Climate Change Poses a Broad Range of Threats to Investors
Here’s a podcast from Yale University pointing out how climate change poses risks to investors. Apparently, this is one of an ongoing series, which makes sense, given that there literally hundreds of ways in which investors are impacted by global warming and other forms of environmental degradation.
The principal idea here is that investors are suddenly unable to diversify their portfolios sufficiently to obviate losses from climate-related events, because there are few (if any) industries that are immune from these phenomena. Telecomm, e.g., is subject to weather-related outages; real estate faces sea-level rise; natural gas production must deal with methane leakages.
As much as I’m on-board with the basic tenets of the argument here, I need to point out that this whole discussion can spawn some specious reasoning. In a world with five billion cell phone accounts, how many are going to be rendered inactive in storms at any one time? Very few. What’s the total percentage of world methane production that is leaked in the process of fracking? It’s infinitesimally small (though it’s nonetheless a considerable contributor to greenhouse gas emissions).
It’s certainly true that real estate is going to take a huge hit in storm-impacted parts of the world. Think about the Caribbean islands for a second, and ask yourself what’s going to happen over the next 50 years; in particular, what will be the financial community’s response to the increased frequency and intensity of hurricanes?
The inescapable answer is that eventually, the pace of storm damage will get a point that no one with any sense will rebuild after a disaster, knowing that the next one is likely to come through even before the initial repairs are complete. Moreover, no one’s going to want to plan a vacation to a place that is likely to be sustaining Cat 5 winds when they show up with their suntan lotion and start looking around for their Mai Tais. These places will eventually have no more relevance (and monetary value) than Gilligan’s Island (a fictional “uncharted desert isle”).
All this having been said, this series of comments from the team at Yale will prove to be very interesting and important.
In the aggregate, it seems quite certain that more money will be lost due to our disruption of the climate than will be gained.
The difficulty lies in who sees that they will lose versus who sees that they will gain in the near term, and how much organized influence does each group presently exercise over power structures.
Oh, this is completely true. That’s the problem: the short-term opportunities are enormous.
Craig,
You paint a dismal picture but since we are at an age where none of us will be here in 50 years to determine the accuracy of your predictions.
In the meantime, I’m afraid no one seems to be listening to your gloomy predictions. People still flock to islands and coastal locations driving up the price of real estate.
My car is worth more than some houses in suburban Houston, now that it’s clear that certain neighborhoods will be underwater periodically due to climate-related flooding.