Speaker 1: Wildfires have been sweeping through California, causing untold damage and destruction.
Speaker 1: Hurricanes seem to get stronger and stronger every year. Rising
Speaker 1: sea levels our forecast to make much of the coastline
Speaker 1: uninhabitable in the coming decades. This week on Benchmark, we'll
Speaker 1: talk about how climate change is reshaping economies around the world,
Speaker 1: and we'll look beyond all the destruction and doom to
Speaker 1: what business and investors can do to help. Welcome to Benchmark.
Speaker 1: I'm Scott Lanman, economics editor with Bloomberg News Washington, and
Speaker 1: I'm Daniel Moss, columnist at Bloombergan in New York. Joining
Speaker 1: us this week in our New York studio are two
Speaker 1: colleagues who are particularly knowledgeable on the topics of climate change, economics,
Speaker 1: and business. First, we have Dan Shurry. He's the head
Speaker 1: of Green and Sustainable Finance at Bloomberg New Energy Finance,
Speaker 1: our company's division that researches clean energy, advanced transport, and
Speaker 1: other key topics on the future of energy. Dan, thanks
Speaker 1: for coming on Benchmark. Absolutely the pleasure to be here.
Speaker 1: And Next, we also have Emily Chasen. She's the Sustainable
Speaker 1: Finance editor at Bloomberg News and edits Good Business Bloomberg's
Speaker 1: free weekly newsletter on sustainable finance. Emily, thanks for being
Speaker 1: with us, Thanks for having me. All Right, Well, before
Speaker 1: we talk about all the disasters happening in the world,
Speaker 1: let's talk a little bit about green and sustainable finance.
Speaker 1: It's a topic that we haven't really covered on Benchmark before.
Speaker 1: What is green and sustainable finance? How big is it?
Speaker 1: And where is it going? Yeah, I actually get this
Speaker 1: question a lot people who cover finance particularly haven't always
Speaker 1: understood whether what's sustainable, what makes that different? So it's
Speaker 1: actually a huge area. Um Sustainable investors just hit twelve
Speaker 1: billion in US assets this year. That's one in every
Speaker 1: four U s dollar invested is invested with some sort
Speaker 1: of sustainable or responsible criteria. So that's actually been growing
Speaker 1: about thirty a year for the past five years. So
Speaker 1: it's really a rapid increase in this area. And there
Speaker 1: are three major groups of investors that focus on this stuff.
Speaker 1: There's a group that just invoids investing in controversial products
Speaker 1: like weapons and tobacco or fossil fuels. Increasingly, there's other
Speaker 1: investors that incorporate environmental, social governance risk and they just
Speaker 1: sort of try and quantify the risk of climate change
Speaker 1: or increasing inequality or bad corporate governance on their portfolios,
Speaker 1: and they try to invest accordingly. And then there are
Speaker 1: some investors that have gone so far even in this group,
Speaker 1: to map companies pie locations and where their key suppliers
Speaker 1: are and see if they have facilities in areas vulnerable
Speaker 1: the storms or floods. And then the third group is
Speaker 1: this group of impact investors, and those are investors that
Speaker 1: hope to invest in products or services that have a
Speaker 1: positive impact, like investing in lab grown meat or renewable
Speaker 1: energy or sustainable agriculture. It's really just long term investors
Speaker 1: and they're trying to map the future and figure out
Speaker 1: what the cost of all these externalities are going to
Speaker 1: be on portfolios. So many of them are sort of
Speaker 1: long by and hold type people. And Dan, sure, how
Speaker 1: how does this play into the topic of climate change
Speaker 1: and you know other sort of big sweeping things that
Speaker 1: are you know, really beyond the scope of economies or
Speaker 1: countries and really go to, you know, how the human
Speaker 1: race survives on this planet. So I think it boils
Speaker 1: down to two key questions that investors are asking, especially
Speaker 1: when you look at a topic like climate change, which
Speaker 1: is very large and very nebulous, And the first question
Speaker 1: is how how do my investments impact the environment around
Speaker 1: me in the society around me? And the second question
Speaker 1: is how does the society around me and the changing
Speaker 1: climate impact my investments? And those two a very different
Speaker 1: ways of approaching the same topic, and they result in
Speaker 1: very different outcomes and very different ways of investing. And
Speaker 1: green and sustainable finance really encompasses both of them. So
Speaker 1: it's looking at both sides of the coin, both how
Speaker 1: you impact the climate and how the climate impacts you.
