Corporate Social ‘Wokeness’

 

The global debate over climate change entered into a new and more dangerous stage this past week. Two American corporate icons, Microsoft and BlackRock, have committed themselves to resisting what they perceive as the unacceptable risks of global warming. Microsoft has announced that it will be “carbon negative by 2030,” and that by 2050 it will have removed from the environment all of its carbon emissions dating back to its founding. It has also pledged one billion dollars to a climate innovation fund to deal with global warming—peanuts for a firm with over $125 billion in annual revenues.

Not to be outdone, BlackRock, the world’s largest asset manager with over $7 trillion in assets under management, has proudly declared through its Chairman and CEO Larry Fink that it will “place sustainability at the center of our investment approach, including: making sustainability integral to portfolio construction and risk management; existing investments that present a high sustainability-related risk, such as thermal coal producers; launching new investment products that screen for fossil fuels. . . .”

To Fink, there is no real conflict for his company between its social responsibility and its financial performance, as he is convinced that “incorporating environmental, social and governance (ESG) factors into investment analysis and decision-making. . . can provide better risk-adjusted returns for investors.” Ironically, if that point were true, he would have no need to depart from traditional investment standards, as all firms would flock to the new BlackRock standard.

These powerful initiatives are driven by the proposition that climate change poses the greatest threat to humankind society has ever faced. Without any documentation or meaningful argument, Microsoft and Blackrock accept that the accumulation of carbon dioxide in the earth’s atmosphere will result in elevated global temperatures. In making these statements, both companies write as if all the “world’s climate experts” within the “scientific community” speak with one voice in concluding that the release of greenhouse gases since the beginning of the industrial revolution is the source of this alleged mortal peril.

However, a close reading of these two corporate statements shows the dangers of consensus thinking around climate change, which can lead to lazy and incomplete arguments. The first issue concerns the supposed magnitude of the risk. It is clear that carbon dioxide levels have increased over time, especially over the past seventy or so years. But it is important to remember that the increase in temperatures began before the concentration of carbon dioxide in the atmosphere reached 350 parts per million in 1987, a level which has, without justification, been posited as the tipping point for climate catastrophe. Notably, this means that much of the temperature increase over the past five decades took place in low carbon dioxide environments.

The Microsoft statement claims that “the average temperature on the planet has risen by 1 degree Celsius during the past 50 years and that carbon dioxide emissions have been a primary driver of this.” Yet that is at odds with a report from the NASA Earth Observatory which concluded “the average global temperature on Earth has increased by about 0.8 Celsius (1.4 Fahrenheit) since 1880. Two-thirds of the warming [0.53°C] has occurred since 1975, at a rate of roughly 0.15-0.20°C per decade.” Indeed, the situation is even more complex because of the high degree of annual variability. As a result, much turns on the choice of the first and last year of the desirable interval. One recent study reported a decline of 0.16 Celsius between April 2018 and May 2019.

In any event, the explanation that carbon dioxide emissions are the sole driver of climate change is surely contestable, given that a complete account must also take into consideration population increases, solar flares, ocean currents and volcanic activity, among a vast array of other factors. The graphs included in Microsoft’s announcement duly record the huge increases in carbon dioxide emissions over the last 30 years, but those trends only weakly correlate to the modest temperature increases over that interval, including a sharp decline that extends as late as May 2019.

Thus the graph below for the 41 years from 1978 to May 2019 shows a net increase of just under 0.8 degrees centigrade. It is of course possible to present other data sets that might be susceptible to alternative interpretations, but either way, there is no rock-solid scientific consensus of the sort that Microsoft and BlackRock posit.

Microsoft and Blackrock’s presentations also suffer from other key defects. These corporate pledges assume that their proposed changes in carbon policy will reduce the increase in global temperatures, perhaps by as much as 1 degree Celsius. But what is missing from these projections is any estimate about either the financial costs of these innovations or their net impact on global temperature. If the sources of temperature changes are multi-causal, why should anyone believe that the ingenious efforts of companies like Microsoft to cleanse their supply chains of excess carbon dioxide will have more than a trivial effect on global temperatures, even if such actions are imitated by other firms?

And moreover, these effects could be totally undone if China or India decides to boost coal production in ways that more than offset any small reductions in carbon outputs by American firms. Thus, it is possible to spend billions of dollars on potential mitigation with little or nothing to show for it.

