OpinionMar 13 2015

This really is going to change everything

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This really is going to change everything
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We are in really big trouble.

I’m not talking about financial advisers or our legitimate but parochial near-term concerns over financial liabilities, nefarious excessive regulation or consumer willingness to pay for advice. I’m talking about our species.

The threat of global, catastrophic climate change is real, present and more dangerous than any other existential crisis we’ve previously faced.

In a compelling, affronting analysis extracted from her new book into a front cover wrap around to last Saturday’s Guardian, activist and author Naomi Klein referenced what is widely seen as the last great hope for humanity: that our political leaders will agree to cap temperature rises at 2C above where they were before the coal-burning age began.

Temperatures have already risen around 0.8C and the consequences have been profound: rising incidence of extreme weather, persistent droughts (Sao Paulo’s water reserves fell to just 5 per cent of capacity over a year before it turned a corner last month), acidification of the oceans, and so on and so on.

As Ms Klein starkly states, allowing temperatures to rise by more than twice this figure will “unquestionably have perilous consequences” we can’t foresee. Even this will only be achieved with unprecedented effort.

In a report in 2012 the World Bank predicted a 4C rise by the end of the century. Kevin Anderson, deputy director of the Tyndall Centre for Climate Change Research, has described this as “incompatible with any reasonable characterisation of an organised, equitable and civilised global community”.

The World Bank stated we should expect such a world to be marked by extreme “heat waves, declining global food stocks, loss of ecosystems and biodiversity, and life-threatening sea level rise”. Water levels would rise by up to 2 metres; London is among dozens of major cities that could be in jeopardy.

The old adage that holds if we made the mess we can clear it up probably applies

And before anyone says it, the overwhelming majority of scientists - by the reckoning of most around 97 per cent - who are far more qualified than anyone else to comment are agreed we’ve at least exacerbated the situation to such an extent as to make it our fault. I consider that debate closed.

Nihilism isn’t an option either. The old adage that holds if we made the mess we can clear it up probably applies, but in any case scientists also agree we can at the very least slow the pace of change down enough to give us and the planet time to adapt.

So the real question becomes, why am I writing about this on an adviser website? My answer: precisely because, to borrow the eponymous refrain from Ms Klein’s book, ‘this changes everything’.

This week our parent paper the Financial Times published a piece in which a number of experts berated the US for not keeping up with its competitors in exploiting the “economic development” potential of the arctic.

For the avoidance of doubt, that means digging up more oil - and it shows how far we have to go.

According to author and campaigner Bill McKibben, to keep warming to 2C we’d have to cap emmissions of carbon dioxide between now and the middle of the century to 565 gigatons. Burning all of the proven reserves of fossil fuels - those we know about for sure and not that we’re still trying to find - would emit close to five times that amount.

If you’re in any further doubt look at the effects on individual country budgets and the global economy of the recent sharp decline in the price of oil. We are lethally addicted to traditional energy, chasing the dragon of fossil fuel emissions in the vain pursuit of short-term economic gain.

Turning around the tanker (if you’ll pardon the ironic pun) is going to involve doubling down on investment into renewable energy and dramatically increasing costs and penalties for those deriving profits from finite resources.

For advisers this should already be part of thinking on client investments, especially those being held over the longer term, such as pension money.

In a recent report on so-called ‘sustainable’ investments, we discussed how to compare returns from ‘responsible’ investing. But once all of our risk assumptions about what constitutes a ‘safe’ investment and where we should look for sustainable long-term returns are turned on their heads, the prefix designating this as non-mainstream will become obsolete.

Climate change is necessarily nebulous and all too often ignored. But we must assume leaders will put aside petty, avaricious squabbling and finally move to tackle this issue. This will have profound consequences for everything you do in managing clients’ wealth.

The good news is that this is as much an opportunity as a challenge - and those moving sooner rather than later will be rewarded the most.

ashley.wassall@ft.com