Profit From Global Warming or Get Left Behind
Last month, I wrote about global warming in the context of investment opportunities. As part of that discussion, I mentioned McKenzie Funk’s new book, ``Windfall: The Booming Business of Global Warming.'' I thought framing the financial opportunities of this might bypass the usual agnotology and political foolishness. To quote:
``This debate is no longer about whether global warming is real (it is) or whether humans are the most likely cause (you are), but rather, some very interesting and different questions that might be more professionally relevant to finance: How is this going to affect business? What are the investing consequences? Who will be the financial winners and losers of climate change?''
The organized response from climate trolls -- more than 2,000 comments in a 24-hour period is the result of a specific, directed effort, and not remotely organic -- made me even more curious about the book. So ``Windfall'' went with me on vacation.
The short version: Change and confusion equals opportunity. This is a hugely entertaining book that follows the money related to anthropogenic global warming. This narrative travels the world looking at where investors and financiers are already putting cash to work. There already are enormous investment funds set up to participate, whether from giants like Deutsche Bank or from smaller individual hedge funds and private-equity shops.
The longer version: Where is the money going? Follow the cash as Funk deftly explores three themes: What is wet is getting wetter, what’s dry is getting drier, both of which are leading to a massive land grab. Farm land, oil and mineral exploration rights, timber and water are the commodities of the future. Fights will break out over ownership of the Arctic by the five nations that border it. Transportation changes and massive geo-engineering projects all get their due. It is a fascinating and wide-ranging discussion, never drifting too far from the financial repercussions.
A huge wave of innovation has already begun. Desalination plants from Israel, along with snow-making equipment from the same company. Genetically modified salt-resistant crops. The spread of Dengue fever north as the mosquito’s range increases and moves north. Low-lying land management, locks, and canals. Water shortages, water deluges and a desertification. Funk takes the reader on a fascinating world tour where the debate over the effects of global warming has ended, and the search for investment opportunities have begun.
The book is filled with surprises, but two things stood out from the rest, both with significant strategic implications:
The first is that more than a billion people now live in areas that will become uninhabitable. This is creating enormous tensions along borders. India is building a wall around Bangladesh to keep out refugees fleeing floods. Something similar is occurring in the Mediterranean Sea, as Europeans try to keep out an endless flotilla of boat people seeking to escape North Africa’s expanding deserts.
The second is -- as is the case with all major changes -- there will be winners and losers. The winners are going to be the wealthier, mostly northern countries; the losers are going to be the poorer, southern nations, as well as the island nations and archipelagos that will eventually be swamped. Russia, Canada, and Greenland are not only unafraid of climate change, they welcome it. They are among those that will profit from longer growing seasons, greater land areas to explore for minerals and oil, and easier passage through the Arctic.
Two-thirds of the Netherlands's population lives on land that is below sea level; the same land generates 70 percent of the country's gross domestic product. The Dutch have become experts at fighting the onslaught of the sea, and will happily share their expertise with you. For a mere $8 billion dollars, they will protect the trillion dollars in Manhattan real estate from the ravages of the next Hurricane Sandy.
But that water has to go somewhere, be it Staten Island or Brooklyn. Therein lies the rub of the book. There will be winners and losers, if only judged by who can afford to protect themselves from the ravages of the climate of the future.
We are living in the Anthropecene era -- a geologic period defined by how human activities are altering Earth's ecosystems. If you are looking for a deeply felt political or scientific discussion about global warming, this book isn’t it. It is instead about the financial reverberations that are already in evidence. There are macro opportunities galore, the likes of which many readers of this book will begin thinking about in earnest after reading it.
The closest parallel I can think of is that while 15th- century clerics insisted that the world was flat, savvy venture capitalists were investing in Christopher Columbus's Round-Earth startup.
Others will rail against the concept, blame sunspots for climate change, falsely claim the globe is cooling, and offer up other flat-earth arguments. I could direct you to Grist’s column on ``How to Talk to a Climate Skeptic: Responses to the Most Common Skeptical Arguments on Global Warming,'' but really, why bother? Thank goodness they exist -- someone has to be on the losing side of the trade, and it might as well be the flat earthers. If you want to know who these folks are, just have a look at the comment stream in the prior article on this subject. Or give this review a day or two to circulate; the climate trolls are likely to weigh in.
To the rest of you, I recommend this fascinating and entertaining read. You might even find an investment idea or two.
(Barry Ritholtz writes about finance, the economy and the business world for Bloomberg View. Follow him on Twitter at @Ritholtz.)
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