The Don Quixote Edition - Tilting at Windmills

As part of the Paris Accords (COP21), the U.S. joined 195 countries in a landmark agreement—taking many years and 1,000s of people to complete--to roll back climate warming. Thanks to executive orders that continue to roll out of the White House, our promise to the world community may fall short.

In our first article, Nadja Popovich (NY Times) addresses the Trump Administration’s reversal this week of the US commitment to COP21. But Trump’s order doesn’t withdraw the U.S. from the Paris climate deal, the key international treaty on global warming. And it leaves other climate protections intact, according to our second article by Brad Plumer of Vox. And, there is overpowering momentum toward responsible investment and climate progress. Our third article from The Guardian reports that solar output has improved by 50%, in part thanks to the U.S. and China. Investors and businesses are betting over the long term on a sustainable, clean economy (even Exxon offered a thumbs up for COP21).

Unfortunately, like the mythical Don Quixote, the President is tilting at windmills, which is a fool’s errand. By most serious economic accounts, it was the low price of gas that choked off the sales of coal. “Pressured by cheap and abundant natural gas, coal is in a precipitous decline, now making up just a third of electricity generation in the United States. Renewables are fast becoming competitive with coal on price,” says other sources in the Times. So, strangling the US commitments in Paris will probably not bring back the coal industry, despite the White House pandering to my brothers and sisters in the UMW.

And, according to the U.S. Department of Energy, "Capacity for wind power in the U.S. in 2016 surpassed hydroelectricity, the typical dominant source of renewable energy in the country. Wind continues to account for more and more of the nation’s power. On Feb. 17, the Southwest Power Power regional electric system — one of seven that provides power to two-thirds of the country — broke a record for wind power generated. The system stretches from Texas to Montana and to North Dakota, and in the early hours of that day wind accounted for more than 50 percent of the system’s power.”

The Responsible Investor Handbook offers a new vision for responsible investment. Its argument is that responsible investment should reflect the intrinsic interests of workers, not only by generating competitive financial returns, but by contributing to the long-term wellbeing of economies, societies, and the environment. It makes the point that this approach to responsible investment—which includes responding to climate change—clearly aligns with the long-term interests of plan participants and beneficiaries.

The International Energy Agency noted we would need $36 trillion in new investments by 2050 in order to avoid irreversible climate change. Responsible investors are mobilizing capital to invest not just in windmills and solar projects, but also complex smart buildings, mass transit, electric and hybrid vehicles, and other inventive solutions. These investors are applying a more holistic and integrated investment approach to the challenges facing cities, industries, and our environment, and reaping the financial benefits. They are joining global coalitions to pool capital to address climate change.

Here in North Carolina, where I just spoke to a state task force on setting up a business turnaround program, a 2012 law banned the state from basing coastal policies on scientific predictions of how much the sea level will rise. The law was drafted in response to an estimate by the state's Coastal Resources Commission (CRC) that the sea level will rise by 39 inches in the next century, prompting fears of costlier home insurance and accusations of anti-development alarmism among residents and developers in the state's coastal Outer Banks region. (Source: ABC News)

If you travel to the coast in many parts of our country, it’s undeniable that sea rise is happening. It’s certainly creating challenges for islands in the Outer Banks, especially after hurricanes. It’s flooding Miami and other Southeast cities regularly during super high tides. Permafrost melting in Alaska is forcing some villages to relocate. Islands in the Pacific are disappearing. Cities and states will be spending billions of taxpayer dollars to mitigate the impacts of sea rise and other climate changes on their own infrastructure and real estate. I worry that the massive melt at the Arctic poles and Greenland may make the rise happen sooner than later.

Flooding at Cape Hatteras, NC

And speaking of prudent insurance planning (vs. head in sand), there is a prominent property fund manager, capitalized with retirement assets, who is actually selling off all of their assets on or near the US coasts that are not, or will not, be on high ground. Just as insurance firms produce maps that show risk corridors for tornadoes, hurricanes and earthquakes, there are now risk maps for sea rise. This manager is not making new investments on the low ground, and he is liquidating properties on the wrong side of the sea rise red line. His riveting remarks and maps at a recent conference of pension trustees acknowledged that, while the science can’t predict if dramatic rises will occur in 30, 50 or 100 years, the insurance industry is already beginning to calculate those damages, like it or not.

Smart investors have to look out over the long-term horizon, and make investment decisions on behalf of their beneficiaries. So, we can invest in preventative measures, per the Paris Accords, or pay the piper when the bill comes due (or, our children and grandchildren can).

As for those politicians and developers who believe climate change is a hoax, I’ve got some future swampland in Florida to sell to you.

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