Speaker 1: All right, well, let's let's move to the wildfires in California.
Speaker 1: They've been called some of the worst in history. Can
Speaker 1: you just catch us up on what's happening, Why they're
Speaker 1: so bad, Why these this particular run of fires has
Speaker 1: been so destructive. Absolutely. So. I've been looking at some
Speaker 1: statistics actually from from cal Fire, and it looks like
Speaker 1: fourteen of the twenty largest wildfires have happened in the
Speaker 1: last fifteen years in California, And in line with that,
Speaker 1: ten of the last fifteen years have been the hottest
Speaker 1: on record on the West Coast. So what we're seeing
Speaker 1: here is the effects of climate change really impacting the wildfires,
Speaker 1: so that the fire that we're seeing right now, the
Speaker 1: camp fires the deadliest in history. There have been over
Speaker 1: eighty recorded deaths so far. There's still over nine people
Speaker 1: who are unaccounted for. So there's a company of utility
Speaker 1: company the spotlight of this this crisis right now that
Speaker 1: may or may not be culpable, may may not have
Speaker 1: started the wildfires in California that we're seeing this campfire
Speaker 1: and it's really being being impacted, and it's impact in
Speaker 1: the stock price as well. What we've seen is up
Speaker 1: to fifty reduction in the share price or the share
Speaker 1: value of pg n E in the days after the
Speaker 1: campfire broke out. It's often said that if California were
Speaker 1: a separate country, it would be part of the G
Speaker 1: seven or the G eight. That's how large it's economic
Speaker 1: footprint is. Do these fires change any of that or
Speaker 1: have the potential to alter that in any way? Well,
Speaker 1: California actually has really strong climate ambitions. The legislature this
Speaker 1: year passed a bill that would require all of its
Speaker 1: electricity to come from carbon free sources, and it also
Speaker 1: became the first state to require solar panels in almost
Speaker 1: all new homes. So those are actually really aggressive things.
Speaker 1: In California sort of sees itself as on the front
Speaker 1: lines of climate change. It's really worried about its beaches
Speaker 1: eroding and that being a huge part of the economy.
Speaker 1: There's tourism, and the wildfires are really damaging this infrastructure
Speaker 1: like pg n E that Dan talked about. PGNI has
Speaker 1: like at one point four billion and wildfire insurance and
Speaker 1: that's definitely not enough given the fires last year and
Speaker 1: this year. So and that infrastructure is what you need
Speaker 1: to do more renewable energy and there I mean, California
Speaker 1: is launching its own satellite to detect methane. But these
Speaker 1: wildfires released obviously a lot of carbon emissions into the atmosphere. Um,
Speaker 1: they do set the state back, and it's um, it's
Speaker 1: really the I know Donald Trump was saying it was
Speaker 1: forest management um that caused the wildfires, but California is
Speaker 1: actually a tinder box for a totally different reason. That
Speaker 1: just had very scant rainfall and hot, dry winds and
Speaker 1: just been bone dry. About eighty eight percent of California
Speaker 1: was abnormally dry as of October two, and there are
Speaker 1: wildfires like this all over the world. There's Scandinavia, Greece,
Speaker 1: there's record heat in Texas, Japan, Africa over the past
Speaker 1: year UM and it's just the droughts and the wildfires
Speaker 1: are all very interrelated. And the droughts are also a
Speaker 1: huge um source of an issue for agricultural jobs or
Speaker 1: food supply. The the economic initiatives that the finance initiatives
Speaker 1: that you're just talking about, you know, not just in
Speaker 1: California but around the world. How long will it take
Speaker 1: for these industries. Are these initiatives to sort of make
Speaker 1: up for the kind of damage that's being done in
Speaker 1: the various fires that you also cited. So when we
Speaker 1: look at California, for example, I think there's going to
