Categories
Climate Change

The latest IPCC report explained in 7.5 minutes

Read the Summary for Policymakers: https://www.ipcc.ch/report/ar6/wg1/#SPM

Read the full report: https://www.ipcc.ch/report/ar6/wg1/#F…

Read the IPCC’s FAQ: https://www.ipcc.ch/report/ar6/wg1/#FAQ

Categories
Investing Life Wealth

Investing, Hope and Climate Catastrophe

There was a time when an HIV+ diagnosis was a death sentence.

Not anymore.

According to Elizabeth Ranes, RN, “life expectancy for a person infected with HIV now extends to 70 years of age. That’s a remarkable improvement from the early days of HIV, when many men succumbed to the disease in their 30s.”

Someone diagnosed with HIV in 1989 would have little to look forward to, and no need for retirement planning at all. Anyone with any savings would spend it all, as most had no heirs and many were isolated from their families.

However, as diagnosis and treatments quickly improved during the 1990s, a subset of HIV patients started to outlive their wealth. This subset had planned for the worst, but unexpectedly benefited from new treatments. This new hope was a mixed blessing, as many of these people were now penniless.

Today, a growing number of teenagers are increasingly hopeless about the future. Instead of a disease, a convergence of global warming, resource shortages, political extremism and wealth disparity is painting a bleak picture.

Guidance counselors and therapists have commented on a growing number of young people seeking help amid existential gloom. Like it or not, agree or disagree, Greta Thunberg is the poster child for global teenage grief, anger and hopelessness.

The thread below illustrates what’s going on:

I know people love to hate on Greta, but remember she is a child. The value she provides might not necessarily be her arguments. Rather, the fact she is expressing her worry is what we need to take away. She is a barometer for the psychology of a growing portion of tomorrow’s leaders.

As I’ve explained by looking at the AIDS epidemic, when people lose hope they adjust their behaviours. They live like they have no future.

What does that mean for teenagers today?

And what if they are wrong?

Let me tell you a secret. When I was a teenager I had little hope for my future. I’m not entirely sure why. Perhaps I received no encouragement or help. Maybe I had pessimistic tendencies. I definitely had no path in front of me.

So I behaved like I had no future. I did many stupid things. Luckily I snapped out of it and doubled-down on forging my own path. But I could have easily gone the other way and simply continued to be a burden to those around me. Or worse.

What happens when a big segment of the population feels this way for similar reason, thus reinforcing their belief? They certainly won’t be thinking about retirement savings. More likely, they’ll be drop-outs, criminals and pot-heads. Not all. But more than under normal circumstances.

Maybe they’ll be proven right in the end. Maybe there is no future. But if they’re wrong, they’re basically cornering themselves into a pretty shitty life. In the end, it becomes a self fulfilling prophesy.

I’m not blind to the problems we face, but I think it’s important to maintain some hope. We each have our ways. Acceptance, action, religion.

We must continue saving and investing like we have a future. Perhaps the nature of those investments and the way we budget for risk change. We need to broaden our definition beyond financial instruments and invest in skills, resiliency and self sufficiency. We also need to plan for a greater number of contingencies and develop a better understanding of ‘risk’.

As we’ve learned during the AIDS crisis, simply dropping the ball to sulk on the sidelines won’t do anyone any good.

Categories
Life

Toronto is Getting Hotter

I recently came across a chart on Reddit that showed the average daily mean temperature in Toronto has risen about 3.5% since 1841. This chart is nice and simple to understand.

However, I wanted to dig beneath the surface to get a more detailed picture of what’s actually going on. Specifically, I wondered whether Toronto is experiencing hotter summers or milder winters. So I broke out the data and created my own chart.

To answer my question I needed to add more variables to my chart, unfortunately making it more complicated to understand. However, if you take the time to digest the information the conclusions are pretty clear.

