SMART MONEY

Addressing the climate crisis is going to involve money. A lot of money, commensurate with the scale of the problem. In this Talking Point, we’ll attempt to delineate financial factors associated with climate change in terms an English major can understand. For clear and continuing analysis, follow the financial media on our Resources page.

Simply put, tens of $Trillions are already shifting from where they have been for half a century to where they need to be: plugged in to the rapidly evolving clean-energy economy all over the world.

We say “Tens of $Trillions,” but who really knows exactly how much capital is at stake? As entire continental populations experience the reality of prolonged heatwaves, wildfires, drought, and floods, how can the health costs be captured? Who can calculate the price for future generations? What are the financial impacts of “climate refugees” moving from inhospitable areas of the world to find higher ground?

With each extreme-weather disaster comes the obligation for insurers, banks, and state & federal disaster relief — one map (below) depicts the 14 separate billion-dollar weather disasters in the United States in 2018. Hurricane Michael, one event in 2019, carried a price tag of $25 billion. Some neighborhoods and business are resilient, but others are hobbled or destroyed by a disaster on this scale.

The scientists say we can expect more of this.

Assets will have to be stranded, but the smart money is out in front, investing in clean energy and repurposing coal plants into something useful.

To complaints that bold #climate policy will cost too much, calmly mention that investment now will avoid even bigger recovery costs down the road. One federal agency calculates a return of six dollars in avoided losses for every dollar spent on resilience today.

Good news: the price of climate-smart investment is declining, thanks to plummeting cost of renewable-energy components, LED lighting, batteries, green building materials. For example, Bloomberg New Energy Finance has revised its forecast on electric-vehicle “crossover — i.e., the price of large EVs beating combustible engines — to 2022, ahead of previous forecasts. BNEF data says the EV battery cost for a U.S. medium-size car as a percentage of retail price is 33% this year. By 2022, it’s 25%. And by 2025, the battery will be only 20% of the consumer price. Cost dives like this one are occurring in virtually every related category. (Desalinization is an exception. Too bad. Wouldn’t it be great put the extra ice melt to good use.)

The most recent National Climate Assessment (NCA4) report, issued in November, 2018, emphasized the regional economic impacts of science-based projections. Agriculture and trade are the most vulnerable sectors, the report says, affecting a wide range of prices and availability for consumers.

Evan Greenberg, CEO of giant insurance company Chubb, referred to climate-related disasters as 'Biblical' in his annual letter to shareholders. In 2018, “insured losses estimated in the range of $80 billion, likely the fourth highest in 50 years. To me, as notable were the sheer number of natural events, which exceeded ’17’s total, the almost biblical range — wind, fire, flood, quake — and the diversity of places from which they originated — the U.S. (hurricanes, floods, wildfires and winter storms), Japan (typhoons and earthquakes) and Hong Kong, China and Australia (typhoons), to name a few.” He adds, "the failure of policy makers to address climate change is an existential threat.” Chubb has since announced eliminating coal-rated underwriting and investment.

Many cities are building resilience and planning adaptation. In New York, where large buildings are the greatest polluters, a new program targets emissions reductions of 26% by 2030. One city councilman described this in financial terms: a "downpayment on the future of New York City." Chicago leaders voted unanimously to transition the entire city to 100% renewable energy by 2035. As of April, 2019, the windy city is the largest in the U.S. to make this commitment, following St. Louis (where Burger King successfully piloted Impossible Burgers), Madison, Atlanta, and San Francisco. A consortium of 88 mayors of cities along the historically flooding Mississippi River is working together: “Climate change is like a herd of elephants in the room. It’s impossible to ignore,” says Mayor Colin Wellencamp, near St. Louis. Cities without such resources are top-of-mind to a rising tide of environmental-justice advocates; rural zones and native lands in harm’s way are at special risk.

Individually and collectively, people are having a measurable impact on communities and on business commitment to decarbonization. People want to work at/buy from companies that share their values. The Ceres BICEP network, founded by Nike, Levi Strauss & Co., Starbucks, Sun Microsystems and Timberland, is one of many coalitions proving the competitive edge derived from authentic climate goals.

More Big Money.

Attentive to the risks and opportunities presented by a warming planet, major financial players are becoming involved in the massive transition to a low-carbon global economy, although, according to the activists and .orgs that hold them accountable, not at the pace required. In addition to Ceres, check out the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFDs), Principles for Responsible Investment (PRI), funds like Breakthrough Energy Ventures; and the Science-Based Targets, a collaboration between the United Nations Global Compact (UNGC), the World Resources Institute (WRI), and one of the We Mean Business Coalition commitments.

Major financial institutions are already investing (but not enough, not expediently enough) in the clean-energy transition, seizing the opportunity for profit and/or responding to pressure from investors, employees, customers, partners — and the financial realities of climate change.

With the influence reserved for the world’s largest asset manager ($6.5T), and despite bona fide complaints of dissonance in the form of coal holdings, BlackRock issued a report on April 4, 2019, “Getting Physical: assessing climate risks.” Key findings include:

  1. Extreme weather events pose growing risks for the creditworthiness of state and local issuers in the $3.8 trillion U.S. municipal bond market. 

  2. Hurricane-force winds and flooding are key risks to commercial real estate. Analysis of recent hurricanes hitting Houston and Miami finds that roughly 80% of commercial properties lay outside official flood zones; i.e. they likely lack insurance coverage.

  3. Aging infrastructure leaves the U.S. electric utility sector exposed to climate shocks such as hurricanes and wildfires. U.S. public utility risk due to physical location, property, and equipment are underpriced.

Sources: BlackRock Investment Institute, with data from Rhodium Group, Verisk Maplecroft and U.S. Department of Energy, 2019. Notes: The chart plots the location of each U.S. electric power plant and is color coded according to BlackRock’s assessment of its climate exposure, according to the framework presented on page 17. For illustrative purposes only. Risk is expressed in standard deviations. A score of -3 (high climate risk) points to an exposure that is three standard deviations worse than the mean exposure of the plants in our study.

Sources: BlackRock Investment Institute, with data from Rhodium Group, Verisk Maplecroft and U.S. Department of Energy, 2019. Notes: The chart plots the location of each U.S. electric power plant and is color coded according to BlackRock’s assessment of its climate exposure, according to the framework presented on page 17. For illustrative purposes only. Risk is expressed in standard deviations. A score of -3 (high climate risk) points to an exposure that is three standard deviations worse than the mean exposure of the plants in our study.

Morgan Stanley issued “Sustainable Investing: A Priority for Corporates” the following week, noting that “of the top 50 asset managers globally, 90% are signatories to the United Nations’ Principles for Responsible Investment,” and strongly aligned with the Task Force on Climate-Related Financial Disclosures established by the Financial Stability Board, which is working with leading businesses to meet the recommendations of the 2015 Paris Agreement (click here for partial list of participating investors and corporates).

2018-billion-dollar-disaster-map.png

This new map from the National Oceanic & Atmospheric Administration (NOAA) shows 14 $Billion+ US weather/climate disasters in 2018. Finalized Feb. 2019; 4Q data delayed by government shutdown.

For many Americans, it’s a startling glimpse of the ongoing costs of climate change. According to experts like the IPCC and National Climate Assessment authors, these $$$$ costs are on schedule to go up, and not the other way around.

Sarah Finnie Robinson