environment


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“Investors’ personal views on climate science are irrelevant.

Enough governments and businesses are convinced by the scientific consensus that the threat is real, and are driving regulatory and technological changes that are reshaping the investment landscape. You may not be interested in the climate, but you can be sure the climate is interested in you.” — Financial Times

Our changing climate is having real-world effects.*

Miami Beach, Florida, is experiencing increased flooding as a result of rising sea levels. All along the Eastern Seaboard in the United States, cities, towns — even naval bases— are battling an array of problems caused by increased coastal flooding and encroaching tides. Indeed, some scientists speculate that Manhattan — an island, by the way — could at some point find itself under water.

The global climate has always been in flux. But historically changes have taken centuries, even millennia, to manifest themselves. We have not, as yet, ever confronted the sort of severe shift that current climatological models suggest may lay in store.

Investment managers need to be evidence-based, and the evidence is now very clear:

“’Once impacts become noticeable, they’re going to be upon you quickly,’ said William V. Sweet, a scientist with the National Oceanic and Atmospheric Administration, who is among the leaders in research on coastal inundation. ‘It’s not a hundred years off — it’s now.’”

Academic finance has started to research the issue. In “Price of Long-Run Temperature Shifts in Capital Markets,” Ravi Bansal, Dana Kiku, and Marcelo Ochoa examine the social costs of carbon emissions. They note that “temperature risks have a significant negative effect on wealth.” Each of the US equity portfolios they examine had a negative exposure, or beta, to long-run temperature fluctuations. This implies a rising risk-free rate and an equity-risk premium.

Many institutional investors now adjust for environmental, social, and governance (ESG) factors, and Morningstar recently began publishing ESG grades for the 20,000-plus funds it covers. While climate change is included among the 20-plus factors Morningstar grades, the phenomenon warrants a category of its own.

BlackRock has also conducted climate change research. In “The Price of Climate Change: Global Warming’s Impact on Portfolios,” the authors discuss the potential influence changing carbon regulation could have on various industries. They note that the insurance sector has already begun to incorporate rising global temperatures into its pricing models. For the larger investment industry, however, the threat of global warming has yet to hit home:

“Most industries lag insurers when it comes to properly accounting for and pricing risks of climate-related events. Many equity investors ignore climate risk, and credit investors and ratings agencies do not routinely assess it. Property markets often ignore extreme weather risk, even in highly exposed coastal areas. Most asset owners do not measure their exposure to potentially stranded assets such as high-cost fossil fuel reserves that may have to be written off if their use is impaired by climate change regulation.”

BlackRock asserts that these effects are not currently priced, but will be very soon. Proactive investors should anticipate that. This is not to say that climate change’s impact will be uniformly bad. As with any wrenching change, there will also be opportunities along the way. Just as investors in fossil fuel-dependent companies must weigh the risks, investors in alternative energy or mitigation services companies could very well profit.

Though global warming could have devastating consequences worldwide, it does not mean investors should concentrate investments in landlocked, temperate nations. It does require that we carefully consider the phenomenon’s potential long-term effects. No part of the planet is immune and some regions will be more affected than others.

The real reason to diversify globally is not to avoid or mitigate short-term market blips, but rather to protect against economic catastrophes concentrated in our home markets,Clifford S. Asness, Roni Israelov, and John M. Liew observe. Investors should be especially mindful of this when it comes to climate change.

The environment’s margin of safety is narrowing with each uptick in global temperatures. This will translate into greater effects on investor portfolios. It is the job of the investment manager to cushion against those risks while still seeking profitable opportunities.

I posed the following question in a recent blog post: “What idea in finance today, that we hold to be true, will seem laughable in 100 years?”

In a century’s time, it may very well be laughable that we did not take the risks of global warming more seriously when considering our investments.

 

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Fits in nicely with an assignment that I am trying to complete in Environmental Law.

 

It has not only been a waste of money, it has done real harm. Some trillions of hard-earned taxpayer dollars have been spent to combat global warming over the last three decades. Has the expenditure of all of this money reduced global temperatures from where they would have otherwise been? No, at least not to a measurable degree. The major governments of the world have undertaken a public policy which to date has cost far more than any benefits. The rebuttal by the advocates of all of this government spending is to say it is nothing more than a down payment on what needs to be done and the benefits will accrue to future generations.

Earlier this month, British scientist Valentina Zharkova and her team at Northumbria University in the United Kingdom, using a new model, predicted that a coming periodic reduction in the sun’s radiation will soon lead to major global cooling. For many decades, it has been known that a decrease in sun spot activity is associated with lower temperatures. Ms. Zharkova argues that we will soon enter a new “Maunder Minimum,” which refers to the period from 1645 to 1715 when the sun’s surface ceased producing its heat-releasing magnetic storms. This period coincided with the Little Ice Age — a time of much cooler temperatures and crop failures. A number of other respected scientists have also argued that changes in solar output are more important than changes in carbon dioxide in regulating the earth’s temperature. During the last couple of weeks, since the release of the new study, the debate has been quite fierce between those who believe that solar changes trump carbon dioxide and vice versa. Remember, “climate science” is not a unified field of study like quantum physics, but a combination of many different disciplines from the people who study tree rings, ice cores, atmospheric gases, cloud science or solar output.

