Ever heard the term climate resilience? No? Then you’re probably not a hedge fund manager, financial investor or Warren Buffett’s team member responsible for innovative financial products.
In the mid-nineties, the scientists Amory and Hunter Lovins wrote Factor Four. The American couple put forward the thesis that investments in environmental protection are only made when the investment in saving energy yields more than the energy consumed – and that the profit must be four times higher in order to invest in zero-emission homes, refrigerators and street lighting. As we know today, the two were right and the price of energy played only a minor role. Factor four – one could also say greed – is decisive for a climate-friendly investment decision.
Financial investors are not good people, do-gooders or climate protectors; they believe in short-term profits that have to be secured in the long term. There are certainly exceptions, and I am talking here about the overwhelming majority, although I do not want to condemn them at this point, I only want to say that. So if Wall Street invests money in LED lamps, e-mobility or zero-energy settlements, it is because it generates more returns than gold, coal or guns.
What’s the coffee farmer got to do with Warren Buffet?
When I first heard the term climate resilience in connection with financial investors, I thought: Interesting. To date, I knew climate resilience from the reports of development aid organisations. Example is one of the topics of current development cooperation: How can coffee production be changed in such a way that the coffee growing areas in Guatemala or Nicaragua survive climate change, so that the plants and beans become climate resilient and continue to deliver usable harvests?
What does the farmer in Nicaragua have to do with Warren Buffett now? At the most, the latter is looking at quarterly reports with algorithms I don’t know in order to make investment decisions that Berkshire Hathaway holds at the head of the most successful funds and has itself brought him an unbelievably large private wealth.
Quite simply, climate resilience is developing into a financial indicator, probably even THE financial kpi.
Perish or be successful
The question is simple: does Coca-Cola’s business model survive climate change and how will Nestlé, Sanofi, BMW, General Electric, Alibaba, real estate companies manage climate change with their strategies or even entire economies (and their bond issues)?
For hedge funds, there are only these two ways to go down or be successful. To put it another way: How resilient are companies and how long is it worth investing in them?
Managers react faster to nothing than to the withdrawal of money and the fall in the share. To quote Michael Milken: “Finance is a craft that can become an art with skill and proper application.”
Bertold Brecht put it more fundamentally: “It is better to found a bank than to rob a bank.” And that doesn’t just mean that it’s easier to make even more money out of a lot of money, it also expresses the power of money.
What governments, bureaucrats and politicians fail to achieve is achieved by a simple financial figure, the simple question in the Investor Relations Telco when presenting the next quarterly figures: “How climate-sensitive is your company?
Wall Street’s response to climate change
Factor four from the nineties has long since become reality. Soon companies and their supervisory boards will realize that they will only get money from their investors if they are climate resilient. And then they will – or disappear.
No matter what nonsense American, Chinese or Brazilian governments may have about non-existent climate change, global warming and the consequences.
When the financial industry talks about climate resilience, it means nothing more than that climate change is a reality. The figure is just Wall Street’s answer. In London, Manhattan or Berkshire Hathaway there are no greenish hipsters at the gearshift, but it is still the same mechanisms that drive traders: Where can you get the best return (without going to jail)?
Perhaps it’s worth taking a closer look at what investors are seeing as a result of global warming and climate change, and what companies and economies they think are climate resilient.
That’s exactly what I’m going to do.
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