Speaker 1: be more damage for a while before we start to
Speaker 1: see any sort of improvement. If you look at the
Speaker 1: potential liability that the PGNI might incur, the cost that
Speaker 1: they might incur if they are proven to be the
Speaker 1: cause of these fires, it could well cause a bankruptcy
Speaker 1: and that would have a knock on impact for the
Speaker 1: end consumer. You know, we talk about pgn E being
Speaker 1: being a victim of climate change, but really it will
Speaker 1: be passed onto the rate pair, the electricity pair that
Speaker 1: will have a few huge knock on impact on the
Speaker 1: cost of power for residents, the cost of power for
Speaker 1: industries in California, which might well impact the the the
Speaker 1: entire face of industry in California. If power becomes too expensive,
Speaker 1: then that might cause a corporations to move elsewhere. Yeah,
Speaker 1: in the US, we have a very centralized electricity system
Speaker 1: and UM electricity empower utilities are actually really it's moving
Speaker 1: from fossil fuels to electricity empower utility sort of being
Speaker 1: on the front line of climate change here, and investors
Speaker 1: concerns about what kind of fuel they're using, and UM
Speaker 1: using natural gas and fossil fuels increasingly people are worried
Speaker 1: about that. So, but to decentralize the climate system and
Speaker 1: to have more wind and solar, those windy and solar
Speaker 1: places are like different places in the in the country,
Speaker 1: so you have to rebuild the whole electric grid and
Speaker 1: that people say that could take like thirty years. So
Speaker 1: we have a long road ahead of us. So are
Speaker 1: people trying to actually fund that for thirty years? Are
Speaker 1: people that forward looking, our investors that forward looking, or
Speaker 1: or do things tend to be more shortsighted? For sure?
Speaker 1: Some investors have told me that they wish the government
Speaker 1: would fund the upgrades to the electrical grid, and they'll
Speaker 1: invest in the wind and the solar projects because they
Speaker 1: know how to do that. It's really hard to do that,
Speaker 1: but there's increasingly transmission lines and electricity trading so and
Speaker 1: stuff like that. But the government really controls a lot
Speaker 1: of the infrastructure there. So that is definitely a project
Speaker 1: that should happen. And is this likely to be a
Speaker 1: federal initiative should it come to pass, or is it
Speaker 1: going to be a patchwork of individual state programs. I'd
Speaker 1: say as long as the federal government isn't that interested
Speaker 1: in climate change, and then it'll probably be a patchwork
Speaker 1: of states. What we see now is as a complete
Speaker 1: fragmentation in different states taking different stances on climate change
Speaker 1: and what their role should be. California happens to have
Speaker 1: a very very very strong stance on climate change with
Speaker 1: a very very very high target for the issue. Here
Speaker 1: is that PG and E is a very key player
Speaker 1: in reaching those targets. So if they were to be
Speaker 1: wiped out by bankruptcy proceedings following this fire, rather ironically,
Speaker 1: they're actually going to be needed to help meet these
Speaker 1: targets in the first place, and the stack is actually
Speaker 1: up today because investors are betting that California will back
Speaker 1: them because they need them. All Right, Well, let's move
Speaker 1: on to hurricanes and other major storms like typhoons. We've
Speaker 1: seen plenty of that. This year, we had the second
Speaker 1: year in a row at least in the US with
Speaker 1: multiple storms that have caused wide scale destruction. It might
Speaker 1: even be more than two years. Uh. Hurricanes getting more
Speaker 1: frequent and stronger. So when you look at hurricanes, it's
Speaker 1: not so much the frequency the matters. It's the strength
Speaker 1: that matters, because that's where the damage comes from, and
Speaker 1: that's ultimately where the cost is incurred. And they're getting stronger.
