Financial Times: Climate Crisis Carries Unknown Cost

The notoriously level-headed Financial Times, an international broadsheet daily newspaper with a special emphasis on business and economic news, writes as follows about the ramifications of climate change, based partially on last summer’s heat wave in Europe:

Hot enough for EU? The worst is yet to come. This week, temperatures in Europe reached record levels. But if you want another reason to sweat, ponder this question: have investors priced the cost of climate change? The geeks at McKinsey think the answer is “no”. The management consultancy is not usually considered to be a bastion of “green”. But it is now using oodles of research dollars to assess what climate change will mean for specific finance and business niches.  And while the conclusions will not emerge until later this year, Dickon Pinner, McKinsey sustainability head, gave a preview at the Aspen Ideas Festival. It is alarming: McKinsey projects that climate change is now so entrenched that Europe’s current heatwave will soon be the norm, not an exception. This will create big winners and losers in business, potentially sparking a significant repricing of corporate assets.  It could also cause value shifts in the sovereign and municipal bond markets, since some countries and regions will struggle to cope with climate change on limited taxpayer resources. (How can you price a 30-year Spanish government bond if Spain is afflicted by drought in a decade? Or a 30-year bond from Florida, if the state is beset by floods and hurricanes, with no income tax?)

There are so many ways in which our failure to address climate change is wrong.

It is very clear that allowing the unprecedented human misery that will derive from droughts, floods, and displacement has a huge moral component.  But here, the Financial Times has pointed out a purely practical issue, i.e., the unknown nature of the not-so-distant future will soon be confounding financial markets in a way never before experienced.

As we’ve mentioned here so often, spending a few dollars here and now will eliminate the need to spend a mint somewhere down the road.