To make matters worse, there are better targets for intervention. The greatest causes of carbon dioxide emission in the past two years were the huge forest fires in Northern California and Australia. The recent California fires released about 68 million tons of carbon dioxide, or roughly the level of emissions needed to provide electricity for the state for an entire year. Taking effective steps to stop these consistent fires would dwarf anything that Microsoft can do through its supply chains or BlackRock through its sustainable investment policy. Nonetheless, A-list celebrities regularly champion the causes of global warming without once thinking about the dangerous management strategies adopted by the modern environmental movement that have contributed to such fires, a movement which opposes the removal of dead wood or the use of controlled burns to reduce fire risk. It would be far better for Microsoft and BlackRock to lobby for government reforms in forest management, a topic on which they remain silent.

Even supposing, however wrongly, that all the temperature increases and observed fires were exclusively attributable to carbon dioxide, the case for massive corporate intervention is still weak. BlackRock’s Larry Fink suggests with a straight face that the market for municipal bonds and home mortgages will collapse “if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas.”

Get real. These risks will exist whether or not Blackrock’s policies are implemented, and no matter what the carbon dioxide levels are. And the view that there should always be a viable market for flood or fire insurance ignores the huge moral hazard that is created when subsidized insurance is provided to persons who build too close to combustible forests or on coastal properties in hurricane zones.

Worse still, the fears that drive both BlackRock and Microsoft have not yet been observed over the past decade. Markets are supposed to price long-term risk into capital assets, but there is no sign that real estate, agricultural, insurance, or financial markets price this alleged climate risk in. Why is this, when our ability to forecast has never been better given the available quantitative estimates of climate-related risk?

One explanation is a recent study from climate scientists Giuseppe Formetta and Luc Feyen which concluded that: “Results show a clear decreasing trend in both human and economic vulnerability, with global average mortality and economic loss rates that have dropped by 6.5 and nearly 5 times, respectively from 1980-1989 to 2007-2016. We further show a clearly negative relationship between vulnerability and wealth, which is strongest at the lowest income levels.” The study’s abundant graphs all show the same downward projections, whether one looks at floods, heat, cold or wind related damages. In other words, the historical decline of these various risks also have to be priced into any long-term financial instrument.

A similar attack on the BlackRock-Microsoft position was also launched by Marlo Lewis, whose thesis is contained in his title: “Warmest Decade – Climate Crisis Still a No Show.” In stark contrast to the data-free presentations of both companies, Lewis tracks the key worldwide indicators of long-term global health—life expectancy, crop yields, per capita income, and climate related deaths. His data tells the same story as the study—everything is better today than it has ever been. The increases in societal wealth accumulation have inured to the benefit of all, rich and poor alike.

The cavalier attitude toward any contrary scientific evidence has led Microsoft and BlackRock to endorse proposals that will do little, if anything, to stop global warming, but which will, if widely followed, reduce the ability of societies around the world to deal with global warming or any other climate calamity, should one occur. There are real social and human costs to following BlackRock and Microsoft’s lead.

© 2020 by the Board of Trustees of Leland Stanford Junior University

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  1. Bryan G. Stephens Thatcher
    Bryan G. Stephens
    @BryanGStephens

    Love the points about markets.  I have noted to the face of climate alarmists they don’t act like they believe what they say.

    • #1
  2. Steve C. Member
    Steve C.
    @user_531302

    Dear Stockholders,

    Please accept reduced dividends in the future because we have decided to plow millions of potential profit dollars into reducing global warming.

    Sincerely,

    Your green board of directors.

    PS: Don’t hate us we are doing this for your own good.

    • #2
  3. Douglas Pratt Coolidge
    Douglas Pratt
    @DouglasPratt

    For my own good, I am now a former MS stockholder. They clearly don’t know what their job is.

    • #3
  4. David Foster Member
    David Foster
    @DavidFoster

    Does Microsoft’s definition of zero “carbon” (carbon is not really the same thing as CO2) for their own operations involve *complete disconnection from the grid*?….or are they planning to use solar/wind *when available* and sell the excess, use grid sources when s/w are not available, and ensure it all balances out (or goes negative) over time?  Because of it’s that latter–and that’s what most entities are doing when they claim to be CO2-zero or CO2-negative…then it’s a deceptive claim.  Time-used and time-of-production are important factors in electricity; a kilowatt-hour at one time and a kilowatt-hour at a different time are not the same thing.