Speaker 1: If you look at the damage that's that's been incurred
Speaker 1: in the US since the nineties, we've seen that actually,
Speaker 1: what thirty of total damage costs from hurricanes happened in
Speaker 1: seventeen alone from three hurricanes, Hurricane Harvey, Maria, and Erma.
Speaker 1: So they're getting more powerful. That's because sea levels, sorry,
Speaker 1: sea levels are rising, but also the temperature of waters
Speaker 1: is increasing, which makes them more intense. When they're more powerful,
Speaker 1: we get category five hurricanes for example, making landfall. That's
Speaker 1: what the damage happens. Last year, there are a lot
Speaker 1: of billion dollar storms, so the damage is definitely increasing
Speaker 1: from these hurricanes when they make landfall and then and
Speaker 1: I have both lift overseas in Asia, which is also uh,
Speaker 1: you know, suffering from typhoons that we read about. Can
Speaker 1: you tell us how how these kinds of storms are
Speaker 1: wreaking havoc in Asia as well or other places around
Speaker 1: the world. Yeah, So the typhoon that we saw in
Speaker 1: Asia this year was the most powerful on record, I believe,
Speaker 1: and the fact that it happened to hit some major
Speaker 1: cities and we're seeing huge over not overpopulation, but we're
Speaker 1: seeing huge population rises in coastal areas around Asia, Hong
Speaker 1: Kong for example. That the damage is tangible and you
Speaker 1: can really see it in the cities there. So cities
Speaker 1: happened to make two options. The first one is to
Speaker 1: either make themselves more resilient with flooding defenses and storm defenses,
Speaker 1: or it's a case of you know, essentially giving up
Speaker 1: and moving inland. And that hasn't happened yet, but that's
Speaker 1: something that you know, the frequencies, if the frequency of
Speaker 1: large scale and strong storms happens to go up, then
Speaker 1: that might be the only option in the future. That
Speaker 1: is already happening in New Orleans in the US. And
Speaker 1: home prices in the US have actually fallen around the
Speaker 1: hurricanes and wildfires and um, I think Bloomberg found that
Speaker 1: homes in areas exposed to fires and hurricanes were worth
Speaker 1: less last year on average than a decade earlier. So
Speaker 1: you are starting to see this risk get incorporated in that.
Speaker 1: And you know, people buying flood insurance are being able
Speaker 1: to obtain flood insurance exactly. And even in Puerto Rico
Speaker 1: we saw a fifteen percent reduction house prices following Hurricane
Speaker 1: Maria last year in the most affected areas that was
Speaker 1: over is economics treated as something distinct from climate change?
Speaker 1: And do you see this year or perhaps the past
Speaker 1: two years, as being a watershed in how people view economics.
Speaker 1: In other words, it's not just how much do I
Speaker 1: get and am I working? It's all of these things
Speaker 1: that can contribute to the economic well being of one's country. Yeah,
Speaker 1: I'd say that wildfires, droughts, storms, and floods are sort
Speaker 1: of the most tangible impacts on climate change that we
Speaker 1: see today and seeing them reak such havoc um is
Speaker 1: sort of elevating the issue for people into the present day. Um.
Speaker 1: It seemed like a thing that was really far off,
Speaker 1: but the u N just a few weeks ago came
Speaker 1: out with this report that said, we're really going to
Speaker 1: start to see effects of one point five degrees of
Speaker 1: global warming by and that's something a lot of people
Speaker 1: who are here today will still be around to see. UM.
