Sunday 3 September 2023

Climate Risks are Growing....

We’ve had the Covid pandemic followed by the ongoing conflict in Ukraine. Both have sent shock waves around the world over the past three years and we’ve seen the cost of living crisis resulting from high energy costs and a surge in inflation combined with much higher debt. These events are a shock to the system but they come and go and the markets ride out the storms.

But something far more potentially disruptive and long-lasting persists - the climate situation. We have so far failed to get to grips with the underlying causes - mainly to phase out our reliance on fossil fuels - and as a result global temperatures are continuing to rise year after year.

Last summer, during the market downturn, I started to de-risk my portfolio. Just over one third of my investments have been sold and moved to cash in the past year. If I had anticipated the short Truss/Kwarteng fiasco I would have regarded my government bonds as risky assets and sold off some of those... it was more than disappointing to see the fallout after just seven weeks in charge. However, the climate situation continues to get worse and I don’t see any signs of this getting better in the near future.

Climate Crisis

In July, average global temperature reached 17C, the highest point for over 125,000 years whilst the world oceans were also at an all-time high and ice sheets are melting at record rates in the polar regions.

Back in 2015 at Paris, the world agreed to limit the global temperature to 1.5C and that has been the centrepiece of efforts to limit warming. But each year climate scientist have been warning that governments are not doing enough or moving quickly enough to meet this target. A senior climate scientist and former head of the IPCC, Sir Bob Watson, no longer thinks we will hit this 1.5C target and is even pesimistic about 2.0C. Based on current pledges from around the world it is estimated warming will rise to 2.7C.

July 2023, Warmest Month Ever Recorded

Even at the current level of around 1.2C above pre industrial levels, we have seen extensive heat domes this year of 50C in US and China and 45C in Spain, Italy and Greece. In addition there has been rapid ocean warming and especially the North Atlantic which was 5C above normal this year. The Gulf Stream could collapse by 2050 and even as soon as 2025 according to the latest research published in Nature. This is one of several potential tipping points that most concerns the climate scientists.

Added to all this is the rapidly disappearing Antarctic sea ice which this year is 10% lower than the previous low point. An area 10x the size of the UK is missing compared to the 1980 - 2010 average.

In the midst of all this, the G20 - responsible for 80% of global emissions - met in India but failed to reach agreement on the phase down of fossil fuels after objections from those who would have most to lose - Saudi Arabia, Russia, China and Indonesia. The G20 first pledged to phase out fossil fuel subsidies back in September 2009 but have so far failed to honour this and last year these subsidies reached a record $1.3 trillion. Clearly these most powerful global economies - China, US, India, Germany. UK, Japan etc. - understand that the continued subsidies encourage wasteful consumption, distort markets, impede investment in clean energy and undermine efforts to address the climate crisis. We lack leadership and vision at the highest levels of government.

Despite almost daily climate change alarms, there is very little analysis or understanding of the impact of the climate crisis affecting the world of finance and investments. A recent report from Carbon Tracker reveals that pension funds use of peer-reviewed economic research that predicts global warming of between 2C - 4.3C will only have a minimal impact on members portfolios and rely on economist's flawed estimates of the impact from climate change. These experts suggest that even with 5 to 7C of warming, economic growth will still continue which is clearly bonkers!

There’s a huge disconnect between what the climate science predicts from continued warming and what pensioners/investors/financial systems are prepared for. Consequently a wealth damaging ‘Minsky Moment’ is virtually inevitable.

The report is a call to action for investment professionals to look at the climate science and review investment strategies to rapidly wind down the fossil fuel system and adopt a no-regrets cautionary approach.

Also on the same lines, a report from Influence Map revealed that 95% of equity fund portfolios held by 45 of the world’s biggest asset managers are misaligned with the goal of net zero by 2050. At a time when leadership climate change is needed, most of the largest fund managers on the planet such as BlackRock, Vanguard and Fidelity are failing to meet their stated climate goals and are moving backwards.

The simple reality is...

a. global warming will continue until we get to net zero emissions, and

b. the climate impact will keep getting worse until we get to net zero, and

c. when (if) we eventually get to net zero we will continue to live in a warmer world for many generations

d. we have choices - act now or delay further.

The Earth is moving quickly into dangerous and unchartered territory and the climate scientists fear some worst-case scenarios are unfolding.

Some people are saying this is the new normal but I don’t think so...we won’t know what the new normal will be until we get to net zero.

