Blain’s Morning Porridge – May 10th 2019
“Only within the moment of time represented by the present century has one species — man — acquired significant power to alter the nature of the world. ”
In the headlines this morning: https://morningporridge.com/stuff-im-watching
It’s Friday and the world has not ended.. Trump imposed tariffs on China, and we wait for the China response – tariffs, or a Treasury strike? Who knows?
Relax. Its Friday. Rather than worry about the immediate ramifications of Trade-War Politics – which we will have forgotten about next year, I’m more concerned with the Long-Term this morning – and wondering if we will actually have a Long-Term to worry about?
Since the 1960s, when folk started reading books like Silent Spring and began to fret about the Environment, the pace of increase of Carbon Dioxide in the atmosphere has not slowed. Despite rising concerns, hectoring environmentalists, government pledges to reduce emissions, green politics, and the introduction of electric cars, CO2 emissions (the prime cause of climate warming) have been remorselessly rising on an uninterrupted straight line. In the early-1980s, I found myself as one of the first students taking the option of a course in ‘Environment Economics”; considering Forest die-back and cost-benefits of scrubbers in coal-fired power stations.
Before you start screaming “Global Warming is fake news”, just consider the possibility its real. I’m not going to go environmental-climate-protestor on readers, but let me suggest investments targeting climate change solutions might be positive long-term top performers.. (With the added benefit of probably saving the planet.)
If we are destroying the planet, why has nothing been done already? Because rational economic players demand proof – and in the absence of what they will accept as proof, they keep pumping more carbon into the atmosphere, and doing what capitalists do – make money and, importantly, paying wages and taxes. It’s difficult to stop.
However, change is coming. Capital is becoming more choosy about what it will fund. Increasingly, investors are adopting targets to finance Green and Climate improving initiatives. Numbers from the Climate Bond Initiative show rising amounts of capital raised for qualifying causes – $170 bin in 2018 will likely rise to $250 bin this year. I still reckon too much Green and ESG investment is just a labelling game for most funds to attract investors, but it’s getting traction.
Of course there are investment outliers – like the Saudi Aramco bond. If the world intends to replace gas guzzling cars with Electric Vehicles (EVs) sometime between 2030 and 2050, then whey did so many people buy a 30yr bond that is basically a gamble oil revenues will remain in place to refund it?
And there are questions about EVs and renewable power. What’s the point of an EV if batteries produce tonnes of CO2 to build, and they rely on filthy coal fired power stations to power them? Actually, the numbers show that over the life of standard B(attery)EV, they produce vastly less CO2 than Gas Guzzlers – and guess what… Teslas are probably the best (even after accounting for the pollution making batteries creates..) What EVs and other renewable power technologies demonstrate is the need for holistic solutions addressing the whole economy.
The first question any one should get comfortable with: Is Climate Change Real?
Not being a scientist I will accept specialists know more about it than I do. They have studied it diligently. Based on their leaning and their well presented evidence, I accept the scientists are probably right about Global Warming. That small shadow of doubt, the probably, was removed some time ago when Donald Trump said climate change is fake news and pulled the US out the Paris Accord.
Like all presidents, Donald Trump has been guided into both good and bad decisions. But, when it’s himself doing the talking, well you can be pretty sure he’s wrong. Do some quick mental math: A million very clever Scientists as probably right about global warming and Donald Trump as probably wrong, and that’s a good enough answer for me.
Therefore… we are all doomed. (Imagine I just said that in my best Private Frazer accent. I’ll try it again: “We’re doomed, doomed, Captain Mainwaring”.) London shall be swamped by rising sea levels, all the animals will die and there will be nothing left to eat or drink. It won’t just be no proper meaty burgers, but not even these new veggie burgers that taste of meat and bleed beetroot, because even the plants will die.
Which leads us to the second question – can we save ourselves?
YES!
Every single Malthusian prediction of mass starvation and the end of everything has been defeated by the mankind’s rising productivity and propensity to innovate solutions to just about everything. Prophets of doom and gloom nearly always over-egg the end of the world thing. It’s never quite as bad as they predict. (It’s still pretty sub-optimal if you are the proverbial Sodom or Gomorrah.)
We are infinitely capable of invention and innovation, and we might not even have to go to the excess never going on holiday again. We can probably save the planet, and do it rather elegantly and even profitably, while generating sweet returns for our pensions!
(For that matter we are also capable of creating a future where Robotics and AI actually create better paid jobs for everyone, of creating better and free education and equal opportunities, and even of solving the current NHS funding crisis by designing a fully staffed and fully costed health service that offers dignity, health and care for everyone. All these things are possible – with effort, care and a lot of thought. Its just that politicians tend to get in the way…)
The opportunity for market driven solutions to climate change control are legion. Look at the strides that have been taken in creating renewable energy solutions. Thanks to offshore wind, the UK has been able to power itself through the bank holiday cold snap without turning on a single coal fired power station. Sure, you could argue that producing thousands of wind turbines out of plastic (made from hydrocarbons) and blighting the horizon is a bad thing – but close your eyes and imagine happy polar bears..
One of the issues we have to solve is carbon pricing – which is in the news again this morning. Reducing emissions is just one aspect of a massive global improvement programme – which is why we might just have to buy these veggie burgers… if its a choice between Ermengarde the cow farting or Harry the Polar bear eating seals.. well you choose.
(Choices are difficult. Protecting animals can be a big mistake: the East Coast of US is apparently swamped with Great White Sharks because we protect seals meaning there has been a population explosion. Every Shark on the Eastern Seaboard is now queuing up for their share of the Amity Seal Smorgasbord…. and if they accidentally munch a swimmer and get a taste for “Long Pig”.. (as the Dyaks described my missing missionary great great uncle… I’ve no idea what they meant…))
In the wake of the Uber IPO, taxi-apps might be the flavour of the stock market today, but personal travel might be long-term insignificant when it comes to saving the planet.
My third question would be – how to invest in the Long Term in the face of the Climate Change threat?
If I was a fund manager worried about my long-term liabilities, than I can’t think of anything better to buy than investing in long-term assets designed to save the planet. Think about it – its a no loose proposition:
- If they don’t work, then don’t worry… you won’t have any long-term liabilities you need to hold assets against.
- If they do work, they will be profitable, and ensure you have further long-term liabilities to manage!
Wearing my Head of Alternatives hat, I’m busily preparing deals that will address some of the biggest issue facing us today:
- Waste is blighting the planet, polluting the oceans, and degrading the environment – its a 7 bln tonne a year problem governments around the globe need to address. How? Waste treatment, waste management and waste conversion into energy. We reckon its a $500 bin global business within the next five years! Want to invest in proven technologies converting waste into energy and leaving minimal residues? Very renumerative, and likely to be top investment sector for future.
- Or how about aquaponics – growing vegatables and fish together in a closed loop right beside the markets that want to consume them?
- Want to use less fossil fuel? How about propelling ships with sails, taking the energy straight out the sky?
- Tesla may look the worst tech firm in the world… but they are on to something..
- As mentioned earlier Carbon pricing is critical – economies like California (the world’s 6th largest on a stand alone basis!) are now taxing Carbon emissions agressively, demanding offsets. Its encouraging the need for Carbon storage and offset tech. Quess what, I’ve got a great deal creating sequestered carbon!
I could go on, there are plenty of other exciting deals out there. I desperately want to see something that works in terms of Tidal Energy – half a dozen of my clients will kill to invest in tidal tech. But, my pixels are running out.. and the clock is ticking…
Out of time, back to the day job and have a great weekend..
Bill Blain
Shard Capital