WEBVTT - Climate Change Could Lead to Financial Crisis

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<v Speaker 1>You're listening to Bloomberg Business Week with Carol Messer and

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<v Speaker 1>Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Another thing

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<v Speaker 1>that we certainly keep a watch on is what's going

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<v Speaker 1>on when it comes to climate change E S G ascids.

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<v Speaker 1>Yesterday I talked about all the money a Bloomberg intelligence

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<v Speaker 1>number that's out there that says E S G may

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<v Speaker 1>surpassed forty one trillion assets this year. Investors are increasingly

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<v Speaker 1>asking for it. But you know, when it comes to

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<v Speaker 1>climate change and all the different parties involved, it's complicated.

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<v Speaker 1>It's really complicated. Fortunately for us we have Eugene Linden,

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<v Speaker 1>journalists and author, author of the new book Fire and

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<v Speaker 1>Flood of people's history of climate change from ninety nine

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<v Speaker 1>to the present. Eugene joins us on the phone from Irvington,

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<v Speaker 1>New York. Eugene, it's really good to have you with us.

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<v Speaker 1>We've got quite a bit of time with you this afternoon,

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<v Speaker 1>so we're looking forward to our conversation. I just want

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<v Speaker 1>to start though with big picture and and really in

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<v Speaker 1>your interpretation, how you think we're getting the conversation around

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<v Speaker 1>climate change wrong in this day and well, we're not

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<v Speaker 1>doing anything. Uh, we're a hell of a lot of

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<v Speaker 1>talk about it. Twenty six congressive partner parties, and you know,

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<v Speaker 1>we're on the sixth assessment from the u N and

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<v Speaker 1>emissions are six higher than they were in nineteen ninety

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<v Speaker 1>when they were already a problem. And between nine and

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<v Speaker 1>now two point three billion people have been added to

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<v Speaker 1>the population. The average emissions per person is about more

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<v Speaker 1>than four tons, So that's another ten billion tons that

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<v Speaker 1>we have to take out um. And we were already

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<v Speaker 1>forcing the climate into a warmer state way back in

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<v Speaker 1>nine So we have just a much bigger rock to

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<v Speaker 1>roll up a much steeper hill with a much shorter timeline.

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<v Speaker 1>Why have we been so bad about this? I think

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<v Speaker 1>there's a number of reasons. One fundamental to the way

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<v Speaker 1>we do business is that the momentum of business as

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<v Speaker 1>usual is just enormous, and we have a kind of

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<v Speaker 1>blind spot in our economy in that um we have

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<v Speaker 1>a very hard time representing the long term threats in

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<v Speaker 1>in in in a business that is focused very much

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<v Speaker 1>on the short term and essentially makes us leaves us

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<v Speaker 1>blind to these long term threats like climate change. And

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<v Speaker 1>my best example of that, I think is the insurance industry,

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<v Speaker 1>which recognized the threat at the reinsurance level, really part

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<v Speaker 1>of the industry that insurance catastrophic risk very early on.

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<v Speaker 1>But at the retail level, the momentum of business as

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<v Speaker 1>usual is to keep writing policies even for people moving

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<v Speaker 1>into harm's way. You did not have to say when

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<v Speaker 1>we were talking about this on our early morning call

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<v Speaker 1>this this morning about you coming on. I remember early

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<v Speaker 1>on that that's what started to get everybody's attention about

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<v Speaker 1>the cost of climate change and from an insurance industry aspect,

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<v Speaker 1>and I feel like that was what initially made us

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<v Speaker 1>all kind of sit up and take notice, and then

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<v Speaker 1>it kind of just went away. Oh yeah, way back,

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<v Speaker 1>I wrote an article for Time expecting that the insurance

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<v Speaker 1>industry would be a white night um in the climate

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<v Speaker 1>story because they live and die by pricing risk appropriately.

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<v Speaker 1>And what I I there were a couple of things

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<v Speaker 1>I didn't realize. They turned out to be a very timid,

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<v Speaker 1>white night, by the way. But what I didn't realize

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<v Speaker 1>then was the incredible momentum again to keep writing policies,

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<v Speaker 1>and then secondly their genius at offloading and spreading risk,

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<v Speaker 1>and and then also most insurers can UH have policies

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<v Speaker 1>on an annual renewal basis, so if something goes wrong,

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<v Speaker 1>they can get out unless regulators stop them. Is which

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<v Speaker 1>was the case temporarily in California. But the net effect

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<v Speaker 1>of this was, well, they did get out. Actually in

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<v Speaker 1>Florida after Hurricane Andrew a bunch of mature stuff writing

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<v Speaker 1>wind policies, UM and the state stepped in and basically

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<v Speaker 1>socialize the risk. And that happened in California as well.

