A 'Code Red for Humanity'

By Berna Barshay

Monday, August 23, 2021

► The scariest things in life are often those over which you have no control...

Many of us have been reminded of this far too often over the past year and a half during the COVID-19 pandemic. Similarly, I remember as a child being filled with existential dread after watching movies about a fictional Cold War nuclear apocalypse, like The Day After and Testament.

Fortunately, the Cold War ended and fears of the world's annihilation in a nuclear war between two superpowers have subsided. Worry about nuclear doomsdays has been removed from the collective consciousness, only to briefly re-enter when North Korea starts rattling cages or India and Pakistan get into a dispute.

While COVID-19 is very much still here, we're learning to live with it... And for those of us over the age of 12 and lucky enough to be living in the U.S., Canada, Europe, and other countries with decent vaccine access, the vaccine has given us a tool to help control our personal risk.

But this summer, the other existential threat that we as individuals have limited control over – climate change – has been constantly in our face. You've likely heard about some of these recent events...

  • In June, the Pacific Northwest – a place where houses weren't even built with central air conditioning a few decades ago – saw an unprecedented heat wave, with a record temperature of 116 degrees observed in Portland.
  • Western Germany was hit by floods unlike any seen in the past 100 years.
  • Haiti was struck by a devastating hurricane, again.
  • Tourists evacuated Greece because of wildfires.
  • And just this past weekend, the star-studded New York City homecoming concert had to be called off before headliners like Bruce Springsteen and Elvis Costello took the stage because of the lightning that preceded the arrival of a large tropical storm... In fact, Central Park experienced an all-time high for hourly rain that night.

This is but a partial list of anecdotes of weird recent weather... and it doesn't even get into what happened this winter, like the Texas freeze that is still having ramifications both political and commercial ramifications.

But anecdotes are just anecdotes... and you can always cherry-pick data to prove a point. This is why the report released earlier this month by the Intergovernmental Panel on Climate Change ("IPCC") – a scientific group organized by the United Nations ("UN") – is such a big deal.

The report reflects the work of hundreds of scientists who reviewed 14,000 studies. And its conclusions – in the words of UN Secretary-General António Guterres – are a "code red for humanity."

This 4,000-page report does not pull any punches...

It's actually the sixth in a series of reports on climate change from the IPCC (the first one was compiled in 1990). But this one has removed any kind of hedging language about what's going on... and why it's happening.

Gone are modifying phrases like "we have reasonable evidence that"... "it is likely"... or "we have medium confidence."

Instead, the report's first finding states that beyond any doubt, climate change is happening, and yes, we (humans) did this...

It is unequivocal that human influence has warmed the atmosphere, ocean, and land.

The burning of coal, oil, and other fossil fuels has led to an increase in carbon dioxide in the atmosphere since 1750, and this gas traps heat, making everything warmer.

Scientists are more certain about global warming than ever. Back in the 2013 IPCC report, 36% of statements made by the report reflected "high confidence" according to analysis by news site Quartz. In this version, that number jumps to 56%.

Tools for modeling the climate are getting better, and a good bit of the report focuses on back-testing various scenarios. The back-testing is similar to the analysis investors perform on a portfolio to identify the factors that helped and hurt performance.

The scientists are trying to figure out what the world would have looked like if our behaviors had been slightly different, as well as what we can change to reduce further damage.

Somehow, climate change has become a political issue here in the U.S...

I've had several friends from Europe and Australia remark to me how strange it is that climate change has become a political issue in America... In other countries, environmental concerns tend to be a much more bipartisan issue. I'm not going to speculate on why this is, but it makes sense to acknowledge it, as the IPCC report does, for the first time.

In fact, one of the inputs into the model measuring potential future climate change under various scenarios is political circumstances that either aid or inhibit coordinated action.

For climate change skeptics, an important thing to realize is that 195 countries had to sign off on this report prior to its publication. Getting that many countries to agree on anything is a big deal, especially when the thing they are agreeing on puts some of the blame on them.

The bad news is that there is nothing we can do to keep our planet from continuing to get hotter for the next 30 years...

Since the 1800s, the earth has already warmed about 1.1 degree Celsius (or 2 degrees Fahrenheit). Rising air and sea temperatures have led to extreme droughts and flooding, severe heat waves and hurricanes, and the melting of ice sheets near the poles.

Source: BBC

The amount of carbon dioxide in the atmosphere is at a 2-million-year high, and the level of late-summer sea ice in the Arctic is lower than it has been for 1,000 years.

The depressing major takeaway from the report is there is nothing we can do to stop this from progressing for the next three decades. The report considered five scenarios for the future, and under all of them, the world's temperature increase will hit 1.5 degrees Celsius by 2040, or sooner.

That means more flooding in coastal areas, more droughts and wildfires, more hurricanes, and more heat waves. This has implications for all kinds of industries – from agriculture to tourism to insurance and real estate. Of course, these weather events also put millions of lives at risk.

But there is some reason for optimism...

According to the IPCC report, we have a window of opportunity to alter the trajectory of climate change in a way that would have a profound, positive effect as early as the second half of this century. But it will require drastic action now, on the part of not just governments, but also industries and the corporations that comprise them.

As futurist Alex Steffen wrote in a blog post the day the IPCC report came out...


