Profiting from Climate Change
A recent Bloomberg View (2/24/14) headline reads, "Profit From Global Warming or Get Left Behind." In his new book, WINDFALL (New York: Penguin, 2014), veteran journalist McKenzie Funk traveled the globe for six years, following the money in twenty-four countries to profile "hundreds of people who felt climate change would make them rich."
In a separate interview, Funk notes that "on Wall Street you no longer get a lot of climate denial." Largely indifferent to the causes of climate change, his respondents decided early on that investing in green technology was a losing proposition. Instead "the warmer the world, the less habitable it became, the bigger the windfall."
In 2008, Royal Dutch Shell developed two sophisticated climate-risk scenarios called Blueprints and Scramble. The first modeled a greener future while the latter predicted – due to government inaction – a future of droughts, floods, heat waves and super storms. By 2012, Shell executives confided to Funk "We've gone to Scramble. This is a Scramble kind of world. This is what we're doing." Another Shell official opined "I will be one of those persons cheering for an endless summer in Alaska."
The author's message is that in the short term, there will be definite winners and losers because ecological catastrophe is "...not necessarily a financial catastrophe for everyone." And while readers of this newspaper will temporarily avoid the most dire consequences of globing warming, upwards of one billion other human beings won't be spared.
During this interim period, the phrase 'a rising tide will lift all yachts' is more than a metaphor:
- Many people consider water a necessity, a basic human right, but investment advisers and their well-heeled clients view water as blue gold, the "petroleum of the next century" whose value as an asset class will surpass all other physical commodities. Money is pouring into "hydrocommerce" including water rights and water asset hedge funds.
- ARCADIS, a Dutch engineering firm offering flood protection saw its revenues jump 26 percent in 2013. For $8 billion, they will wall off Manhattan from the next Sandy.
- AIG's private fire fighters will race to cover palatial estates in the Los Angeles suburbs with special flame retardant material while less well-heeled citizens watch their homes burn to the ground.
- Barney Schauble of Nephia, a huge hedge fund, is certain that "more volatile weather creates more risk and more appetite to protect against that risk," hence the introduction of something called "weather derivatives."
- A London-based investor is pouring money into Russian farmland and global supermarket chains because climate change's droughts, fires, desertification and flooding will adversely affect crop yields. As another analyst puts it, "People will always pay to keep eating."
- One fund manager, bullish on reinsurance companies, confidently told Funk that flooding caused by climate change allows for higher premiums so "hurricane season is actually quite a positive thing."
- Although not mentioned in this book, Senator James Inhofe (R. Okla) wants to funnel even more money toward Wall Street via "Disaster Savings Accounts," whereby wealthy individuals can obtain $5,000 tax breaks to mitigate extreme weather events. Extending political chutzpah to its outer limits, Inhofe recently authored The Greatest Hoax, a book claiming that global warming is a massive conspiracy designed to increase government regulation.
- A warmer world means the expansion of dengue fever beyond the tropical zones. The solution? Britain's Oxitec Corporation foresees a patented product to counter the mosquito-born disease as a surefire money maker.
- Perhaps more ominous, rising sea levels make Bangladesh "ground zero" for climate change. India's response is a 2100 mile, floodlit, electrified barrier, the "fence of shame," erected to prevent some twenty-five million Bangladeshi climate refugees from crossing the border when one-fifth of their county is under water.
- I anticipate university level Environmental Finance Centers to shift from environmental protection to favorably position graduates to to take advantage of the looming ecological crisis.
Funk is curiously nonjudgmental about his interview subjects, preferring to view them as good people "according to their own belief system," who only act out of perceived self-interest. He allows that "We can't trust capitalism to fix this" but asserts there's “nothing fundamentally wrong with profiting from disaster" and frets that readers might unfairly vilify businessmen.
In one narrow sense he's correct in that the system's internal but fatally flawed logic is responsible. Any CEO who allowed climate justice considerations to enter his or her decisions would quickly be replaced by someone more attuned to the bottom line.
In an earlier opinion piece, I characterized many otherwise caring folks who truly worry about the earth's survival as "capitalism deniers" because of their unwillingness to utter the "C" word. This, despite the fact that blame for environmental degradation lies squarely with our growth-and-profit-at-any-cost economic system. The system's apologists exist within and outside government and they will never be the solution.
The rest of us must draw the obvious conclusions and act accordingly within the tenuous time frame that remains.
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