Each data point in the red shaded area in my chart below represents the maximum mean temperature in the previous 12 month period. The blue shaded area represents the minimum mean temperature in the same 12 month period. Maximum mean temperatures occurred during the summers and minimum mean temperatures occurred during the winters. So what this basically shows is the hottest periods of historical summers and the coldest periods of historical winters.

I then layered on a linear trendline to illustrate the broader trend.

As you can see, the trend is up – for both summers and winters. Summers are getting hotter and winters getting milder. What I found interesting, however, was that while mean maximum temperatures during summers has increased by about 2 degrees Celsius since 1840, mean minimum temperatures during winters has risen about 3.5 degrees Celsius.

Simply put, winters in Toronto are getting milder faster than summers are getting hotter, significantly contributing to the city’s overall rise in average temperature.

Source: Environment Canada, DumbWealth.com. Monthly data from March 1840 to June 2003.

Note: The data for this particular weather station is only available until June 2003. I suppose the weather station was closed then?

Categories
Life

Government Supporting Fossil Fuel Offenders Over Green Economy

According to new research by Tearfund, the International Institute for Sustainable Development and the Overseas Development Institute (source), governments around the world are talking more than acting when it comes to mitigating climate damage.

G7 governments – UK, US, Canada, Italy, France, Germany and Japan – spent $189bn to support oil, coal and gas between January 2020 and March 2021. They spent another $115bn to prop up struggling automobile and airline industries, during that time. Despite all the green economy rhetoric, 80% of this money was given with zero environmental conditions.

In contrast, G7 governments only spent $147bn on clean forms of energy. That’s less than half the $304bn given to big CO2 offenders.

Governments around the world are promoting plans to ‘build back better’ in a post-pandemic world. Yet, looking at these numbers, I have to ask: ‘better for whom?’

Categories
Investing

MSCI Webcast: Foundations of Climate Investing

MSCI Webcast: Foundations of Climate Investing

Agenda:

How has climate risk been priced into equity markets?

How can we model climate risk in preparation for net-zero targets?

What are the Climate Paris Aligned Indexes and how can they help investors seeking a net-zero strategy? (MSCI)

EU urged to end ‘doom loop’ with tougher climate finance rules

European Union policymakers faced a call on Wednesday to break a ‘climate-finance doom loop’ by making banks hold up to three times more capital to cover risks from fossil fuel activities.

Finance Watch, which campaigns to make finance work better for society, has written to European Commission President Ursula von der Leyen, urging the EU to toughen capital rules for banks and insurers involved in environmentally damaging activities.

“The longer the European Union waits, the higher the chances mount that it will face a financial crisis induced by the climate crisis,” Finance Watch said in the letter. (Reuters)

Future shock. Absent decarbonization shock treatment, humans will be wedded to petroleum and other fossil fuels for longer than they would like.

Future shock. Absent decarbonization shock treatment, humans will be wedded to petroleum and other fossil fuels for longer than they would like. Wind and solar power reach new heights every year but still represent just 5% of global primary energy consumption. In this year’s energy paper, we review why decarbonization is taking so long: transmission obstacles, industrial energy use, the gargantuan mineral and pipeline demands of sequestration, and the slow motion EV revolution. Other topics include our oil & gas views, Biden’s energy agenda, China, the Texas power outage and client questions on electrified shipping, sustainable aviation fuels, low energy nuclear power, hydrogen and carbon accounting. (JP Morgan)

Download Paper

Listen to Podcast

Categories
ETFs and Funds Investing

Does ESG Investing Actually Achieve Anything?

Typical ESG investing (aka socially responsible investing, SRI investing, responsible investing, etc.) is a waste of time. It doesn’t achieve what many hope and believe.

ESG investment funds may be counterproductive and actually worsen the issues they are meant to fight.

Instead, many ESG funds only serve to pacify anxious investors who wish to decorate their portfolios with feel-good products. It’s sad to say because both ESG investment product manufacturers and investors usually have the best intentions. They want to do the right thing. Unfortunately, many fail to recognize their efforts are probably counterproductive and likely worsen the issues they are meant to fight.

