Companies Tackle Climate Change...How Golf Star Patrick Cantlay Made His Comeback...Where Have All the Workers Gone?

[Goldman Sachs]( [BRIEFINGS] December 23, 2021 How the Private Sector is Stepping Up to Tackle Climate Change Above (L to R): Kasper Lorenzen of PFA; Mark Carney, UN special envoy on climate action and finance; Evy Hambro of BlackRock; and Chris James of Engine No. 1 Despite mixed progress on global climate action at COP26, a key takeaway emerged: The private sector is stepping up to tackle climate change. But how exactly? Allison Nathan, Goldman Sachs’ Senior Strategist in Research and editor of a recent Top of Mind report on climate change, gets various perspectives on climate investing in the latest episode of Exchanges at Goldman Sachs to try and answer this question. “There has been a quantum leap in terms of private sector engagement [on climate] since [the 2015] Paris [Agreement],” says Mark Carney, UN special envoy on climate action and finance and former governor of the Bank of England. “The private sector…is beginning to lead the public sector and put more pressure on the public sector to close the gap between the country objectives and the underlying policies that support them.” Both Chris James, founder and executive chairman of Engine No.1, and Evy Hambro, global head of thematic and sector investing at BlackRock, agree that market-based incentives will direct private sector capital to align with climate goals, and that engaging with companies on their green transition is the best way to achieve progress on these goals. But smaller investors can only have credible engagement with just a few companies at a time, says Kasper Lorenzen, group CIO at Danish pension fund PFA, which is divesting from the oil and gas sectors while also investing in green infrastructure and technology. Meanwhile, Carney believes governments need to create incentives for private companies to promote change, and Goldman Sachs’ Jeff Currie goes even further, arguing that global, coordinated policies are needed to avoid significant capital misallocation in the pursuit of climate goals. [Listen to podcast]( [Read Top of Mind report]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=How%20the%20Private%20Sector%20is%20Stepping%20Up%20to%20Tackle%20Climate%20Change&body=https%3A%2F%2Fyoutu.be%2FhltEKEiI0ao) How Golf Star Patrick Cantlay Made His Comeback Above (L to R): David Solomon of Goldman Sachs and Patrick Cantlay, PGA Tour Player of the Year Need motivation for the new year? In a recent Talks at GS, Patrick Cantlay, 2021 PGA Tour Player of the Year looks back at his success in the 2020-2021 season and how he overcame injury and challenges to make an extraordinary comeback in the world of professional golf. On the “darkest period” of his life: “During that three years off time [with injury], it was by far the darkest period for my life. Because everything I had worked so hard at was just nothing…not being able to golf was just earth-shattering.” On his wins during the 2020-2021 season: “I think taking a step back—the run from winning the playoff in BMW, then maintaining the lead and winning at the Tour Championship, the anticipation for the Ryder Cup and then being able to play really well in the Ryder Cup and be on the winning team—when I think about all that compiled together, it’s really satisfying because it’s everything you dream about growing up…I find it very rare when your expectations meet reality…and it was a month of expectations meeting reality…so it was awesome to be a part of.” On what excites him about 2022: “The major championship venues this year are off the charts. St. Andrews for the British Open...circle that one as one I’m really looking forward to. It’s the home of golf, with all the history. If you could win, if there’s a tournament you wanted to win that wasn’t the Masters, it would be maybe the British Open at St. Andrews. And maybe the U.S. Open at Pebble Beach.” [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=How%20Golf%20Star%20Patrick%20Cantlay%20Made%20His%20Comeback&body=https%3A%2F%2Fyoutu.be%2FUBKLYurAMx8) Briefly...Where Are All the Workers? Investors and policymakers continue to debate the reasons why workers have dropped out of the labor force. In the U.S., the labor force participation rate stood at 61.8% in November, compared with 63.3% in February 2020. We spoke with Daan Struyven, senior global economist at Goldman Sachs, to discuss the firm’s outlook on U.S. and worldwide labor participation. Your research suggests that U.S. government support for households and businesses accounts for about half of the shortfall in labor participation since the start of the pandemic. Other studies have come up with a smaller number. Why are your findings different? Daan Struyven: What makes our methodology unique is that we use the cross-country differences. The pattern we've found is that countries where fiscal support is very strong are countries where the participation rate