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<v Speaker 1>And so where I expected to see a signal in

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<v Speaker 1>the market, in the economy that would cause people to

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<v Speaker 1>make an orderly move away from the zones that are

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<v Speaker 1>really in jeopardy from climate change, that didn't happen. In fact,

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<v Speaker 1>the reverse happened. The underpricing of risk led millions to

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<v Speaker 1>move into areas that are most at risk of climate change,

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<v Speaker 1>not just the fire zones in the West, but the

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<v Speaker 1>flood zones on the coast. Yeah, and it's well, we've seen,

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<v Speaker 1>you know, business We has done some reporting about areas

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<v Speaker 1>where people are very vulnerable. It tends to be often

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<v Speaker 1>lower income areas people that are really susceptible to flooding.

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<v Speaker 1>And how municipalities certain across the country have started buying

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<v Speaker 1>up those properties just to kind of stop it. We're

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<v Speaker 1>speaking to Eugene Linden, journalist and author of the new

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<v Speaker 1>book Fire and Flood of People's History of Climate Change

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<v Speaker 1>from nineteen seventy nine to the present. Eugene, stick with us,

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<v Speaker 1>because we're gonna get some serious time with you, uh

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<v Speaker 1>in just a few minutes after we do some news. Well,

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<v Speaker 1>there's a new book out. It's entitled Fire and Flood

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<v Speaker 1>of People's History of Climate Change from nineteen nine to

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<v Speaker 1>the present. It sounds the alarm about the looming climate

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<v Speaker 1>caused financial crisis. We are talking with the author, Eugene Lindon.

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<v Speaker 1>He's an award winning journalist and writer covering science, nature

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<v Speaker 1>in the environment. He's still with us on the phone

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<v Speaker 1>from Irvington, New York. Um, Eugene, I'm gonna let Tim

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<v Speaker 1>ask this question because we both were thinking about this

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<v Speaker 1>U during the break. Eugene, I had this professor in college.

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<v Speaker 1>He taught science, technology, and society, and he was he

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<v Speaker 1>was big into climate and he said that people just

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<v Speaker 1>shouldn't live in California. I'm a California I'm from California.

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<v Speaker 1>My parents are there. Is he right? I mean should

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<v Speaker 1>should people not live in the West? Should should people

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<v Speaker 1>not live in these areas that each year get consumed

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<v Speaker 1>by fire. What's going to happen in California is that

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<v Speaker 1>climate change is basically put it in a rain shadow.

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<v Speaker 1>It's now in the midst of a drought that is

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<v Speaker 1>the worst in a thousand years, and it isn't going

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<v Speaker 1>away anytime soon. Basically, the the the rainstorms have been

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<v Speaker 1>shifted pullward further north and uh leaving UM California and

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<v Speaker 1>actually parts of Oregon dry. And that's not going to change,

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<v Speaker 1>and so the fire regime is going to continue. An

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<v Speaker 1>event truly that is going to get priced by the

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<v Speaker 1>insurance industry UM. Even now UM A lot of insurance

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<v Speaker 1>AIG pulled out of California, for instance, and a lot

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<v Speaker 1>of homeowners can only get the bare bones backstop from

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<v Speaker 1>the FAIR program, which is the California Insurance Backstop insurance program.

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<v Speaker 1>What that means is, if you think about it, UM,

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<v Speaker 1>is that most people have a mortgage. You can't get

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<v Speaker 1>a mortgage without fire insurance UM and UM. If you

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<v Speaker 1>can't get fire insurance, if you can't afford the premiums UM,

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<v Speaker 1>you're not gonna be buying a home, some people aren't

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<v Speaker 1>gonna be able to sell it. And already, Um, there's

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<v Speaker 1>been stories about how climate migrants are leaving the fire zones,

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<v Speaker 1>moving to perceived safer places like New England. Well, how

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<v Speaker 1>do you how do you explain though the rising housing

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<v Speaker 1>prices in California and continuing to be out of reach

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<v Speaker 1>for so many people and people still staying there. I mean,

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<v Speaker 1>it's not being priced in yet. No, it isn't being

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<v Speaker 1>priced in, and it's not being priced in Florida. The

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<v Speaker 1>hottest city in the country is Miami. And uh. The

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<v Speaker 1>Rhodium Group with pro Publica in The Times did a

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<v Speaker 1>study of every county in the United States for like

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<v Speaker 1>five different risks from climate change, including sea level rise

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<v Speaker 1>and windstorms and fires and everything else. And they aggregated

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<v Speaker 1>those risks and they said, these counties might They named

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<v Speaker 1>a bunch of counties that might be unlivable in twenty

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<v Speaker 1>to forty years. Um. One of those counties was Miami

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<v Speaker 1>Dade and that's one of the hottest real estate markets

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<v Speaker 1>in the country. So um, people I hear anecdotal stories

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<v Speaker 1>of people where they're a lot of condo and their

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<v Speaker 1>prices doubled in the last year. Palm Beach County is

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<v Speaker 1>another of those counties. The county that is home to

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<v Speaker 1>Hilton Head is another, and there are also counties in

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<v Speaker 1>Texas and Arizona and in California. So um I that

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<v Speaker 1>will change at some point. And the problem is is

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<v Speaker 1>that because of the underpricing of these risks for so long,

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<v Speaker 1>there are a lot of people there and it it.

