climate change; there could be other factors. But I had a picture then for the ice caps the previous year.

About a couple of weeks after I’d done the presentation, one of our major national newspapers published another photograph of Mount Kilimanjaro, and the ice cap was, like, 15 or 20 percent of what it had been in the previous photograph that I had been thinking of using.

This is accelerating away from it. That, I think, is the concern. And all all of us can do is to try to make sure that that case and that argument is consistently understood. I personally have taken the view for a long time that different views in different governments across the world will be influenced more dramatically by the views and the pressures of the business community than by anything else. That, if I may say so, is why I’m here.

BOSWORTH: Yes.

QUESTIONER: Steven Kass from Carter Ledger Milburn. Apropos of the secretary’s comment, I wonder whether the advice and counseling that Goldman Sachs and Swiss Re are giving to its clients includes, either for itself or for its clients, advice on persuading the Bush administration to open its eyes and ears. (Laughter.)

TERCEK: You know, there are—Goldman Sachs itself isn’t directing these efforts, but there are underway a number of, I think, very interesting efforts by business leaders to build a consensus among themselves and go public, if you will, with support for the federal regulations that we’ve been talking about. And so I’m hopeful that you will see that in the public in short order.

There are some very sincere and energetic efforts underway. But, of course, it’s a difficult thing to do. It’s difficult for business leaders to reach a consensus among themselves about what a regulatory framework might look like, because any regulatory framework you can design will impact different companies differently. There will be winners and losers.

And so I don’t know how far businesses can go in articulating a specific policy recommendation, but I’m pretty confident you’ll hear more and more support for such regulation. Already in Senate hearings, you saw the CEOs of utilities that would be directly impacted calling very clearly for regulation and explaining that it simply was necessary for them to be smart about the long-term capital investments that they’re making.

And so some of those businesses suggested—CEOs suggested they weren’t necessarily in favor of regulations, but because they thought they were coming anyway, the sooner they were here and clearly understood, the better. So I think you’ll see the business community doing more and more. And it’s already acting.

QUESTIONER: I’m Richard Gardner, Columbia University. I’d like to ask Margaret Beckett if she’d be willing to take this on. What would you like to see the next U.S. administration do specifically—(laughter)—by way of an international undertaking? Would you want to engage the next president in a new Kyoto treaty for the time frame beyond 2012, taking specific commitments to limit greenhouse gas emissions?

And how do you get around the political problem that the United States Senate made it very clear a few years ago it will not ratify any international agreement unless the developing countries, such as China, India, Brazil, take some commitment, not the same commitment we do, but some commitment over the years ahead?

BECKETT: Well, first of all, what I would like to see the next administration do is to engage fully in the international dialogue that I spoke about. Some of the best science, some of the best ideas—I mean, we were talking about emissions trading. That’s not a European idea. That’s an American idea. It’s just you aren’t expressing it and we are. Thank you.

You know, I would like—I understand completely; I’m very conscious. I’ve spent six years up to my eyebrows in all of this for the U.K. government, and I’m very conscious indeed of the genuine concerns that are felt in the United States government and the genuine feeling that the way that the Kyoto protocol agreement was put together was not satisfactory.

But my argument is if you don’t like the way the previous regime was shaped and you think it’s full of flaws, then get involved in shaping the next one, and the earlier the better, because that way maybe—and, you know, there is huge intellectual powers in the United States. I don’t need to tell you that.

And so what we would really like is the maximum amount of engagement from the United States government in trying to solve some of these problems which beset all of us and trying to get involved in the discussions about what new framework we could have. It may or may not be—I’d be quite surprised, to be honest, if it’s exactly like the Kyoto Protocol. But what it needs to have is a very clear framework of agreement, clear understanding as to what people are able and prepared to do, and clear and serious goals and targets.

As to the issue of the Senate, yes, again, one of the things that I’ve often said to earnest environmental campaigners across the world is that the American Senate absolutely refused to ratify the Kyoto protocol and that it’s not yet clear that a majority of opinion there has changed.

But again, I go back to the general thesis, which is that the pressure will come, I believe, from the bottom up, from the business community, from the population and so on. And that’s what politicians do. They respond to a changing political climate, as well as a change in climate in itself. And it’s precisely because we understand that argument, first of the scientific necessity of developing countries taking action, as we were discussing a moment ago, and second, the political feeling that this cannot just be.