    • #4
  5. SkipSul Inactive
    SkipSul
    @skipsul

    Bryan G. Stephens (View Comment):

    Love the points about markets. I have noted to the face of climate alarmists they don’t act like they believe what they say.

    Right, I’ll believe them when they start liquidating their cozy beachfront mansions.

    • #5
  6. Jon1979 Lincoln
    Jon1979
    @Jon1979

    What is shows at the moment is both companies are doing well enough financially to virtue signal with stockholeders’ money and expect to get away with it. Come back a decade from now and see how their financial bottom line is doing, and if it’s not as robust as today, if they’re still willing to spend extra cash to reduce their carbon footprints across the board, or if they’ve totally backed off that promise (or have backed off of it, but only in far-flung places where they don’t think the U.S. media is going to notice).

    • #6
  7. The Scarecrow Thatcher
    The Scarecrow
    @TheScarecrow

    Douglas Pratt (View Comment):

    For my own good, I am now a former MS stockholder. They clearly don’t know what their job is.

    Yeah, absent guns and jackboots, the Market will always win; I thought these guys knew that. They’ll come around once their stockprice starts to quiver.  Unless they’ve got their guns and jackboots game up and running.

    • #7
  8. CarolJoy, Above Top Secret Coolidge
    CarolJoy, Above Top Secret
    @CarolJoy

    I applaud your overall article. Especially the paragraph relating to how the biggest problems in terms of world atmospheric pollution, if carbon footprint has any meanings at all, would be the past few years of California and Australia suffering such tragic wildfires.

    The cause of these  fires has  nothing at all to do with our collective use of items like burning gasoline in cars or using hair dryers. Yet our collective use of Big Energy is precisely where the Leftists and “evolving” Republicans place the blame.

    A  sinister force is behind these fires. Although it is true that  California & Australia have had huge fires for decades, perhaps as far back as 10,000 years ago, the fires in the past were relatively small. Then in the summer of 2015, the Rocky fire swept through Lower Lake California. It took out 70,000 acres. A mere 10 weeks later, the Valley fire started only 5 miles from where I live. The wind was burning the other way, so my community was spared. But 75,000 acres were incinerated, including 1,100 structures, most of them homes. (Six people lost their lives.)

    Those fires were bad enough. However a 70,000 acre is now dwarfed by  experiences over these past two years: 300,000 plus acre fires. Australia just had 15 million acres incinerated. Their fire season is still underway.

    Those of us who think something sinister is happening have questions. For one thing, the ability to use cloud seeding is never employed during late summer or early fall here in Calif. Although that program would not have helped the July 2015 Rocky fire, as the fire occurred on a bright beautiful summer day, at the height of summer’s dryness, with nary a cloud in the sky, in other situations, it might have helped. The Valley fire may have been prevented if overcast conditions caused by clouds above  my neighborhood had been additionally seeded. 

    Instead of using a cloud seeding  program, in late 2019 we sky watchers viewed  in horror as one autumn rain storm after another was delayed, diverted or dessicated during this past October and November. Our skies are continually tic tac toed with aerial craft spraying aluminum, barium, glyphosate, siliconates and other chems. These elements push holes into the overhead clouds.  Additionally those who chart microwave frequencies find we are bombarded by disturbing frequencies that add to the dryness. I can water my yard on a cool day, yet find it has dried off just 45 minutes later, something I have never noticed in prior years. One other ominous weather record shattering event: we had no significant rainfall until just 48 hours before Thanksgiving, despite numerous rain storms being predicted by the National Weather Service (NWS). (Weather experts have stated that if the NWS predicts a storm a mere 96 hours before its predicted occurrence, the Service will be right 90% of the time. Yet these days, the NWS is wrong 45 to 65% of the time.)”

    • #8
  9. I Walton Member
    I Walton
    @IWalton

    What is the total subsidy in the energy sources they are using?  You haven’t mentioned these transfers from taxpayers.  

    • #9
  10. Guruforhire Member
    Guruforhire
    @Guruforhire

    I would really like to know how they plan to make Azure carbon neutral.  Cause you know data centers drink the juice.