One climate scientist, commenting on the debate, observed that mankind might luck out with the heat-trapping effects of carbon dioxide, offsetting the temperature decline coming from the expected solar minimum. It may be that the solar folks are right, or the carbon dioxide folks are right or that neither is right.

What do we know? We know that extreme global warming doomsayers, like Michael Mann (of “hockey stick” fame), were telling world leaders if they did not make massive changes in carbon-dioxide emissions by 2002 — that it would be too late. Despite the fact that it is now “too late,” Mr. Mann and others are still preaching the same old gospel — and I expect they will continue to do so until the government grants and other monies run out. We do know that those like Al Gore, who told us that Arctic sea ice would be gone by now and that Antarctica ice would be greatly diminished, were wrong (ships still cannot sail the Arctic Ocean and Antarctica ice is now covering a record amount since the measurements were first taken). We do know that not one of the climate change models predicted the 16-year pause in rising temperatures and all of them overstated the rise in temperature that did occur. We do know that rise in carbon dioxide to date has been largely beneficial, with the earth getting greener (carbon dioxide is plant fertilizer).

What we also know is the trillions spent on global warming mitigation schemes slowed real economic growth through higher energy prices and taxes worldwide, particularly in Europe and to a lesser extent in America, thus leaving millions more people in poverty, without jobs and economic opportunity. The beneficiaries of all this spending were the crony capitalists of the ruling class, including all of the researchers who have been funded to “prove” global warming is a massive immediate threat, caused by humans, and that humans have the tools at hand to stop it. If your research happens to show something else, you are immediately attacked, not in a calm, objective manner, but in a rather vicious manner, as Professor Zharkova has found in the last couple of weeks. The scientific and political establishment has a vested interest in silencing the sun output theorists, because if they are right, many others’ funding and pride are at risk.

What is clear is that much is still unknown — let alone how to stop the newly labeled “climate change.” From the end of the Little Ice Age, temperatures and sea levels have been gradually rising, and mankind has been dealing with it quite well through adaptation. Old structures and piers are replaced as they wear out with stronger and higher structures. Air conditioning is invented. And all of this happens almost automatically without anyone noticing.

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While I live down by the South Pole, this photo comes to you from the North Pole, where it’s starting to get chilly, just as we down under warm up for summer.

Well from this data, the biofuel that should be aggressively developed is Algae. It’s the winner on every metric, and not by just a narrow margin.

So which biofuel is attracting major government funding. Of course, Corn based Ethanol. Sometimes you really wonder what passes through the grey matter of those in charge. Or are they simply so corrupt that they simply couldn’t careless.

Why have huge tarrifs on sugar ethanol, huge subsidies to corn ethanol? Why not, zero tarrifs on sugar ethanol, zero subsidies on corn ethanol, redirecting subsidy dollars to research and development of Algae?

After Friday’s close, we headed into town for coffee and breakfast, where we were also meeting some friends.

My pal is heavily involved within ecological matters here in New Zealand. I put a couple questions to him in regards to eliciting information that might indicate or influence the fundamentals of fertlizer common stocks.

In essence, soil has a very diverse ecology, consisting of animal, mineral, gaseous components. The soil will have greater or lesser quantities contained within it consistent with local geographic/geological factors and factors attributable to man.

When this soil is utilised for growing product, grains etc, the ecology is altered. The alteration might be so severe as to become a limiting factor. When this is the case, crop yields will drop.

In many cases, the limiting factor has been replaceable by fertilizer, nitrogen etc. In the early stages, crop yields will increase. As an example crop yields in Mexico initially increased four-fold, but then, dropped to only two-fold, then dropped to par, then dropped to a discount.

What had happened was that the initial limiting factor, say nitrogen, had been corrected by the application of a fertilizer, but as successive crops were planted and harvested, a secondary limiting factor became optimised. Thus, yields again dropped as this factor became increasingly dominant due to excessive planting.

Thus, the agricultural boom may have significant legs. The boom in current generation products as marketed by POT and others however will be subject to significant diminishing returns, unless new products can be developed to maintain sales.

Some interesting area’s;

*microrhizal based products [innoculation with fungi]
*genetic engineering [already under significant research]

It would seem, unfortunately that the solution to one problem, that of returning vital nutrients to the soil [nitrogen] via fertlizer, creates another problem. In this case, the growth of algae that threaten the ocean eco-systems.

China and India are massive users. China already has an environmental crisis through various forms of pollution. It would seem that by creating the soil damage via pollution, they need to create further environmental damage to offset the former.