The phrase in the Kyoto agreements is common but differentiated. We all have a common responsibility, but some of us are better able to bear it, particularly in the early stages, than others. And that runs through the Kyoto agreement, and it’s very important as a basis. And there’s huge suspicion in the developing world that we are trying, exactly as Jacques indicated, trying to stop them developing.

And that is bound to be their key priority. If you’ve got billions of poor people, raising their standard of living, giving them enough to eat is your top priority. And what we have to make sure people understand is that climate is threatening that very capacity.

But I would just make one other observation, which is that the nature of the argument put by some U.S. policymakers has somewhat evolved over the years. As you say, in the beginning it was that we aren’t going to take this action because the developing countries are not.

We have gone through a period where people were arguing that actually it’s not fair to poor developing countries and that America is really on the side of these poor developing countries that the nasty Europeans are beating up, saying you’ve got to take action about climate change. I think we’ve gone back again to the recognition that actually we all have to take action, and there’s no free ride for anybody.

BOSWORTH: There on the aisle, please.

QUESTIONER: Thank you. Mary Ann Van Buren (sp), the director of investor engagement for a series on the Investor Network on climate risk.

When the trustees of the largest American funds wrote to the 50 largest fund managers around the world, all but a handful said—they were asked about their capacity to assess climate risk to investments; it was even pre-opportunity days. And they said, “We only measure and we only work 12 to 18 months out.”

So if that’s particularly true, Mr. Tercek, I’d be interested in your views as to how to bring the longer term, even if it’s 24 months, how to bring that into the shorter term and, you know, the constant pressure that we’re all under in every job that we hold to act faster and quicker and always shorter term. So I think so many would agree in this room on where we’re going, and yet how do we bring it into the mechanisms that govern the world that you work in?

TERCEK: I’m not familiar with the response you got, of course, but it doesn’t ring true to me in terms of my work as an investment banker with the CEOs and boards directing companies around the world. I see companies all the time grappling with much longer-term frameworks for decision-making.

You know, I mentioned utilities that make capital investment decisions with 50-year lives. So they’re not thinking in 24-month periods, to be sure. And I also think that—I’m not sure when your survey was taking place, but I think a lot has changed since then.

I think investor groups like Ceres and the Carbon Disclosure Project and many others do a very good thing by using their clout to direct companies to focus even greater attention on the risks and opportunities we’re talking about. And I think you can expect well-run businesses to be focused on those topics.

BOSWORTH: I fear we’re going to have to draw this to a close, because we have a convergence of events here at the Council today. And before asking that we thank—you join me thanking our panel—I want to make the point, everyone has to leave through this door. There are dogs in the back. (Laughter.)

Foreign Secretary, Mark, Jacques, on behalf of the audience, I would like to thank all of you for what I think has been an exceptionally stimulating, informed, even erudite discussion. And I personally would hope that I can hear more of this, because I think this subject is—in the immediate future and in the longer term, it is one that is fundamental to the health of this world.

So thank you all. Please join me in thanking them. (Applause.)

© COPYRIGHT 2006, FEDERAL NEWS SERVICE, INC., 1000 VERMONT AVE.

NW; 5 TH FLOOR; WASHINGTON, DC - 20005, USA. ALL RIGHTS RESERVED. ANY REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION IS EXPRESSLY PROHIBITED.

UNAUTHORIZED REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION CONSTITUTES A MISAPPROPRIATION UNDER APPLICABLE UNFAIR COMPETITION LAW, AND FEDERAL NEWS SERVICE, INC. RESERVES THE RIGHT TO PURSUE ALL REMEDIES AVAILABLE TO IT IN RESPECT TO SUCH MISAPPROPRIATION.

FEDERAL NEWS SERVICE, INC. IS A PRIVATE FIRM AND IS NOT AFFILIATED WITH THE FEDERAL GOVERNMENT. NO COPYRIGHT IS CLAIMED AS TO ANY PART OF THE ORIGINAL WORK PREPARED BY A UNITED STATES GOVERNMENT OFFICER OR EMPLOYEE AS PART OF THAT PERSON’S OFFICIAL DUTIES.

FOR INFORMATION ON SUBSCRIBING TO FNS, PLEASE CALL JACK GRAEME AT 202-347-1400.

THIS IS A RUSH TRANSCRIPT.