    • #10
  11. Pony Convertible Inactive
    Pony Convertible
    @PonyConvertible

    When someone says they are going to be carbon neutral, or negative, you know right then they are lying.  Why?  Because there is no such thing as generally accepted accounting standards for carbon, and no independent audit companies who use those standards.  You can’t say you are neutral without an accurate accounting system.

    For example, a company might say we flew our jet X miles, and offset the carbon by planting XX trees. This seems to be a favorite method of “offsetting carbon consumption”.

    How do they know how much carbon was consumed by each flight?  It isn’t just fuel.  Somehow you have to depreciate the carbon it took to make the jet, and pay for a percentage of the fuel for the air traffic controllers drive to work, and the energy to run his computer and keep him warm, etc.  There is a wide range of inputs that they have no way of accounting for. 

    On the other side of the ledger, they assume each tree absorbs AA pounds of carbon per year, but the whole tree planting scenario ignores carbon emitted by trees.  Trees shed hundreds, if not thousands, of pounds of leaves every year.  The leaves decay and release carbon to the air.  All trees eventually die.  Add another couple of tons of decaying material to the ledger.  This is not insignificant.  MIT say decay of bio-material accounts for over 90% of all carbon in the atmosphere. In reality trees are pretty much carbon neutral.  To use them as an offset is simply fraudulent accounting.

    As I write this, I am using Microsoft products.  Microsoft didn’t build the computer, but I have to have the computer to use their products.  So will they account for the millions of pounds of carbon it took to make computers all over the world? Should they?  Who decides?  Them?

    Carbon accounting is virtually none existent, and what does exists is simply fraudulent.  Don’t believe it.

     

    • #11
  12. Douglas Pratt Coolidge
    Douglas Pratt
    @DouglasPratt

    Back when Al Gore was justifying his huge estate by saying that he bought “carbon offsets,” I was helping to coach my daughter’s debate team, and we were discussing the subject. We marveled over the obvious (to us, at least) hypocrisy of the arrangement. Someone suggested that we should sell “moron offsets,” to let people donate money to support an obviously brainy high school debate team, thereby adjusting the balance of intelligence in the universe. Do something stupid, make up for it by sending money to someone smarter than you. We had a lot of fun with the idea…it’s a shame we never developed it. I think I still have “www.moronoffsets.com” registered.

    • #12
  13. Michael Minnott Member
    Michael Minnott
    @MichaelMinnott

    David Foster (View Comment):

    Does Microsoft’s definition of zero “carbon” (carbon is not really the same thing as CO2) for their own operations involve *complete disconnection from the grid*?….or are they planning to use solar/wind *when available* and sell the excess, use grid sources when s/w are not available, and ensure it all balances out (or goes negative) over time? Because of it’s that latter–and that’s what most entities are doing when they claim to be CO2-zero or CO2-negative…then it’s a deceptive claim. Time-used and time-of-production are important factors in electricity; a kilowatt-hour at one time and a kilowatt-hour at a different time are not the same thing.

    It means outsourcing most of their operations overseas, out of sight and out of mind.  They can then maintain an ultra green corporate headquarters in the U.S. for appearances sake.

    • #13
  14. Michael Minnott Member
    Michael Minnott
    @MichaelMinnott

    Steve C. (View Comment):

    Dear Stockholders,

    Please accept reduced dividends in the future because we have decided to plow millions of potential profit dollars into reducing global warming.

    Sincerely,

    Your green board of directors.

    PS: Don’t hate us we are doing this for your own good.

    Most likely the green “funds” will in reality just be hedge funds that make small, nominal donations to fashionable environmental groups (preferably the ones with the best celebrity endorsements).  This will allow the companies to virtue signal without actually risking their money.

    • #14
  15. MISTER BITCOIN Inactive
    MISTER BITCOIN
    @MISTERBITCOIN

    what the CEO or any executive of a firm, private or public, has a ficuciary obliagtions to his :

    shareholders: increase market value

    employees: increase pay and opportunity for career advancement

    customers: provide high quality products and services at a price lower than competitors

     

    what the executive of blackrock or company abc or xyz wants to do with his own money as a private citizen is his business.

     

    telling the shareholders, employees and customers of the corporation he works for that he is using their money on his personal ‘green’ pet pojects is a completely different and possibly illegal

     

     

     

    • #15
  16. MISTER BITCOIN Inactive
    MISTER BITCOIN
    @MISTERBITCOIN

    Pony Convertible (View Comment):

    When someone says they are going to be carbon neutral, or negative, you know right then they are lying. Why? Because there is no such thing as generally accepted accounting standards for carbon, and no independent audit companies who use those standards. You can’t say you are neutral without an accurate accounting system.

