The critical point for governments to align their policy with the science of climate change will not be a collegiate protest. It will come from a change in investor opinion.
The data show that although investors do not point to an environmental cataclysm as a major concern or even express skepticism about it, some bet consistently and successfully that scientists are right.
Conservatives remain, in general, skeptical of climate change, particularly in the U.S. Many investors are conservative. As a finance professional said to Uppsala University researcher Brett Christophers for a recently published study on institutional Investor attitudes to climate change:
“In general, oil and gas analysts are not incorporating climate risk into their models. There is no chance that any of these groups will withdraw their investments from gas or oil companies soon. There are still investors in America who don’t believe in climate change. Honestly, these guys can’t care less about you. ”
Christopher’s study, based on interviews with executives in investment firms with more than $1 billion under management, showed that these financiers were not interested in selling their assets in fossil fuels, did not see productive ways of To incorporate climate change into their models and, if they actually saw it as a risk, they considered it equal to any other.
Hence, Christopher concluded that environmental lobbyists and progressive politicians will not convince the multitude of investors until they can see a clear financial return from adjusting to climate change. As things stand, sustainability plays a minor role in investment decisions, as was clear in a 2018 study of the asset management firm Schroeders PLC.
The “Show me money” attitude is natural, but another recent article points to at least part of the financial community that is taking climate science very seriously. Wolfram Schlenker and Charles Taylor, Columbia University, reviewed the stock market for climate derivatives between 2002 and 2018 and compared the way investors entered the prices of climate expectations for a particular month With the temperature projections of climate scientists based on the impact of human activity. They found an almost total concordance between the operators and the white robes. Schenkler and Taylor wrote:
“The annual trend observed in futures prices shows that the presumably efficient financial markets agree that the climate is heating up. At least so far, climate models have been very accurate in predicting the average warming trend observed in the U.S. When there is money at stake, it is difficult to find parties willing to bet against the scientific consensus. ”
That is probably a far too optimistic conclusion. The market for climate options and ETF is small and illiquid. Billions of dollars of these derivatives are traded freely: they are mainly used in the business of reinsuring, given that approximately 30 percent of the American economy is estimated directly affected by climate. But climate derivatives remain a niche for major investors. The operators specializing in these instruments have to be more outstanding than other finance professionals than what is really going on with the planet’s climate. There is no reason for climate skeptics to try too hard to make bets against barely liquid contracts.
But investors should pay more attention to what is happening to climate-derived prices. The market has existed for 20 years, enough to know that betting against climate models by consensus does not pay. This should have greater implications. If the derivatives market is confirming these projections, disinvesting in fossil fuel stocks and looking for more sustainable opportunities should be considered reasonable strategies. Actions exposed to climate risks may have more blurred prices than is usually perceived.
The content poured in this opinion column is the sole responsibility of its author, and does not necessarily reflect the editorial line or position of the counter.