As global interest in ESG investing rapidly grows, it is critical that investors understand how many ESG investment funds fall short of their implied objectives.

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What is an ESG fund?

ESG funds are investment products (like mutual funds or exchange traded funds) that are constructed to feature environmental, social and corporates governance factors into their investment process.

Many ESG investment funds attempt to do this by excluding certain categories of sin stocks: guns, tobacco, porn, and so on. With growing concern about climate change, oil is increasingly at the top of the sin list.

The first problem with oil company exclusion is it’s very limited in scope. Oil companies don’t operate in a vacuum and are highly integrated within all sectors of the economy. They are financed by banks. They supply petroleum to chemicals and plastics manufacturers. Plastics are used in the production of millions of products. If boycotting oil companies, why not also their best customers and financiers?

It’s true that oil companies are at the heart of CO2 emissions and shutting down oil companies would stop the flow of petroleum based products throughout the economy. But excluding oil companies from ESG portfolios fails to shut anything down.

Companies have always had to work with various strata of investors who exclude certain investments based on a variety of characteristics. Value investors shun momentum stocks. Most of the world doesn’t invest in Canadian companies. Tobacco and gun stocks have been excluded from many large portfolios for decades. Yet, tobacco stocks, gun stocks and Canadian stocks have continued to perform as expected. Altria (formerly Phillip Morris) has a stellar long-run track record.

Is ESG investing profitable?

The exclusion of companies or sectors doesn’t affect performance. Research from South Africa’s period of Apartheid has shown that boycotting certain companies, sectors or countries is ineffective at altering share price performance.

Companies simply don’t need 100% of investors to be interested in their stock. There will always be a class of investors who don’t care about what they invest in as long as the returns are good.

In fact, the exclusion of certain companies from ESG portfolios may actually improve return prospects for those excluded companies. Perversely, if 80% of investors shunned Altria, for example, causing its share price to decline Altria’s expected future return would rise, attracting the remaining 20% of investors. A smaller pool of potential investors doesn’t change a company’s business prospects, and thus its intrinsic value. There will always be investors willing to capitalize on this. Moreover, without the burden of ESG-related business expenses, Altria’s intrinsic value may actually rise relative to other ESG-friendly companies.

Does ESG investing make a difference?

As conscientious investors abandon a company, the remaining class of financiers care less-and-less about the company’s practices. All things equal, this leaves the offending company to continue as it pleases, perhaps even creating a disadvantage for the ‘good’ companies that must operate under greater constraints.

Investors looking to force change would do better by adopting methods used by activist investors, like Carl Icahn. Activist investors take large stakes in companies they want to change. Shareholders, as company owners, have a right to board representation. The board hires company executives who then run the company.

To create change, investors must not distance themselves from companies with weak ESG practices. Instead, they must directly engage the companies they wish to change.

Research by the European Corporate Governance Institute shows that shareholder activism can create real change:

We study the nature of and outcomes from coordinated engagements by a prominent international network of long-term shareholders cooperating to influence firms on environmental and social issues. A two-tier engagement strategy, combining lead investors with supporting investors, is effective in successfully achieving the stated engagement goals and is followed by improved target performance. An investor is more likely to lead the collaborative dialogue when the investor’s stake in and exposure to the target firm are higher, and when the target is domestic. Success rates are elevated when lead investors are domestic, and when the investor coalition is capable and influential.

Abstract, “Coordinated Engagements”. January 2021

Given this perspective, ESG scores for investment funds (provided by various rating agencies) can be totally misleading. Based on current methodologies at many ratings agencies, to get a high score a fund must have minimal exposure to offending companies. As shown above, this can have a counterproductive result.

Don’t divest. Engage.

None of this is easy. However, if institutional investors (which represent individual investors) combine efforts and own enough of a company to engage the board they can enact real change. This is not an unusual practice, as investors have banded together many times in the past.

As public concern over climate change grows, there will likely be enough energy to make a real difference. However, it is critical that efforts are directed correctly, away from feel-good ESG products and into activist ESG funds.