What does the climate change debate mean for investors?

As the climate change debate descends into farce, fund manager Tim Price reflects on the implications for sensible investors.

“Carney warns of climate change hit to corporate assets”

– Headline from The Financial Times, December 30, 2019.

Now that the issue of Brexit has been almost completely resolved, one gets the strong impression that those people perpetually inclined to wailing and gnashing of teeth will take to displaying hysteria about climate change as some form of surrogate displacement activity.

The climate-change ‘debate’ already has much in common with the near civil war  over Brexit, ie weapons-grade virtue-signalling by the ‘in’ group; emotional incontinence everywhere; the monstering of any acknowledgments of doubt by anybody; and an almost pathological sense of scientific certainty, fuelled by the selective use of heavily conflicted academic research.

As the author Ian Hall points out in his jeremiad against climate-change advocates, Unsettled Science, the scientific lobby was largely enabled by President Truman after America’s victory in the Second World War; the winding down of the Manhattan Project that helped develop the atom bomb led to 130,000 scientists being put out of work. And so began the era of government research contracts. This is not to say that all climate scientists are hopelessly conflicted by dint of their addiction to money from the ‘Big State’, only to suggest that, as Ian Hall advises, a philosophy of ‘follow the money’ may well explain some of the professional behaviours and strong feelings linked to the topic of climate change. When you’re paid to follow the party line, you follow the party line. Hall cites President Eisenhower in his parting address of 1961 (the emphasis is mine):

“Yet in holding scientific discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite.”

The danger in hewing to an academic consensus with a strong political agenda can also be seen, for example, in a) how academia almost universally came out in favour of ‘Remain’; and b) how most economists, being in the pay of either investment banks or lobby groups with financial connections to the Big State, remain unreconstructed neo-Keynesians (ie they believe in tax-and-spend policies and aggressive money printing). At MoneyWeek’s recent annual investor conference, for example, I was struck by the consensus among the associated panellists that modern monetary theory (MMT) – essentially, endless money printing and inflation be damned – was alive and well and heading to a central bank near you. Suffice to say, my investment recommendations for this year will be heavily focused on a mixture of global ‘value’ stocks – and gold. There was a helpful letter to the Financial Times from a Mr. George Hatjoullis in November 2014 that explains some of the dangers of MMT:

Sir, Adair Turner suggests some version of monetary financing is the only way to break Japan’s deflation and deal with the debt overhang (‘Print money to fund the deficit – that is the fastest way to raise rates’, Comment, November 11). This was precisely how Korekiyo Takahashi, Japanese finance minister from 1931 to 1936, broke the deflation of the 1930s. The policy was discredited because of the hyperinflation that followed.

Don’t get me wrong. I am not stating that climate change is not real. I am merely confessing that I don’t know enough about the science to make an informed judgment. But to have a properly informed opinion on climate change requires us all to be experts in astrophysics, astronomy, geology, meteorology, physics, chemistry, ecology, zoology and economics.

I admit to being a climate sceptic. Is our climate changing? Perhaps. Is human activity responsible for that change? I don’t know. If human activity is to blame for climate change, can we reverse that change? I don’t know. What I do know is that the most powerful energy source in our solar system, by some margin, is the sun. Anthropogenic climate change may well be real for all I know, but I am personally more interested in the effect of cycles in solar activity since that’s where most of our energy actually comes from. And trying to prevent the developing world from materially advancing – in part through the use of polluting fossil fuels – seems a particularly imperious way of hoisting the ladder of progress up behind you, once your own country has already achieved wealthy status.

Climate-change advocates seem to me very millenarian (ie they believe in a forthcoming transformation of society). A good example of a similar ‘doomsday cult’ is the Millerites, who followed the teachings of William Miller.

Born in Massachusetts in 1782, William Miller predicted that the world would end in April 1843. Miller had served in the War of 1812 against the British and ultimately became a Baptist preacher. No doubt influenced by his war-time experiences, he became obsessed with death and the afterlife. After the war he devoted 15 years of his life to study of the Bible. During this period, a number of movements sprang up – influenced perhaps by economic crises (such as the recession that followed the Panic of 1837) or the growing social tensions that would in time erupt in the Civil War.

Miller based his analysis on Daniel 8:14, which states that: “Unto two thousand and three hundred days; then shall the sanctuary be cleansed.”

He then used a contentious “day-year principle,” by which a day in Biblical prophecy became reinterpreted as a calendar year. By this reckoning, and using the starting point as the decree to rebuild Jerusalem by Artaxerxes I of Persia in 457 BC, Miller concluded that the second coming would occur on or around 1843. In a letter to his brother, Miller predicted that Christ would come:

“…in the glory of God, in the clouds of Heaven, with all the saints and angels, change the bodies of all that are alive on Earth that are his, and both the living and the raised saints will be caught up to meet the Lord in the air.”

As for those left behind, the outlook was not quite so benign. Miller forecast that the Earth would be

“…cleansed by fire, the elements will melt with fervent heat, the works of men will be destroyed, the bodies of the wicked will be burned to ashes.”

The wicked – those who rejected the Gospel – would not only die, but their spirits would be banished from the Earth, “shut up in the pit”, and not allowed to return to Earth for a thousand years.

The arrival of an extremely bright comet in 1843 bolstered fears of an impending apocalypse. Although reluctant to identify a specific date for the Day of Judgment, Miller finally settled on April 23, 1843.

April 23, of course, came and went without incident.

Miller concluded that he had erred in using solar years instead of lunar years, and came up with a replacement date for the end of days, namely March 21, 1844. The Millerites, as they were now known, purchased an enormous tent capable of accommodating more than 2,000 people, and were said to have bought “ascension robes” in preparation for their heavenly journey.

When March 21 came and went without incident, the Millerites plumped for October 22, on the basis that it was also the date of Yom Kippur.

When October 22 came and went without incident, Miller and his associate Joshua Himes embraced a new cause, namely to raise money for Millerites who had given up everything including their jobs and possessions to prepare for the end. Thus began a period known as “the Great Disappointment”. A more expansive list of delusional ‘end of days’ predictions is available here.

The British philosopher John Gray recently recorded an audio essay for BBC Radio 4 in which he suggested that “…the belief that an end to history is imminent never really goes away.” Gray compared the antics of the likes of climate-change pressure group Extinction Rebellion to those of previous Armageddonists such as the Millerites. And then, of course, there is the cult of Greta…

I have no problem with healthy debate. I have a big problem, however, with being compelled to act in a certain way simply because the chattering classes deem it socially respectable to do so. Fund managers are already being urged to draft statements of their ESG (environmental, social and governance) policy commitments. This seems dangerously faddish and subjective to me, perhaps because I am old enough to remember the 1970s, when we were all being warned of an impending new Ice Age.

For as long as it remains legal to do so, I fully intend to take advantage of attractive valuations in the commodity and energy-extraction space – particularly since the activities of people like Greta Thunberg and her related moral panickers have driven the share prices of companies in these sectors, in many cases, to extremely desirable levels. Tobacco companies underwent a similar process of incurring pariah status during the 1980s and 1990s, and their shares have been surprisingly strong performers for as long as I can remember.