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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.Published in