I had the opportunity to interview a friend and CEO of a very successful hedge fund about climate change. The names remain confidential.
How did you learn about climate change?
Our firm has learned to discern specific future trends before others, that is our business. The energy efficiency and solar revolutions are old for us. These are parts of climate abatement, and we have shifted our portfolios accordingly. Even big oil is using solar to do fracking. Ecologists must hate that renewables are being used for producing more oil. It is a free country. Several long-term trends are clear: more electric uses of everything, big data, and automation. Even part of my job will go, not the wealth and power, but big data and robots already achieve the investment analysis. We love them, they cut costs and don’t ask for raises: never a better time for a capitalist.
You believe that climate warming may be coming and are changing your portfolios accordingly. Do you take any other company or personal measures?
Everybody knows it’s happening, except Trump, but few of us feel that we will be affected individually. The point is that even with 4 degrees hotter climate, I turn up my air conditioners: what is the problem? A few storms and fires: my grounds have special sprinklers. Moreover, we use helicopters to get around. So even if the climatologists are correct, I am okay.
Seeing the Southwest USA become semiarid would not hurt? What about more storms like Sandy in New York and elsewhere?
I have friends and investments there, and yes, I would prefer to avoid it (at a reasonable cost). Also, I agree that productivity will likely fall with the heat and abnormal weather events and possible migration. I know, a smart capitalist hedges his bets, but how do we do it alone? The only real insurance is to leave the climate abatement window open (IPCC October 2018), so that we can still do enough later, hopefully avoiding a big worst-case scenario.
The rub is that if you believe our scientists that window is rapidly closing.
I am aware of that. So I do believe in science and technology, my career is based upon it.
So what if the costs of avoiding excessive climate warming are less than all the damage?
That is also probably true and is very troubling to me, but it is a political decision, not one that business alone can make.
However, can we afford to be collectively stupid?
No, of course not. My business is anticipating trends. I used to think that global warming was developing gradually, and thus, the solutions can be gradual. I see that this trend is not happening. I realize global warming is non-linear due to the accumulation of carbon dioxide in the atmosphere and several additional contributors such as increasing water vapor and less light being reflected into space due to the melting ice mass. These trends are exponential. You have to believe in our best climatologists and scientists and their institutions worldwide. It is ridiculous to believe in science selectively. The sooner we seriously tackle the problem, the better. That said, in the States, we have no stable governmental framework in which to work. It is not an easy problem for the market place to solve with such long payback periods before we get back to a normal climate.
What about business leadership?
I knew this was not going to be an easy interview. The fossil fuel industry is threatened. Also, the leaders are not completely honest: "Burning fossil fuel cools the planet, like smoking tobacco, was healthy." However, it is a vast industry, with about 1,500 listed firms on stock exchanges and a global net worth of four trillion dollars. In the US, the S&P500 energy companies comprise 5.3% of the total, plus utilities that add another 3.3%. Besides, we will need oil and gas, in diminishing proportions, for many years. They are at a turning point, and something has to be done to help them make the transition. By the way, I do not see a high percentage of solar electricity without the help of new nuclear.
Now I am going out on a limb: the real issue is the future of our market system. Adaptability is one of the essential characteristics of capitalism in our democratic society. Through the government, we exercise the regulation of monopoly, banks, interest rates, product standards, public safety, pharmaceutical approval, and trade. Moreover, this is continually being revised and improved. Capitalism thrives and adapts through economic and political symbiosis.
However, traditional capitalism seems to be marching toward the destruction of the planet! What do you advocate?
Government should help take away the major obstacles. Everything that helps us get-off fossil fuels and assists that industry in making the transition. We can try revenue-neutral carbon taxes, but it may be complicated. There is no silver bullet. One of the few areas that we get a rapid return is investing in energy efficiency. We should 'nudge' households, industry and the transportation to make these investments. Most of our public incentives in the next decade should go here. The financial sector has to build more climate improving investment vehicles, such as that of green bonds. Public and private research is essential for solar energy sources, carbon removal, low cost small nuclear, new energy efficiency, and even fusion. All of this means big money, maybe two or three percent of GDP.
Are we entering into a new normal of economic growth?
An excellent question, you have read some of my work. Yes, we may be entering into a “new normal of selective growth." Of course, this is not uniform; poorer countries and populations require essential health, housing, and educational needs to be met, and thus more growth. Instead, for the mature economies, it is a different matter. We have been too tied to the traditional growth model emphasizing physical goods. In the future, we will be sharing more, recycling more, re-utilizing more, de-materializing more, using local economies more, and hopefully transporting less. We will be shifting to more services, and particularly those that facilitate relational well being, such as Facebook potentially does. Look at the new sharing economy; consumers are waking up.
What about income and wealth inequality?
The lack of income growth among the bottom 60 percent of the population has led to a loss of hope and belief in the American dream. This is dangerous politically and socially, causing more opiate abuse and suicides. Wealth and income have to grow more equally, or we face rejection of the system.