This year’s Climate Week in NYC is occurring at a particularly critical point in the global response to climate change.
Like many others, I’ve spent a lot of time reading about the devastation of Hurricanes Harvey and Irma and the outpouring of support and help for the victims. It is uplifting to see the human spirit of generosity and support playing out in the U.S. and Caribbean, but it’s worrying to see the also-human tendency to ignore or downplay known risks happening again.
There was a vignette in one news story that illustrates the point, about a family whose home was devastated in Hurricane Sandy. When the recovery became overwhelming, the family chose to move to Florida. To a city close to the Gulf Coast of Florida, in fact. There are few places more vulnerable to the effects of future storms than the coast of Florida.
How individuals go about assessing their own appetites for risk is their business. What institutional investors do is everyone’s business. Investors are paid to know what the risks of their investments are, and to be paid appropriately for taking those risks—and if the risk premiums are not sufficient, to avoid them.
Many of the things that happened in Texas and Florida were both predictable and predicted. Refineries shut down due to flooding, and contaminated waters? The Union of Concerned Scientists wrote a report in 2015 explaining how coastal refineries, particularly on the Eastern and Gulf coasts, are vulnerable to the impacts of storms as climate change contributes to increasing storm intensity, and sea levels rise. Recently, the U.S.’s largest oil refinery, and several others, were shut down in the wake of Harvey.
Similarly, we have long known that wetlands are nature’s sponges, and that while they may look like “stinky, mosquito-infested blots in need of drainage,” draining swamps is actually a way to increase vulnerability to the impact of storms. Quartz just published a good article explaining how development of wetlands increased Houston’s vulnerability to storm-induced flooding.
We also got a good lesson in how flooding of chemical plants can multiply the risks of contamination, something we already knew was likely after Hurricane Katrina. We also know that climate change is likely making extreme weather worse. Carbon Brief has a good (if sobering) report on the results of the new science of extreme event attribution, showing that nearly two-thirds of all extreme weather events studied were made more severe by climate change.
Moreover, these risks are exacerbated by rising seas, for any coastal area, and that’s been known for some time. The state of Florida published a report in 2010, Climate Change and Sea-Level Rise in Florida, which noted, “Even at today’s rate, sea-level rise is causing discernable effects in natural coastal ecosystems around Florida and presents everyday challenges to those responsible for maintaining drainage systems, recreational beaches, coastal highways, and emergency preparations. Stresses caused by today’s rate of sea-level rise are more pronounced in southern Florida than in the Panhandle; but as the rate of sea-level rise accelerates, nearly all of the state’s coastal ecosystems and infrastructure will be challenged as never before.”
These are risks we can anticipate—and that we have anticipated. Sure, you can take the term “climate change” off federal websites. You can pull the United States out of the Paris Agreement. But those things do nothing to address the facts of climate risk, and may make the risk worse if they reverse the new trend toward reduced emissions in the U.S.
Pretending that climate change doesn’t exist doesn’t threaten its actual existence.
Investors can’t afford that kind of willful ignorance. That is why so many investors—with over $100 trillion in assets–have signed on to the CDP, an effort to increase corporate disclosure of the risks of climate change, as well as other risks like deforestation and water scarcity. It is why some of the largest asset managers, like State Street, Vanguard and BlackRock have recently joined investors like Pax and Trillium and Domini and Green Century and Walden in incorporating climate change into proxy voting, and engage companies in our portfolios to assess climate risks and report to shareholders on how those risks are being managed.
Another thing that investors can do is what investors always do: look at opportunities as well as risks.
The risks that climate change presents are also, for those who know and anticipate them, long-term drivers of investment opportunity. One hundred ninety-four of the 195 nations that signed up to the Paris Agreement are still signatories – those nations, along with companies, states and municipalities in the U.S. who know that climate change is happening and needs mitigation are still driving a powerful force: the transition to a low-carbon economy. Onshore wind and solar energy in many places are already competitive with grid-produced, fossil-fuel fired electricity. Many nations have already served notice that the days of internal combustion engines are numbered. That means opportunity, and not only for solar power, wind turbines and electric cars. It also means opportunity in countless places we don’t really think about, but are also part of the transition, for example: using less energy to pump water for drinking, hygiene, industrial and agricultural use through myriad new water pumping, filtration, and treatment technologies. Those opportunities rest on the drivers for sustainability that we need to support an increasingly populous, resource-intensive, thirsty, and warming world. That’s the underlying theme of many funds, including the Pax Global Environmental Markets Fund.
We’re not moths, and climate change isn’t a flame. We don’t have to keep flying into danger.