Wall Street eyes heart of darkness: global warming
Pastor Dale Morgan
Wall Street eyes heart of darkness: global warming*
12 Dec 2006 23:03:46 GMT
Source: Reuters
By Peter Bohan
CHICAGO, Dec 13 (Reuters) - The topic of the conference was climate
change and the rhetoric was sobering, haunted by scientific projections
of a roasted world for our children and a looming environmental disaster
of Biblical proportions.
But this was no talk shop of environmental activists. It was a meeting
of Wall Street investors, insurance executives, state treasurers and
pension fund managers, who between them manage about $3.7 trillion in
assets.
"The insurance industry has historically taken on social issues. I know
of no social issue that is bigger than this one," said Tim Wagner,
director of insurance for the state of Nebraska.
The consensus of Wagner and others addressing the conference of the
Investor Network on Climate Risk (INCR) was that institutional investors
are still too near-sighted to factor climate change into their
investment decisions.
While there will be costs to the U.S. economy from climate change, the
problem for Wall Street is that those costs are unknown and in the
future. Many drew a parallel to the asbestos and tobacco industries,
which were hit by lawsuits after the fact.
"The value proposition is one the Street isn't really recognizing," said
William Page, a portfolio manager at State Street Global Advisors.
Michael Moran, vice president of global investment research at Goldman,
Sachs & Co., said Wall Street was still taking its first steps. "The
first step to recovery is acknowledging you have a problem."
The short-term focus of investors at hedge funds and mutual funds made
climate change issues a harder sell that it would be for individual
investors or long-term funds, Moran said.
"So much capital is focused on short-term strategies. They say: 'I
understand climate change. I think it's a big risk. But you are talking
about long-term issues. I get evaluated every three months. I get a
percentage on this year's profits,'" he said.
Richard Sandor, head of the Chicago Climate Exchange, said it was up to
every institutional investor to push companies to evaluate and estimate
their climate risk.
Investors need to do so for three reasons: financial risk from
liabilities, investing opportunity in "green" technologies and rising
public concern, said Win Neuger, chief executive at AIG Global
Investment Group, a unit of insurance company American International
Group Inc. <AIG.N>.
"Companies that are irresponsible carbon emitters will pay a price,"
Neuger said.
STORM DAMAGE
For insurance companies, climate risks are already center stage
following Hurricane Katrina, which caused about $125 billion in damage
in 2005, with $45 billion covered by private insurers.
Nebraska's Wagner estimated that Hurricane Andrew, which damaged or
destroyed 125,000 homes from Florida to Louisiana in 1992, would cause
$150 billion in damage if it hit Miami today -- one-third of the U.S.
property and casualty insurance industry's capital base of about $450
billion.
"Insurance availability will be an issue. Insurance affordability will
be an issue," said Wagner, who heads the National Association of
Insurance Commissioners' task force on climate change.
Some $2 trillion in real estate was at risk from future storms in
coastal communities of Florida alone, he said.
"The increasing scientific consensus is that this represents a trend
beyond natural variability and a likely increase for the future," said
Gary Guzy of Marsh USA, a unit of insurance broker Marsh & McLennan Cos.
<MMC.N>.
Participants at the conference, held on Dec. 7 at the University of
Chicago, agreed to keep pushing companies to disclose their climate risk
and to press the Securities and Exchange Commission to encourage such
disclosure.
"Analysts are starting to ask the right questions and put some of the
real numbers in their analysis," said Mindy Lubber, a director of the
network. "There are thousands that need to change."
Meanwhile, Democrats have told President George W. Bush that mandatory
limits on greenhouse gas emissions will be a priority when they take
control of Congress next year.
Participants at the conference foresaw difficulties in Bush's firm
opposition and the complexity of creating the limits.
Yet Sandor, whose exchange already offers contracts for such a "cap and
trade" emissions system, said another Hurricane Katrina was all it would
take for it to become reality. "It's not a question of 'if.' It's only a
question of 'when.'"
Kentucky state treasurer Jonathan Miller said a trend to watch was a
push by U.S. church groups, especially conservative evangelicals, to
spotlight climate change.
"When this message is coming from the pulpit, that is when we're going
to see the real action take place," Miller said.
Until then, investment funds will continue to follow the money. "If our
clients care about this issue, we better pay attention," said AIG's Neuger.