has generally underperformed. The most notable case is Chile, where not only was fiscal support very strong, but households were also able to withdraw liquidity from their pension funds as the rules changed. As a result, Chile’s participation rate remains five percentage points below its 2019 level. Our estimates essentially reflect this strong correlation across countries between high fiscal support and relatively weak labor-force participation. The research points out that just because fiscal support appears to have reduced the labor-participation rate doesn’t mean it has been bad for the economy. Can you explain why that is? Daan Struyven: It’s true that the participation rate’s recovery has probably been a bit slower as a result of fiscal support—that’s what our findings suggest. At the same time, I don’t think it’s obvious that there has necessarily been a negative impact on broader measures of well-being. Fiscal support really allowed people to replace the income that they lost from not working. You had a replacement of labor income with transfer income. And that allowed people to continue to consume, which in turn supported labor demand. You avoided, if you want, a negative feedback loop. The second potential benefit from a broader well-being perspective is that it allowed people to still maintain their consumption while not working, in a period when working—especially before the vaccines were here—could have been particularly dangerous for some vulnerable workers in high-contact sectors, or where people had to take care of children or the elderly. The opportunity cost of time off from working was presumably quite high for many individuals. Goldman Sachs Research signals that the form of labor support also partly explains why the labor supply in the U.S. has lagged behind some other countries. Can you explain why that is? Daan Struyven: Between the U.S. system, where you replace income through unemployment benefits, and the European system, where, essentially, workers stay on the payroll, but the government pays around 80% of your prior wage while you work not at all or work reduced hours, the one thing in common is that the two systems provide income replacement. The key difference is: do you maintain the relationship between the worker and the firm? In the U.S. case, people are unemployed and the relationship is at least temporarily broken. Whereas in Europe or other countries, for instance Japan or Australia, the relationship was intact. And so that meant when demand and activity rebounded, it was easier for workers to pick up the work at their employer where they were still on the payroll. In the U.S., if you’re not on the payroll anymore, it might make it harder to find a new job. The companies may have reorganized themselves. They may have invested in new technology. Empirically, we've found that the system where a lot of workers stay on the job-retention schemes is associated with better labor-force participation performance. Does the research indicate which system or policy—unemployment benefits versus job-retention systems—has been better for the economy overall? Daan Struyven: It’s still a bit early to tell. We’re starting to see signs that the U.S. labor-participation rate is rebounding. Some of the job retention schemes in Europe are still in place. You still don’t know what the full effects will be once those schemes end. At the moment, we're finding that job-retention schemes are associated with better labor-force participation performance. On the other hand, what we're also finding in the data is that labor-productivity growth in the U.S. has outperformed, perhaps because U.S. firms continue to produce a lot with a smaller number of workers. A second potential benefit is that if the post-pandemic economy looks structurally very different, with more jobs in some industries and fewer jobs in others, then there actually might be benefits to the U.S. system because you allow people to switch from old jobs to new jobs. There’s a potential reallocation benefit. Do you think the U.S. participation rate will get back to where it was before the pandemic, and if so, when do you think it will have recovered? Daan Struyven: We look for a partial rebound (see chart above), but we think the participation rate will remain structurally below its pre-pandemic trend in the U.S. The main reason is that job losses have likely triggered permanent exits from the labor force in the U.S., especially among workers who are near retirement age. But we do look for a partial rebound, as some of the factors I’ve mentioned that are now weighing on participation diminish in importance. The fiscal effect will probably diminish as some of the savings that people built up are partially depleted. The negative effect of virus fears on participation, that we also document here, will probably also diminish as hopefully the virus situation improves, especially after an omicron wave. 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