Stormy Science, Rocky Investments

Scientists around the world, most notably the Intergovernmental Panel on Climate Change (IPCC), have issued major reports this year with one core message:  Climate disruption is here.  Our temperature is predicted to rise anywhere from one to four degrees this century, bringing about devastating changes. Droughts, floods and extreme weather present risks that will impact American families, businesses and habitats.

 

But should the call be for mitigation, or adaptation?  Should winemakers be pulling up stakes and moving northward? Should corn growers emigrate to Canada? Or should we be putting more resources toward reducing our carbon use and trying to reverse the thermometer’s trajectory?

 

As a conduit between the scientific community and the insurance industry, Steve Bennett of Verisk Climate helps his clients understand the risks of climate change, such as major storm events. As every homeowner knows, a hailstorm can wreak havoc on one’s roof. “What's the risk of hail in Kansas City versus Dallas versus San Francisco?” Bennett asks. “We actually have real-time data we can present to the insurance company and help them understand…what houses, what policy holder should they call?”

 

And that same information can benefit businesses all down the supply chain, from contractors to roofers to shingle makers. “[It] helps these companies understand generally where they might need to be in any given year…they can respond immediately following an event, based on the same underlying technology.”

 

Rebecca Shaw of the Environmental Defense Fund, who worked on the recent IPCC report, sees a global attitude shift towards adaptation. As an example, she cites California’s water-thirsty, site-specific wine industry.  “As climate shifts, there will be some places where wine grapes are grown today that won't be suitable in the future,” she says.  A move north may be imminent, and some growers are already doing that.

 

Watching the weather is nothing new to farmers, and even a slight change in temperature can have devastating effects on corn yield and prices.  Technology offers some answers, from genetic modification of seeds to tractors that monitor the health of crops. But as competition for resources heats up between agribusiness, communities and wildlife, sacrifices may be in order for the long term. “We're really going to have to think about what we're going to grow here,” says Shaw.  “Some crops are going to be less viable because water will be more scarce in the future.”

 

In the second half of the program, host Greg Dalton spoke with experts from the financial industry about changes on Wall Street wrought by the threat of climate change.  Will market pressure convince fossil fuel companies and utilities to alter their business practices? Does shareholder pressure – or divestiture – have an impact?  And while “green investing” is arguably a noble idea, does it make financial sense?

 

Lisa Goldberg of the Aperio group sees a market newly attuned to climate risks. “We've been hearing about climate risk in terms of agriculture and so on, transportation problems for a very long time.  But in terms of its impact on economic markets, I think that it's just really now coming to the consciousness of mainstream investors.”

 

Andrew Behar of As You Sow agrees. “I think what we're seeing is that the financial markets are really starting to understand that there is a lot of risk on the fossil fuel side, and there's a great deal of opportunity on building clean energy infrastructure.”

 

Morgan Stanley portfolio manager Josh Schein says that ten years ago, there was scant opportunity in green stocks. Things are different now.  “There's more to work with. I do have options.  There are things I can do besides fossil fuels which is gratifying, so it definitely has my attention.”

 

But ultimately, there’s the bottom line. “I don’t necessarily want to put 10% of the portfolio into solar,” he admits. “It’s too risky.   I’m being paid to represent clients on Wall Street, not Washington.  And part of me wants to do a better job, so I’ll try to fit the solar into it, but it’s a struggle.”

 

What about shareholder pressure – does it work? Or is divestiture a better tool?  Behar has seen results from both sides.  A recent public statement by Exxon in opposition to the IPCC’s report puts that company squarely under the microscope. “Wall Street looks at that really carefully, when Exxon is over here and IPCC 5 is over here, and Exxon says, “No risk,” says Behar. “It really helps Wall Street to look at Exxon and say, “Lots of risk.  We need to really assess this.

 

“Just having that conversation publicly is a huge step,” he concluded. “I think it’s a real milestone.”