    For example, a company might say we flew our jet X miles, and offset the carbon by planting XX trees. This seems to be a favorite method of “offsetting carbon consumption”.

    How do they know how much carbon was consumed by each flight? It isn’t just fuel. Somehow you have to depreciate the carbon it took to make the jet, and pay for a percentage of the fuel for the air traffic controllers drive to work, and the energy to run his computer and keep him warm, etc. There is a wide range of inputs that they have no way of accounting for.

    On the other side of the ledger, they assume each tree absorbs AA pounds of carbon per year, but the whole tree planting scenario ignores carbon emitted by trees. Trees shed hundreds, if not thousands, of pounds of leaves every year. The leaves decay and release carbon to the air. All trees eventually die. Add another couple of tons of decaying material to the ledger. This is not insignificant. MIT say decay of bio-material accounts for over 90% of all carbon in the atmosphere. In reality trees are pretty much carbon neutral. To use them as an offset is simply fraudulent accounting.

    As I write this, I am using Microsoft products. Microsoft didn’t build the computer, but I have to have the computer to use their products. So will they account for the millions of pounds of carbon it took to make computers all over the world? Should they? Who decides? Them?

    Carbon accounting is virtually none existent, and what does exists is simply fraudulent. Don’t believe it.

     

    carbon accounting is not gaap compliant or sarbanes oxley compliant?

    shocking

     

    • #16
  17. CarolJoy, Above Top Secret Coolidge
    CarolJoy, Above Top Secret
    @CarolJoy

    David Foster (View Comment):

    Does Microsoft’s definition of zero “carbon” (carbon is not really the same thing as CO2) for their own operations involve *complete disconnection from the grid*?….or are they planning to use solar/wind *when available* and sell the excess, use grid sources when s/w are not available, and ensure it all balances out (or goes negative) over time? Because of it’s that latter–and that’s what most entities are doing when they claim to be CO2-zero or CO2-negative…then it’s a deceptive claim. Time-used and time-of-production are important factors in electricity; a kilowatt-hour at one time and a kilowatt-hour at a different time are not the same thing.

    I am intrigued by your last sentence:  Time-used and time-of-production are important factors in electricity; a kilowatt-hour at one time and a kilowatt-hour at a different time are not the same thing.

    Some ten years ago or so, our Board of Supervisors were visited by these young PG & E hacks who were quite insistent that our county accept the notion of deferring our electrical use until the evening and wee morning hours. (This happened in Lake County Calif – slightly north of SF Bay area.)

    To their credit, The Supervisors  heaped contempt on these youngsters. For one thing, from May until Sept 10th or so, of any given year, the temps are routinely above 85 degrees. Once July hits, the temps are almost always above 93 degrees, and often go into the 102 to 106 range of heat.

    So how exactly do we defer our need for electricity? Business people need Air Conditioning  during these hot weather months, and the AC they desire is needed during the day. The elderly and young babies need AC too. Telling people it makes no difference to anyone to adjust to the “PG & E proposals” was ludicrous. Yet the young geeky trolls stuck by the PG & E narrative.

    One Supervisor mentioned how his son in law had a shop of some sort that relied on air compression machinery, and that it would be difficult to operate the business if that business adjusted its hours. Maybe employees could be made to come in and work late hours and into the wee hours of the morning. But customers definitely would not.

    I still think of that response whenever I start mentally imagining that our elected officials don’t stick up for the common people. On occasion they do, and industries like PG & E should be listening to what they say.

    • #17
  18. MISTER BITCOIN Inactive
    MISTER BITCOIN
    @MISTERBITCOIN

    Jon1979 (View Comment):

    What is shows at the moment is both companies are doing well enough financially to virtue signal with stockholeders’ money and expect to get away with it. Come back a decade from now and see how their financial bottom line is doing, and if it’s not as robust as today, if they’re still willing to spend extra cash to reduce their carbon footprints across the board, or if they’ve totally backed off that promise (or have backed off of it, but only in far-flung places where they don’t think the U.S. media is going to notice).

    Not only stockholders. 
    this virtue signaling is hurting employees and customers too. 
    smaller raises. 
    higher prices. 

     

    • #18

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