Since there seems to be resistance from our conservative US voting partners regarding full realization around climate change and its sister term that cannot be spoken – global warming – I thought I would try to get their attention talking about their money. Last year, Mercer, one of the largest investment consultants to corporate and public trusteed assets for pension, 401(k) and non-US capital accumulation plans, partnered with 14 global institutional investors (CalPERS, Ontario Municipal Employees Retirement System, Norwegian Ministry of Finance, Government of Singapore Investment corporation, to name a few) to conduct a study on the investment portfolio risk of climate change. The Mercer led study is entitled “Climate Change Scenarios – Implications for Strategic Asset Allocation” and can be found on at http://www.mercer.com/climatechange.
Some of the key findings of the study show that by 2030:
- Climate change increases uncertainty for long term institutional investors and as such, needs to be pro-actively managed.
- Investment opportunities in low carbon technologies could reach $5 trillion.
- The cost of impacts on the physical environment, health and food security could exceed $4 trillion.
- Climate change related policy changes could increase the cost of carbon emissions by as much as $8 trillion.
- Increasing allocation to “climate sensitive” assets will help to mitigate risks and capture new opportunities.
- Engagement with policy makers is crucial for institutional investors to pro-actively manage the potential costs of delayed and poorly coordinated climate policy action.
- Policy developments at the country level will produce new investment opportunities as well as risks that need to be constantly monitored.
- The EU and China/ East Asia are set to lead investment in low carbon technology and efficiency improvements over the coming decades.
According to Rachel Kyte, Vice President of IFC, one of the study sponsors, “That climate change poses significant financial and economic risks has only been accentuated by the tens of billions of dollars in losses due to recent climate related natural disasters such as the floods in Australia and Pakistan and the wildfires in Russia.” Since that study, we have had extreme floods, droughts and wildfires in other parts of the world, including the US.
This study can easily stand alone, given its approach, concerns and sponsors. Yet, to embellish it further, in earlier posts I have noted Warren Buffett and China’s huge investments in solar energy, General Electric’s increasing manufacturing of wind turbines, the new Risk Management program on climate change established by Georgia State University, one of the largest risk management universities in the US, and the assessment of Marsh, the world’s largest insurance broker, who noted that climate change risk is one the greatest risks facing businesses and governments.
In the US, we need to begin active long-range planning with all concerned parties. The fact the EU and Asia-Pacific regions are leading the charge is telling. We cannot have one of the major US political parties not advocating publicly what they know privately. They are doing a disservice to their voters, country and planet. We need to move stridently away from environmentally caustic approaches that are continuously invested in. Fracking is an environmental powder-keg and drains too much water from our dear supply for the value it brings. Deep sea drilling scares many as the BP/ Horizon disaster is only one of many tenuous sites out there and the Gulf of Mexico is seeing continued impact with that spill. And, sitting in North Carolina, the GOP led legislature’s refusal to accept a peer-reviewed and revalidated scientific paper on sea rise by 2100 which notes the sea will rise by 39 inches is mind-boggling. This paper is consistent with those developed in Maine, Virginia, Louisiana and other states. I mention Virginia due to their proximity to NC.
So, here is the bottom line. The cost of failing to plan ahead (in fact, it is already to late to say ahead) is staggering and will impact your investments in a huge way. Not to mention, the impact it will have on your life. I half-jokingly mentioned that post-apocalyptic games our kids play always speak of a nuclear disaster. The more likely candidate for causing this will be climate change as our planet heats up and hurts our food and water supply, the toxic chemicals in the land, air and water brew some more, and the sea consumes key port cities such as Norfolk, Galveston, etc. The scientists note the rising sea level is like elevating a basketball court. The storms coming ashore will find it easier to dunk a basketball as a metaphor for wreaking more havoc.
So, we need the GOP leaders to admit what they already know and join the rest of the planet in trying to plan ahead. Newt Gingrich was right when he did the commercial with Nancy Pelosi saying he was wrong before. That was before his later denial when running for office, which is indicative of how uninformed voters are. Global warming is occurring and we need to act now in a concerted way. If we don’t, we will be affecting all of our lives and our money, too. That would be sad on both counts.