Why investors must get radical about global warming

Most of Asia’s coastal capital and commercial centres will end up facing floods unless investors, regulators and governments embrace radical policies to combat global warming.

Debra Tan, the director of environmental think-tank China Water Risk, isn't confident about Hong Kong's ability to withstand global warming. At all. 

The city’s decarbonisation plan suggests the world is on the path to see temperatures rise by three to four degrees celsius. Yet CWR research says it is only targeting resilience for a 1.5 to two degree increase.

“If you plan for a two degree rise, you’re planning to fail,” she said.

The seas are already inching upwards. The latest United Nations panel report on climate change released on Wednesday (September 25) predicts oceans will rise by up to 1.1 metres by 2100, while research by Hong Kong-based equity brokerage CLSA and CWR suggests average ocean levels will be 22 centimetres higher by 2030.

The latter could cause storm surges of up to 5.85 metres in Victoria Harbour, washing over large parts of downtown Hong Kong, its entire cargo port and its airport. While the latter is planning a 6.5 metre sea wall, it might not be enough; CWR’s projects extreme storm surges could reach 7.81 metres by 2100.

Indeed, Tan said typhoon Mangkhut last year could have caused surges of 5.65 metres, had it come at high tide, and at a slightly different angle. That would have had a devastating impact on Hong Kong (see below). 

If Hong Kong was hit by a 5.65 metre storm surge

Such projections and images might seem reminiscent of a post-apocalyptic movie by Roland Emmerich, such as The Day After Tomorrow (about a new Ice Age emerging due to climate change), or 2012. Unfortunately, they’re based on the most accurate predictions on global warming to date.

And most assume just a two degree rise.

“That [outcome] is baked in,” said Tan. “The real question is, can we prevent it being worse than that?”


Even two degrees of global warming would have a huge global impact.

The mixture of rising oceans and temperatures and declining fresh water would likely cause trillions of dollars of storm damage every year. it would also lead to millions of climate refugees, as people flee low-lying countries like Bangladesh or Thailand for less-affected nations.

The financial market consequences would also be profound. Many stocks and bonds are likely to collapse in value as companies get flooded and economies struggle to cope with the cost of climate change. That would also cause pensions and insurers less able to pay out promised sums at a time when they’re more needed most. 

Tackling this is fiendishly difficult. It requires concerted efforts by governments, regulators and companies across the world. Unfortunately, they’re usually obsessed with short-term goals, focusing mostly on next year’s economic growth or election, or profits and shareholder returns. Massive, generational problems don’t get much of a look-in beyond hollow statements of intent.

But asset owners are different. The purpose of pension funds, life insurers and sovereign wealth funds is to safeguard money for decades to come. That offers them a unique mindset and motivation to help mitigate the worst effects of climate change.

It also means they can help catalyse more radical policy solutions – if they can summon the will.


Unfortunately, far too few asset owners in Asia have grasped the issue. Japan’s Government Pension Investment Fund is one of the most progressive, demanding all of its fund managers embrace environmental, social and governance (ESG) requirements in their investing. New Zealand Super is even more radical; in 2017 it said it intends to cut the carbon reserves in its portfolio by 40% by next year.

Such steps need to be replicated by more (in fact all) asset owners – along with more radical plans.

The first step is education. Governments at large are going to have to inform their populations about the profound damage of unchecked climate change, explaining the necessity for tough decisions. Asset owners can and should financially support such education efforts. It should be possible to justify such spending as an acceptable fiduciary cost of securing their futures.

Institutional investors probably need to be activists too. They could team up with each other, climate experts and scientists to demand that governments implement suggested policy solutions to cut carbon emissions. Doing so with a unified voice is crucial because one of these solutions is likely to be downscaling and eventually banning most fossil fuel production. And energy producers hold huge sway over many politicians.

Similarly, regulators will need to be empowered to slap massive fines on or potentially bankrupt companies that are dirty carbon emitters or require vast amounts of plastic – if they don’t literally clean up their acts quickly. Pension funds, sovereign wealth funds and life insurers can assist by naming, shaming and divesting from the assets of such polluters.

Such efforts would have to be part of a broader effort to designate what level of pollutive behaviour is acceptable, and then forcing companies below it. That would likely force many corporates out of business, and it would require regular citizens to reduce casual consumerism.


Meanwhile groups of asset owners working in concert should ally themselves with companies and multilateral institutions to invest in alternative energy infrastructure – partly renewable energy, such as wind, solar and geothermal power, but likely nuclear power too.

That means they would have to accept the greenfield risk of such new construction. Similarly, governments and asset owners should plough in billions of US dollars to develop and improve renewable power technologies.

However, those efforts will only move the carbon emission needle if they were adopted in poor but large-carbon spewing nations, such as China and India. That would require a controversial step – to offer new technology breakthroughs to them gratis or for a pittance, plus building assistance, in return for closing coal-fired power plants. This is a global problem; it requires radical global remedies and generosity.

It’s clear that most of these suggestions are almost impossible in today’s political climate. That’s why education and information is so urgent. Only when the majority of people understand and accept the dangers will they support the massive changes required to face them – and the mass unemployment and potential economic recessions that will be a consequence.

Pursuing these steps is also the best way for asset owners to live up to their long-term fiduciary obligations. After all, chief investment officers in 2050 will find it pretty hard to hit investment return targets if entire cities are being washed away. 

¬ Haymarket Media Limited. All rights reserved.
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