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<v Speaker 1>I argue that it sets the stage for a replay

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<v Speaker 1>of two thousand and eight, where you have home buyers

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<v Speaker 1>who either can't sell our home or can't get a

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<v Speaker 1>mortgage to buy it, and the values drop, and then

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<v Speaker 1>of course you get a banking crisis, is what we

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<v Speaker 1>had in two thousand and eight. I had a front

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<v Speaker 1>row seat for that because I was chief investment strategist

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<v Speaker 1>for a hedge fund back when as it was unfolding,

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<v Speaker 1>and I can see something similar unfolding. The difference being

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<v Speaker 1>is that two thousand and eight was a one off,

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<v Speaker 1>and you know, basically, once we cleared up the bad

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<v Speaker 1>debts and everything else, we could restart the economy and

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<v Speaker 1>a climate reated related financial crisis it's going to get

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<v Speaker 1>worse year after year after year, because the climate crisis

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<v Speaker 1>will get worse and that's what we face. And you know,

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<v Speaker 1>I think, um, but it's it's not just a financial

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<v Speaker 1>crisis that's down the road. You mentioned a predicted temperature

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<v Speaker 1>rise for if even if we abide by the Paris Agreement.

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<v Speaker 1>I heard a figure of two point seven to three

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<v Speaker 1>point seven degrees celsius, like eight to eleven degrees fahrenheit.

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<v Speaker 1>That's those kinds of temperatures for haven't been seen on

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<v Speaker 1>the planet since before the ice ages, some three million

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<v Speaker 1>years ago. It was plenty of life back then, but

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<v Speaker 1>no humans. So for those of who argue, God, we

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<v Speaker 1>can't deal with climate change because of the lower our

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<v Speaker 1>standard of living, I disagree with that. By the way,

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<v Speaker 1>I would argue, um, there's a much more serious lowering

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<v Speaker 1>of standard of living coming if we don't deal with

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<v Speaker 1>climate change. I had a line in the lead to

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<v Speaker 1>you initially, and I think I dropped it, but I

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<v Speaker 1>would say how everybody is arguing, you know, when it

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<v Speaker 1>comes to thinking much more about the environments, that the

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<v Speaker 1>existence of our world depends on it, And you know,

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<v Speaker 1>that's where we're going. And I don't think people understand

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<v Speaker 1>the severity of it. I joke about the metaverse that

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<v Speaker 1>that's where we're all going to have to live because

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<v Speaker 1>we're not gonna be able to go outside because it's

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<v Speaker 1>gonna either be so darn hot and it's funny, but

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<v Speaker 1>it's not funny. Um. So we've only got a couple

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<v Speaker 1>of minutes. We can't solve climate change right here in now.

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<v Speaker 1>But what would you say to our audience, a smart

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<v Speaker 1>audience who are plowing money into E s G assets

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<v Speaker 1>and so on and so forth, thinking they're doing the

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<v Speaker 1>right thing, making their contributions, companies who are playing out

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<v Speaker 1>and you know, talking with him and me constantly about

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<v Speaker 1>sustainability initiatives and how they're taking the right steps. What

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<v Speaker 1>would you say, Well, I do think that the business

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<v Speaker 1>and finance community has had a c change in the

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<v Speaker 1>last couple of years, recognizing not the regulation for climate

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<v Speaker 1>change is a threat to profits, but the climate change

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<v Speaker 1>itself is a threat to business. That's heartening, and the

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<v Speaker 1>money flowing into these things is heartening as well. And

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<v Speaker 1>there are solutions out there, you know, to take carbon

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<v Speaker 1>out of the atmosphere. You can make concrete um by

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<v Speaker 1>making synthetic limestone, by combining carbon dioxide with calcium. You

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<v Speaker 1>can make steel without coal um. That's eight percent of

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<v Speaker 1>emissions two billion tons a year UM by running electrical

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<v Speaker 1>current through iron oxide and other metals. And so there

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<v Speaker 1>are of these solutions that can be the look deployed,

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<v Speaker 1>and the money flowing in will help deploy them. We

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<v Speaker 1>have to do that. Um. The thing that has to happen,

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<v Speaker 1>I think, is that we need a universal agreement the

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<v Speaker 1>lower emissions of universal being meaning every nation on Earth,

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<v Speaker 1>because we can't have exceptions like China and India and

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<v Speaker 1>other developing nations and put the entire burden on the

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<v Speaker 1>develop the Western nations because they cannot do it alone.

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<v Speaker 1>So the it is possible we are in for some

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<v Speaker 1>degree of climate change, already experiencing it, and we're already

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<v Speaker 1>it's already costing the economy trillions. All Right, we're gonna

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<v Speaker 1>leave it there. Listen, Thank you so much. Really, some

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<v Speaker 1>thoughtful things from Eugene Lyndon, journalist right or his new

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<v Speaker 1>book Fire and Flood at People's history of climate change

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<v Speaker 1>from nine to the present.