Fewer, Richer, Greener: The End of the Population Explosion and the Future for Investors (November/December 2012, Vol. 68, No. 6: 20–37), by Mr. Laurence B. Siegel provides us with a commentary of population explosion and green investment opportunities over the long-run.
In the investment advice portion of Fewer, Richer, Greener: The End of the Population Explosion and the Future for Investors, I would like to draw attention to the comments written by Mr. Siegel. He suggests that institutional investors seek out investments in the following supply chains:
- Food, and associated inputs or “ingredients”
- Water quality management and delivery systems for clean water
- Energy, including clean energy
- Minerals and other basic materials, similar to what was discussed about previously on Mongabay.com in the article Mr. Jeremy Grantham and Extreme Weather and The Financial Markets: Opportunities in Commodities and Futures
- Environmental quality, which Mr. Siegel describes as “a luxury the world can finally afford”
I appreciate Mr. Siegel’s point of view in this article. I think it is especially important as Fewer, Richer, Greener: The End of the Population Explosion and the Future for Investors is one of the first articles in a peer-review financial journal to address, if only on the margins, financial mechanisms to mitigate climate change, catastrophic biodiversity loss, and water quality degradation. This ecological triple threat – nutrient cycling of which climate change is only one portion, biodiversity loss, and water quality degradation – are the significant ecological challenges of the 21st Century.
Mr. Siegel’s asserts in Fewer, Richer, Greener: The End of the Population Explosion and the Future for Investors:
According to the Natural Resources Defense Council, a global warming “hawk,” the all-in cost of global warming is projected to be 3.6% of GDP on an ongoing basis.22 At the historical per capital GDP growth rate of 1.8%, this scenario calls for GDP projections to be realized two years later than otherwise. At the 1% growth rate that is a likelier outcome for the most highly developed economies, GDP projections would be realized three and a half years later than otherwise. This result would be unfortunate but far from catastrophic, delaying GDP attainment by about as much as the 2007–09 recession did.23
His statement demonstrates the significant communication gap between those of us who work as scientists and those of us who work in institutional funds management. For example, in the Ceres report, Stormy Future for U.S. Property and Casualty Insurers: The Growing Costs and Risks of Extreme Weather Events (free), written before Superstorm Sandy occurred, Ceres states:
- Since 1990, total government exposure to losses in hurricane-exposed states has risen more than 15-fold to $885 billion in 2011.
- 2011 estimated $44 billion of insured catastrophe and extreme weather losses in the US.
- 2005 experienced approximately $60 billion of insured catastrophe and extreme weather losses in the US.
Further, according to accounts in the popular press, 2012 will experience roughly $60 billion or more of insured catastrophe and extreme weather losses in the US. All these figures account only for US-based weather events.
In fact according to Munich Re, in their recently published Severe weather in North America: Perils · Risks · Insurance (free), Munich Re states:
- Nowhere in the world is the rising number of annual natural catastrophes more evident than in North America. This increase is entirely attributable to weather events.
- 1980-2011 – during which losses totaled just over $1 trillion.
- The number of natural catastrophes per year has been rising dramatically on all continents since 1980, but the trend is steepest for North America.
So again as we reexamine Mr. Siegel’s article, should we not encourage rapid investment in climate change mitigation technologies, processes, activities and programs so we do not repeat the “$1 trillion losses from 1980-2011”? This assumes that, inaccurately, that historical data from 1980-2011 represents future results, which is of course significantly understated according to climate change projections.
If the “environment is a luxury we can finally afford.” how did we live previously? As climate and natural resource scientists, we know a functioning environment with clean inputs and well-maintained processes may deliver outputs of clean water, healthy food, effective nutrient cycling, and biodiversity enhancement. Instead I would rather assert that “because of a functioning environment” we can therefore “afford luxuries” such as nitrogen fertilizer to enhance food production so we can feed our Earth’s population.
To conclude, the financial risks of not mitigating climate change are significant. This is well-described in Stormy Future for U.S. Property and Casualty Insurers: The Growing Costs and Risks of Extreme Weather Events and Severe weather in North America: Perils · Risks · Insurance. In conclusion, mitigating climate change finance today is an economic issue of securing, maintaining, and enhancing water, food, nutrient, and biodiversity security.
How to order free:
Publisher: Financial Analyst Journal, November/December 2012, Vol. 68, No. 6: 20–37, doi: 10.2469/faj.v68.n6.2
Author: Laurence B. Siegel
This book was originally published as a special issue of Intelligent Buildings International.
Gabriel Thoumi, CFA, LEED AP, is a natural resource scientist and financial consultant.
(11/19/2012) Mr. Jeremy Grantham, co-chair of the Grantham Foundation for the Protection of the Environment and co-founder and chief investment strategist at GMO, published an online column November 14, 2012 in Nature asking scientists to speak out forcefully, publicly and directly on strategies to mitigate climate change. Mr. Grantham’s column titled Be persuasive. Be brave. Be arrested (if necessary) is a clear clarion call for action. As a fellow natural resources scientist, I agree with Mr. Grantham’s intent.
(11/18/2012) In Good Derivatives: A Story of Financial and Environmental Innovation, Richard Sandor, PhD has written a rich compelling first-person narrative of the development of financial futures and environmental markets over the past 40 years. With personal stories describing both failures and successes, Dr. Richard Sandor engages us with details that expand our knowledge of the capacities and limitations capital markets present to us in our efforts to finance climate change mitigation and natural resources conservation.