A new report for Carbon Tracker on pension funds, their investment decision making and climate change written by Steve Keen is introduced by Carbon Tracker on their website with them saying:
Pension funds are risking the retirement savings of millions of people by relying on economic research that ignores critical scientific evidence about the financial risks embedded within a warming climate.
This report reveals that many pension funds use investment models that predict global warming of 2 to 4.3°C will have only a minimal impact on member portfolios, relying on economists flawed estimates of damages from climate change, which predicts that even with 5 to 7°C of global warming, economic growth will continue. The report underscores that such economic studies cannot be reconciled with warnings from climate scientists that global warming on this scale would be “an existential threat to human civilisation.”
Loading the DICE against pension funds is a call to action for investment professionals to look at the compelling evidence we see in the climate science literature, and to implement investment strategies, particularly a rapid wind down of the fossil fuel system, based on a ‘no regrets' precautionary approach. Behaving cautiously now and acting to avoid a 1.5°C increase (let alone the 4°C outcome featured in this report) will enable future generations to secure the prosperity and quality of life that comes from a healthy planet.
As they also note, the key findings are:
- Investment consultants to pension funds have relied upon peer-reviewed economic research to provide advice to pension funds on the damages to pensions that will be caused by global warming.
- Following the advice of investment consultants, pension funds have informed their members that global warming of 2-4.3°C will have only a minimal impact upon their portfolios.
- The economics papers informing the models used by investment consultants are at odds with the scientific literature on the impact of these levels of warming.
- The economics of climate change is an interdisciplinary subject, but papers on the economics of climate damages were refereed by economists alone. Properly refereeing these papers required knowledge of the science of global warming that economists typically did not have. Consequently, economic referees approved the publication of papers that made claims about global warming that are seriously at odds with the scientific literature.
- These claims have been fundamental to the predictions by economists of minimal impacts on the economy from global warming.
- Economists have claimed, in refereed economics papers, that 6°C of global warming will reduce future global GDP by less than 10%, compared to what GDP would have been in the complete absence of climate change.
- In contrast, scientists have claimed, in refereed science papers, that 5°C of global warming implies damages that are “beyond catastrophic, including existential threats,” while even 1°C of warming—which we have already passed—could trigger dangerous climate tipping points.
- This results in a huge disconnect between what scientists expect from global warming, and what pensioners/investors/financial systems are prepared for.
- Consequently, a wealth-damaging correction or “Minsky Moment” cannot be ruled out, and is virtually inevitable.
- Pension funds have a fiduciary duty to correct the erroneous predictions they have given their members.
- Similarly, financial regulators, who have used the same erroneous and misleading economic damage predictions to stress test the exposure of financial institutions to climate change, must drastically revise their stress test studies.
- This report calls on all stakeholders, from governments, regulators, investment professionals, all the way to civil society groups and individuals, to ensure that climate change policy is based upon the work of scientists.
- Climate change must be treated as a potentially existential threat to the economy, rather than an issue which is suitably addressed by economic cost-benefit analysis.
Steve has, as usual, hit a nail on the head. I will be taking time to read this in depth.
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“Keep Calm and Carry On” ?
Looks okay printed on a mug, but not reassuring on a pension plan.
It doesn’t help when you’ve got senior political figures suggesting that a few degrees of warming will be a good thing because more people die of cold than of heatstroke! Meanwhile large areas of Europe suffer wildfires on an unusual scale. Good job we got out of Europe eh? Wouldn’t want it happening here.
Is it too soon for despair? I wonder.
The insane politicians currently infesting the Houses of Parliament are either ignorant of the potential “gulf-stream tipping effect” or in denial about it. If it does tip then UK winters will become much colder as an ice age returns to Europe:-
https://www.theguardian.com/environment/2023/jul/25/gulf-stream-could-collapse-as-early-as-2025-study-suggests
It’s hard not to avoid the conclusion that most people are “insane” in the sense they don’t understand the following main aspects of life.
How a sovereign monetary system works.
How climate change works.
How especially consciousness works – faced with a chance contingent universe we’re continuously having to make choice contingent decisions.
How therefore as a consequence of consciousness we need morality and ethics because we actually benefit far more from cooperating with each other and with planetary life, trying always to find a balance in needs. In contrast to these activities it should be obvious by now that in most circumstances a mode of acting imperially without thought for others creates all kinds of trouble sooner if not later.