Speaker 1: So the investors that I talked to are usually long
Speaker 1: term investors. Maybe they'll hold stocks for thirty years, they
Speaker 1: want to hold them for a really long time. So
Speaker 1: for them is actually just around the corner. And if
Speaker 1: they're going to hold forever and not sell, they really
Speaker 1: want to make sure that their companies are incorporating this
Speaker 1: risk because it really changes the basis of operations. And
Speaker 1: it's not even just the risk of the storms and
Speaker 1: the floods, but the risk that the governments will start
Speaker 1: to get involved and change all the structures and costs
Speaker 1: that people are used to and change their business model
Speaker 1: overnight to sort of combat this effect because it's really
Speaker 1: going to affect human life. And this is called the
Speaker 1: tragedy of the horizons, which essentially this concept that the cycles,
Speaker 1: economic cycles and what we look for in in the
Speaker 1: finance community happens on a much shorter scale than the
Speaker 1: true impacts of things like climate change. I think you're
Speaker 1: absolutely right in that we're starting to see a shift
Speaker 1: away from that mentality. We're starting to see you know,
Speaker 1: dots connecting between various climate incidences and you know, various
Speaker 1: catastrophes and rising costs of of things like living living
Speaker 1: near the coast. And I think people are starting to
Speaker 1: put the dots together on these things. But what we
Speaker 1: really need more is is kind of awareness and education
Speaker 1: in the market to show that there are short term
Speaker 1: implications as well as long term implications for things like
Speaker 1: climate change. And that's where initiatives like the Task Force
Speaker 1: and CLIMB related financial Disclosures of the TCFD are extremely useful.
Speaker 1: They provide a framework for companies to disclose the risks
Speaker 1: that they envisioned for that corporation, the long term and
Speaker 1: the short term operational risks of their businesses, and what
Speaker 1: the financial implications of that might be. And that's that's
Speaker 1: crucial for investors. So there is a little bit of
Speaker 1: a silver lining and all this doom and gloom that
Speaker 1: we've been talking about today. Can you talk a little
Speaker 1: bit more about some of the initiatives or or um
Speaker 1: ways that investors can make a difference or or or
Speaker 1: business can make a difference in in dealing with the
Speaker 1: effects of climate change with respect to hurricanes, or maybe
Speaker 1: even some other issues like agriculture or other things that
Speaker 1: we haven't discussed. Yeah, I mean the TCFD which Dan
Speaker 1: brought up. They talk about the rest of climate change,
Speaker 1: but they also want businesses to spell out what their
Speaker 1: opportunities are in climate change, right, because when there's change,
Speaker 1: there's opportunity on both sides. So we definitely need some
Speaker 1: sea walls probably you know, like we're abandoning areas of
Speaker 1: New Orleans or something. But you know, the Netherlands has
Speaker 1: been under sea level for quite a long time, so
Speaker 1: that's an area where some people are really looking for investment.
Speaker 1: How do you make money off of a sea wall?
Speaker 1: I mean, isn't that kind of a more of a
Speaker 1: government project? But somebody has to supply the concrete. So yeah,
Speaker 1: I hear a lot of investors talking about concrete. That's
Speaker 1: a very interesting area. And also there's some swipes of
Speaker 1: cement and concrete that can be used to store carbon
Speaker 1: and become a carbon sink that they actually pull carbon
Speaker 1: out of the atmosphere to create the cement. So people
Speaker 1: are trying to make even that really good. UM. There's
Speaker 1: a lot of stuff in electric vehicles, UM, hydrogen fuel
Speaker 1: cell vehicles, the automakers are really probably the next area
Speaker 1: that people are looking at after UM energy production. And
Speaker 1: then there's also in the drought areas, desalination plants so
Speaker 1: that people can make more water and have water for
Speaker 1: agriculture and all these areas where there are wre strouts, yeah,
Speaker 1: and and definitely sustainable agriculture. People are looking at things
Speaker 1: that do function to cerbant carbon sinks, like the oceans
Speaker 1: and UM coastal wetlands and forests and trying to see
Speaker 1: if they can invest more in those areas and make
Speaker 1: them tangible. But that's something that really hasn't been done
Speaker 1: that much before. And what we're seeing in the financial
Speaker 1: community of brand new products and innovations that have been
Speaker 1: really interesting in raising awareness of both the impacts and
Speaker 1: the risks associated with things like climate change. Take for example,
Speaker 1: a brand new concept you know it only earlier, really
Speaker 1: grew in the last couple of years or so green bonds.
