An Investor’s Take on the National Climate Assessment
The following article was originally published on Forbes on 26 November 2018 — the Black Friday on which the Trump Administration stealthily published the National Climate Assessment — and is one of a series about climate change-focused investing opportunities.
The only way to build and maintain inter-generational wealth in the 21st Century will be by investing in a new paradigm.
Friday’s stealth release of the National Climate Assessment report underscores the message I have been delivering in this column regarding the need to prepare investment portfolios for climate change.
The Assessment’s Summary Findings are arranged in 12 brief bullet points, and I encourage people to read through themselves. From an economic / investment perspective, there are several sections that I found particularly eye-opening and want to call out.
Assessment Quote #1
…[C]limate change is expected to cause growing losses to American infrastructure and property and impede the rate of economic growth over this century.
This is the effect that I wrote about in my article The Biggest Financial Story of Our Lifetimes. In general, well-established companies in stable industries do not need much capital to maintain their businesses as going concerns. Capital left over after “maintenance capex” is spent can be used to expand the business — developing new products, opening new storefronts, and the like.
What the Assessment is telling us in the phrase “…impeded the rate of economic growth…” is that companies will have to spend more capital to simply maintain their businesses as the effects of climate change become more severe. For instance, coastal warehouses and distribution facilities will need to be protected, rebuilt, or relocated merely to allow the companies to continue to operate without interruption. At that point, capital spending will be more akin to treading water than to swimming.
Assessment Quote #2
The quality and quantity of water available for use by people and ecosystems across the country are being affected by climate change, increasing risks and costs to agriculture, energy production, industry, recreation, and the environment.
U.S. farming methods are extremely water-intensive, and the recent period of drought in California mentioned in my last article on this topic uncovered tensions between lawn-watering citizens and agricultural interests in the Golden State. Less discussed, but no less serious are tensions between High Plains farmers and frackers — both of which groups are attempting to draw from a rapidly depleting and slowly recharging Ogallala aquifer.
(We have an article in the works that offers an example of farming technology that is much more efficient in water use…stay tuned for that!)
Assessment Quote #3
Rising temperatures, extreme heat, drought, wildfire on rangelands, and heavy downpours are expected to increasingly disrupt agricultural productivity in the United States. Expected increases in challenges to livestock health, declines in crop yields and quality, and changes in extreme events in the United States and abroad threaten rural livelihoods, sustainable food security, and price stability.
I spent some time writing about agricultural issues in my article AgTech: A Great Investment For The Future and will have more to say on that topic later this week. Suffice it to say that the farming paradigm developed and perfected with the help of petroleum-based fertilizers and heavy pesticide use is mathematically unsustainable.
Have you ever seen videos of people trampling one another on Black Friday to be the first to get their hands on a new Blu-Ray player or flat-screen TV? An electronic toy, while undoubtedly cool, is a nice-to-have, not a necessity. To place the phrase “…sustainable food security…” mentioned in the Assessment in context, it means that consumers do not have to endure Black Friday tramples just to put food on their families’ tables.
Assessment Quote #4
Without adaptation, climate change will continue to degrade infrastructure performance over the rest of the century, with the potential for cascading impacts that threaten our economy, national security, essential services, and health and well-being.
You can read through my article Two Tales of One City: The St. Joe Company to see an example of this effect — being played out in the investing world today. Property owners on certain parts of the Jersey shore will likely need less convincing on this point.
The Earth’s climate is in the process of change and our atmosphere and oceans are warming — one foot of snow on my driveway this morning not withstanding. Firms in the U.S. and across the globe have already felt the damaging effects; the snippets I’ve mentioned in this article are only the tip of a rapidly expanding iceberg.
Physical scientists — climatologists, physicists, and the like — believe there is still time to act to prevent or ameliorate the damaging effects of climate change on our civilization.
This applied social scientist knows that — human nature being what it is — there is no way to develop the political consensus necessary to prevent the change. Humans are good at handling immediate crises, but much less psychologically well-equipped to responding to slow-moving (should I say “glacial”?) events.
However, I am not a pessimist. I know that humans are the most adaptable species on the face of the earth and that our inventiveness will allow our civilization to adapt to the paradigm-shifting change that is upon us.
The first step is to recognize the threat. The second step is to invest in ways to allow us to survive and thrive. Intelligent investors have moved to step two.