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.


  1. I entirely agree with your sentiment and assessments. I have done all I can to to minimise my carbon footprint and be sustainable. I'm beginning to derisk my portfolio (and i'm only 35). Any Money Market ETFS you recommend?

    1. Thanks and good to hear you are making efforts to reduce your carbon footprint.

      As for money market options, I'm sure there will be some on offer with the likes of Vanguard and Blackrock but I have not looked into this as they are generally used to hold cash over the short term during periods of volatility. So the sale of investments has been withdrawn and placed in longer term building society savings.

    2. I've just searched and Lyxor do a cash option that tracks SONIA. I'm trying to keep funds in my ISA and it gives me 5.19%.

  2. I sincerely hope that the end of the diy line is NOT approaching, diy! It's an excellent blog, one you musn't give up, even if as you say the risks in the equity market have increased exponentially in recent months. I for one and i'm sure many others really do appreciate your approach to investing, a wholly sensible one which the wider retail investor field would do well to take note of.

    1. Many thanks and I really appreciate the encouragement to keep going.

      However, most articles in recent years relate to either new acquisitions or updates following full year results. As each part of the portfolio is sold, there is less and less to write about so at some point, which is likely to be sooner rather than later, there will be nothing much of investing interest to write about.

      Sometimes we can get in a rut and carry on doing what we've become very familiar with but it's good to sometimes take a step back and re-evaluate what we are doing and whether we want to continue. I think that's what I have been doing over recent months and the reality is that whilst investing has been good and reasonably profitable over many years, the climate risks have been growing unchecked to the extent that we really cannot ignore the evidence unfolding on an almost daily basis and the serious risks to our global economies.

      I'm not prepared to continue with my investments when the odds going forward are not great so, as I say, now feels like a good time to walk away from these risky markets. You could say I am applying the same sensible approach to walking away as I did to the start of the investing journey....!

  3. Hi John,

    Thank you for all of your excellent blog posts and books over the years, they have been excellent. Hopefully your blog and books will be available for many years to come.

    Good luck in the decades ahead,


    1. Hey John, many thanks for those generous words and likewise all best wishes going forward...luckily none of us know for sure what the future holds!

  4. Hello, John,
    I found this article via a link from Moneyvator's newsletter. It drew me up short. There has clearly been a massive disconnect between my daily rages against short-termism in relation to environmental issues and my passive (but not at all aggressive) approach to long term investing, which has rewarded us handsomely in recent years. The corporations inwhich we are invested are the big players in denying, delaying, obfuscating, disinforming and obstructing necessary changes. They are well practiced at it and have been influencing governments effectively for half a century. I agree with you, at some point, and possibly quite soon, the whole edifice will fall and it will take many or all of the big corporations, and those of us who passively invest in them, with them.
    Moving from global funds to ESG funds seemed, when first mooted, to offer a means of targetting our money in a way more consistent with our personal attitudes and possibly a help to company managments in making apporpriate moves. But the difficulties of defining E, S and G and applying them consistently, tranparently and honestly has proved difficult.
    I am so persuaded by your argument to move to cash that I have made some initial adjustments to our holdings in the last 24 hours. However, I am not entirely persuaded that banks and governments will survive the devastation that climate catastrophe will bring. It may be a prudent shift, but not a copper-bottomed one.

    1. Hi Anon,

      You make some really good points. I have been wary of these ESG funds for some time as they are clearly vulnerable to greenwash and, as you say, definition and transparency are problematic.

      As for the safety of cash as our banks come under increasing pressures from the climate crisis...that's a huge and scary subject...and you are the second person to raise it. I will give it some thought and it maybe the subject of a future article.

      Let's hope we are OK for a good while yet and good luck with decision-making for the remainder of your investment holdings.

  5. As a climate scientist, I think you may be overestimating the likely risk. Of course, the Earth is very complex and if we warm the planet by more than a couple of degrees, there's a substantial risk of something big happening, making it a stupid thing to do. But the central predicted estimates of damages, for global warming up to 4C or so at least (there's not much detailed study of the impacts of larger changes) point to the problem being expensive but not enough to reduce economic growth to zero or anything. Also, the main ways that a big surprise shift could occur would take several decades to play out, so it would be a while before assets were devalued that strongly.

    Just thought I'd write as it concerns me if people take major life decisions out of a sense of fear that seems a bit disproportionate. I've not felt like disinvesting from shares myself. But this doesn't change that there is a strong need for action, as the predicted costs of climate change are a lot more than the costs of decarbonisation and there are of course large risks from making such big changes to our planet.

    1. Climate Doc, thanks for this contribution to the debate.

      As you say, if we warm the planet more than 2 degrees, there's a substantial chance of something 'big happening' would be a stupid thing to do. But taking account of all the pledges made to the COP27 gathering from each country around the world, we are currently on track for warming of 2.7C.

      The critical target is 1.5C which we are likely to pass in the coming 5 years. Beyond 1.5C, the climate scientists warn there is a much greater risk of triggering one or more tipping points which would lead to runaway climate catastrophe.

      Obviously, each investor will probably have their own views on the risks posed by climate change. Having done quite a bit of research for my Climate book a couple of years back, I probably follow the climate science more than the average investor. I hope I'm very wrong but I don't think the risks are overestimated.

      But agreed, there is a strong need for action. Let's hope this action is sooner rather than later!

  6. Wow, I always thought you would just continue going down the route of investing in companies which matched your values, so all the best with this decision to go all in on cash ultimately and thanks for your valuable investing posts over the years!

    None of us knows what the future holds so all I can do for now is to carry on with what I'm doing.

    1. Hi weenie,

      Yes, I also imagined sticking with the green investments following my change of tack back in 2018. However, whilst they have allowed me to continue investing with a clear fossil fuel holdings for example, they will not be immune from a big hit to the global markets if the current climate crisis is not addressed.

      Therefore somewhat reluctantly I think the only course is to continue with the wind down the 'green' portfolio and remaining government bonds and move to cash.

      As you rightly say, we cannot know what the future holds...but the indifference from our politicians on climate and related matters should give us a few clues!

      I was a bit concerned to see your blog down last week but good to see it is now resolved....and best wishes going forward. I try to follow each monthly update with interest.

  7. Thank you for writing about this - I have been considering the same recently. I recently reduced my investments considerably in order to buy a house so have moved out of the stock market through that anyway, but I am considering doing it more.

    I have moved some funds into investment trusts doing things that are not necessarily so destructive, e.g. renewables infrastructure, care homes. Some in cash and then also through alternative options such as Ethex and Abundance. This is clearly riskier as I have already got 2 red flags out of 5 investments on Abundance!

    Anyway, it is good to see some other writing on the subject.

    My feeling for the future of traditional stock market investments and non-ESG stuff is that as climate change starts to bite and cause problems, inevitably there will be a lot of spending in the economy to deal with it so stock prices will still continue their long term upward trajectory as money will slosh its way around that economy - however it may well get to the point where you wonder what value your investments really provide you when (perhaps) civilisation is crumbling around you.