Speaker 1: Green bonds are essentially normal corporate bonds, but the the
Speaker 1: issuer has committed to disclosing around the environmental impacts of
Speaker 1: of the proceeds that have been raised by that bond,
Speaker 1: and green bones have grown phenomenally. We've seen upwards of
Speaker 1: five billion dollars worth of green bonds issued in the
Speaker 1: last three years alone, and those can be financing anything
Speaker 1: from renewable energy to sustainable agriculture to biodiversity. So we're
Speaker 1: seeing a real uptick in financial instruments that are helping
Speaker 1: to convey the message and the importance of of of
Speaker 1: climate change and environmental degradation, but also showing you the
Speaker 1: benefits of doing so. All right, last question, Dan and Emily,
Speaker 1: China or the United States? Which one is going to
Speaker 1: be bigger in the world of green investment, sustainable finance,
Speaker 1: whatever you want to call it. Which one is going
Speaker 1: to be bigger, say twenty years from now. I know,
Speaker 1: when I was an editor for Bloomberg in China, I
Speaker 1: was starting to hear a lot about green bonds and
Speaker 1: that sort of thing. And China likes to make a
Speaker 1: lot of noise about how it's uh, you know, going
Speaker 1: to be big on these kinds of issues. What's your
Speaker 1: take on it. Well, I think China is going to
Speaker 1: be the market leader in this space, but that comes
Speaker 1: at a caveat. So when we look at the future,
Speaker 1: we look at say to fifty, we expect around nine
Speaker 1: point three trillion dollars worth of investments into renewable energy
Speaker 1: new renewable energy build globally. Five point five trillion of
Speaker 1: that will be in in the Asia region and the
Speaker 1: majority of that will be in China. So in terms
Speaker 1: of absolute numbers, China will certain lead, but the caveat
Speaker 1: being when you look at things like green bonds and
Speaker 1: green finance, China's view of what green is is very
Speaker 1: different to the rest of the world. When we look
Speaker 1: at green bonds specifically, China believe is that clean coal
Speaker 1: is actually a category of financing that that is sustainable
Speaker 1: and that is green that doesn't fly anywhere else. So
Speaker 1: they will be the market leader, but they have a
Speaker 1: slightly different definition of what green is. Yeah, and a
Speaker 1: lot of the investors I talked to you, they say
Speaker 1: China is already winning a little bit. They've definitely invested
Speaker 1: a lot the past few years. Um just put billions
Speaker 1: into green band issuance into building solar um You know
Speaker 1: so much that the US did the tariffs on their
Speaker 1: solar panels this year. They're really the capital for a
Speaker 1: lot of this renewable energy infrastructure and technology coming out
Speaker 1: of there, and the US like hasn't really gotten its
Speaker 1: act together as a government to know that's a lot
Speaker 1: of investors are worried. It's kind of a missed opportunity here.
Speaker 1: All right, Well let's leave it there. Dan Shurry of
Speaker 1: Bloomberg New Energy Finance and Emily Chason of Bloomberg News
Speaker 1: and the Good Business new Letter at Bloomberg. Thanks so
Speaker 1: much for taking the time to be with us today.
Speaker 1: Thanks for having us. Thank you. Benchmark will be back
Speaker 1: next week. Until then, you can find us on the
Speaker 1: Bloomberg Terminal, Bloomberg dot Com, or Bloomberg app, as well
Speaker 1: as podcast destinations such as Apple Podcasts, Spotify or wherever
Speaker 1: you listen. We'd love it if you took the time
Speaker 1: to rate and review the show so more listeners can
Speaker 1: find us. And you can find us on Twitter. Follow
Speaker 1: me at Scott Landman. Dan Moss, You're at Moss on
Speaker 1: the School Pico. Dan Shurry, you are at Daniel S
Speaker 1: Page You are You and Emily you are at e
Speaker 1: chasen ch a s A. M all Right. Benchmark is
Speaker 1: produced by Toper Foreheads. Francesca Levy is the heat of
Speaker 1: Bloomberg Podcasts. Thanks for listening and wish all of our
Speaker 1: American listeners are happy Thanksgiving. See you next time.