Credit - Jonesy Cartoons

I recall the first time I heard a speech by a young Greta Thunberg at Davos in January 2019 and it’s worth repeating a short extract:

“Our house is on fire. I am here to say, our house is on fire.

We are facing a disaster of unspoken sufferings for enormous amounts of people. And now is not the time for speaking politely or focusing on what we can or cannot say. Now is the time to speak clearly.

Solving the climate crisis is the greatest and most complex challenge that Homo sapiens have ever faced. The main solution, however, is so simple that even a small child can understand it. We have to stop our emissions of greenhouse gases.

Either we do that or we don’t.

You say nothing in life is black or white. But that is a lie. A very dangerous lie. Either we prevent 1.5C of warming or we don’t. Either we avoid setting off that irreversible chain reaction beyond human control or we don’t.

Either we choose to go on as a civilisation or we don’t. That is as black or white as it gets. There are no grey areas when it comes to survival.

We all have a choice. We can create transformational action that will safeguard the living conditions for future generations. Or we can continue with our business as usual and fail”.

It seems very little has changed over the past 5 years...GHG emissions continue to rise - when I was born in the 1950s, CO2 levels were 320 ppm and today that figure has risen to 420, an increase of almost one third in the past 70 years. The consequences of inaction become more intense and we continue with business as usual.

And with each passing year, the risks to the stability of the global economy rise.

James Hansen, the US scientist who alerted the world to the greenhouse effect in the 1980s said recently:

“The world is shifting to a superheated climate not seen in the last million years and prior to human existence, because we are damned fools for not acting on the warnings over the climate crisis.”

Risk and Reward

There’s probably no greater collective risk to humanity than the current climate crisis. That’s my view but I’m sure others will have a different opinion. There are many on social media who deny there’s a problem at all so I guess for those people it’s business as usual. Of course each investor has a unique personality and each will have their own views on potential threats and invest accordingly, maybe make the odd adjustment to asset allocation to find their comfort level of risk/reward over time.

But it’s clear to me that we urgently need to move to a much more sustainable system and this will entail fundamental changes to how the global society functions. It will mean changes to our values, social structures, our political and economic systems and power relationships. I’m not confident we can achieve this in the timeframe required.

Unfortunately, the fossil fuel industry's hold over our political and financial systems continues to block and frustrate ambitious action to avert the climate crisis at every turn. Therefore, for me it's clear - the potential rewards from remaining invested are now far outweighed by the risks from the climate crisis.


I've just got around to watching the film 'Don't Look Up' which on the surface tells the story of two astronomers trying to warn the world about a fast approaching comet that will wipe out humanity. Of course, the impact event is an allegory for our current climate crisis and the film is a satire of government, political, celebrity and media indifference to the crisis...well worth a watch.

Leonardo DiCaprio & Jenifer Lawrence
Don't Look Up

Personally, I’ve had a good run over the past 15 years or so with an average return of around 9% p.a. but on the whole the markets have been generally good for investors. However in the past couple of years, it seems to me these conditions are changing very quickly and my biggest concern by far is the climate crisis. It’s just a question of when and what steps our global leaders will be prepared take (if any) to address the crisis in the coming few years. The worsening crisis will inevitably impact our global economies in ways it is difficult to imagine and when it does I don’t foresee any bounce-back in the markets such as we have seen time and time again with other examples of global conflict and crisis.

Vandana Shiva

So, global warming is not a minor problem that will have some minimal impact on the pensions and portfolios of future generations as the current economic literature suggests - but is an existential threat that is likely to impact existing pensioners and investors.

For me therefore the risks are becoming much higher. Of course, its impossible to know with any degree of certainty when the proverbial sh*t will hit the fan - possibly not this year or next - timing has never been my forte. But it really does feel like now is a good time to continue the walk away from these risky markets and move to the safe haven of cash.

Of course, this is very much a personal decision - I may be over-reacting as a result of climate anxiety, the politicians may see the light and implement some urgent decisions to defuse the climate crisis and the global economies and financial markets will adapt and prosper for many years to come. But I don’t think the chances of this are very high and there’s no reason for me to hang around to find out!

So, just over 10 years since the start of this blog, 630 articles posted and almost 2m pageviews, there may not be too much more to write about. I will do my usual round up and review at the end of the year to include annual returns, portfolio sales and remaining allocation. But maybe the end of the diy line is approaching.

Thanks for reading and of course, good luck to everyone going forward...I really do hope to be proved very wrong on this!

As ever, feel free to have your say on the climate crisis and what changes, if any, you will be making to your future investment plans.