Basing climate change policy upon what economists think might become the new “definition of madness”.
It is possible that the economists are right about the level of GDP not declining catastrophically – but they entirely miss the point.
If a major hurricane hits Florida then Floridian GDP increases quite sharply as the re-building gets under way…. but I don’t think anyone would suggest that more hurricanes are a good thing because they raise GDP. GDP data merely measure activity without any regard to what that activity is for….. (cue Robert Kennedy’ speech on the subject).
It’s awful to contemplate just how much crap economics inculcates the workings of our society and the consequences of this ‘expert advice’.
I’d never contemplated this so thanks for bringing it up.
It’s redolent of how economists like von Hayek all of a sudden became an anthropologist who rewrote human history and did not self-confessedly contemplate altruism in his definition of economic man. And how the economists helped to create the austerity narrative (see Mattei, 2022).
For far too long we’ve tolerated these self-interested, narrow minded authoritarians in our midst.
They are helping pension funds to stare disaster in the face and effectively do nothing.
Lots of people have written to their private pension funds asking them to divest from fossil fuels, including me. If the company does not say it will, they then change to one that will. I am sure unions can do the same.
Here’s but one reason for arguing insane politicians in the Houses of Parliament:-
https://www.theguardian.com/uk-news/2023/jul/29/rail-electrification-plans-fall-far-short-of-uk-net-zero-targets-data-shows
Of course part of the insanity stems from the fact they won’t make the effort to understand how sovereign monetary systems really work and therefore impose shallow half-baked austerity systems which of course benefit the greedy rich who want to stay greedy by minimising state intervention.
As I read through I had to (ironically) smile. I see an identical pathology when it comes to policy formation by governments. (energy) Policy is usually formed in the absence of important (engineering) detail. Because of that absence, the policy, from the very start WILL fail. At the meetings I attend in the Brussels village I’m the only engineer – the rest are a combo of economists and lawyers – working hard on their “funny” & ineffectual policies. “Mike why don’t you intervene” – I do but it makes not a blind bit of difference (& then privately they agree with me – but have to “follow the party line” – I have e-mail trails showing this btw).
Copying what the economists are doing in engineering terms (apologies I’m repeating myself): I’m going to design a power system and will assume I have a perpetual motion engine. Yes pathetic, but no less pathetic than what the imbecilic economists are doing.
As for this: “Climate change must be treated as a potentially existential threat to the economy” – Stern (an economist) said much the same to the European parliament in 2011 – albeit “climate change is an existential threat to humanity” – which I’d suggest is more to the point. What has changed in the 12 years that have passed since then?? absolutely nothing in terms of urgency, & given the output of the economic-imbeciles we are in “business-as-usual+a-little-bit”. Think I’m a biot over the top? Let’s try this for size.
Valencia – Spain. Sunny place yeah? Google Earth – set the date to April 2023. Now show me the roof-top residential solar (PV). There is none. Pick another city. Same. Reason, Spanish energy companies e.g. Iberdrola don’t like residential PV (cos they would sell less elec) and had laws enacted by their wholly owned subsidiary – the Spanish gov to prevent this. Think Spain is an exception? – you can rinse and repeat across the EU & UK (and the US come to that – take a look @ the San Francisco – Los Angeles conurbations – spot the PV or lack thereof). All driven by economics – that makes sure the interests of large companies come first (the ones owned by pension funds btw) and you lot – you serfs (I include myself in that class BTW) – come second. Belgium? same. Germany, same (there was a flicker in the period 2008 to 2015 – when most RES development was driven by citizen groups – “fortunately” – the German power companies got their act together and stopped it). Pension funds & economists (and in fairness lawyers) – firmly part of the climate problem.
It will be interesting to see a buoyant GDP when a third of the UK is under water.
These cost-benefit analyses on the impact of global warming largely stem from William Nordhaus who, in his 2018 Nobel prize acceptance speech argued that, according to his Dynamic Integrated Climate-Economy Model (DICE), a 4 degree Celsius rise was ‘optimal’. Nordhaus and many other neo-liberal economists do not deny the climate crisis, but they can only see it through this particularly ideology.
As Adrienne Buller says in her excellent study on the illusions of green capitalism – ironically titled “The Value of a Whale”,
“The road to hell is paved not only with good intentions, but with the incentives, efficiencies, and tidy cost-benefit analyses of many more or less well-meaning economists, politicians, businesspeople, financial institutions, civil servants and NGOs.”