When we smashed an unsustainable economy into an immovable planetary reality, we broke our continuity with the past.

The material fundamentals of the systems that surround us are in cataclysmic conflict with the biological fundamentals of our planet (and the practical realities of societal needs). The planetary crisis is not an issue, or set of issues, but a change in era, one that's already happened...

To be alive right now is to find ourselves flattened against the fact that the entire human world – our cities and infrastructure, our economy and education system, our farms and factories, our laws and politics – was built for a different planet.

To address the crisis, it will take institutional coordination. It's nice if you recycle your bottles and cans and I turn my AC up to 75 degrees or if your friend buys an electric car... we should do those things, but they aren't the whole answer. It's like the tail trying to wag the dog.

One big piece of the puzzle lies in companies adopting more sustainable and low-emission business methods, in a dramatic, rapid transition. As Steffen writes...

It is no longer possible to achieve that orderly transition, to combine action at the scale and speed we need with a smooth transition and a minimum of disruption.

This crisis unfortunately coincides with a period in which public trust in governmental and corporate institutions sits at all-time lows. But that isn't stopping many corporations from moving forward and addressing their part in the climate change crisis. Future-thinking investors are also pressuring companies from the outside to re-examine their practices.

The climate crisis has led to an investing revolution in the world of 'ESG'...

ESG investing takes into account the financial risks and opportunities presented by environmental, social, and governance factors. These factors are more qualitative than the financial metrics that analysts typically look at... but ignoring them could prove detrimental to future stock returns.

Any company that ignores its role as a citizen of the planet and the countries and communities it inhabits is increasingly at risk of regulation as well as seeing revenue drop as consumers and other businesses shun it. Investors are increasingly factoring in the effect that a company's response to climate change and other collective social concerns will have on its future financial performance.

ESG investing isn't just about virtue signaling... it's about making sure revenues and profits don't go into secular decline in the future. Companies perceived to be bad actors have always been hounded by non-profits and subject to boycotts from irate consumers... But now we're seeing a new wave of ESG activists, most notably apparent in the successful efforts of a small hedge fund to get eco-friendly directors elected to the board of oil giant ExxonMobil (XOM).

ESG has already been huge for years in Europe. I focused on European companies in my last hedge fund job and ESG came up in every meeting with both companies and potential fund investors. Europe still accounts for half of all global ESG assets, but the trend is coming on strong in the U.S., which currently is seeing the highest ESG asset growth and could be the leading ESG investing market by next year.

And ESG – which was a small niche in investing when I began my Wall Street career in the 1990s – is decidedly no longer a niche. Bloomberg estimates that ESG assets should top $50 trillion globally this year. By 2025, Bloomberg predicts one-third of global assets will be allocated to ESG investing.

Companies are taking note and ramping up their disclosures regarding climate risk...

Source: Quartz

So even if you don't care about climate change, if you care about your money, ESG is a trend to watch.

In the mailbag, readers react to last week's essay about workers secretly holding down two jobs at once...

Do you factor a company's impact on the environment or other social concerns into your investing decisions? Do you think corporations have a responsibility to immediately find ways to lower their emissions, even if changes will have a negative effect on their bottom lines? Please take our one-minute Empire Financial Research Climate Change/ESG Quiz here.

"Hi Berna: I was saddened by your report today. Your story is another reflection of the decline of our culture and individual morality. This behavior, of pride and entitlement, is doing tremendous damage to our country and world.

"Employees have an implied duty to direct all of their energies towards the achievement of the employer's goals. If the terms of the relationship are not satisfactory to the employee, he/she should communicate with the employer to change the terms of the relationship or terminate, not cheat, or steal.

"In sane people, this immoral behavior can lead to guilt and remorse, and weighs heavily on their souls. If the employer discovers this cheating, trust is broken, and future relationships are not to be trusted either. Reputations matter. Without trust, where will society end up? If people will not be guided by morality, we will need more lawyers and police and be led by tyrants.

"The fact that Overemployed exists demonstrates how far down the path of destruction we have traveled.

"The letter from the hotel worker is disappointing as well. She stayed in the job too long after it became apparent she was not in a good relationship. Instead of tendering notice, she stored up her emotions until they boiled over. She blew! She bears some culpability here. Her letter was vengeful and unconstructive, especially in the presentation where it could be seen by patrons.

"The ideal scene is one where the employer and employee help each other achieve their goals in a mutually beneficial way." – Roger G.

"I think it's disgusting. I've been on both sides, employee and employer. I would never slough off as an employee and I was kind to my employees. They never quit on me either." – Robert M.

"Hi Berna: Second-hand story, but I heard from a friend in 2019, pre-COVID, that her boss was doing the two-jobs-at-the-same-time thing. He would not have been able to pull this off without her being his backup to the first job, as both jobs were in-person.

"I was fascinated at the time with her story and also fascinated with your article that it has become a trend! This person worked as the salaried overall site general manager at a cleaning factory from just 7 to 10 a.m., instead of his full 8-hour shift. My understanding is that at 10 a.m., he would go into a consulting house as some sort of professional analyst. He would then be on call for the first job but sitting (mostly) at the consulting position.

"He would take my friend to high-priced lunches many days and discuss what was going on at the first job during his lunch hour. Since the offices were both physically near each other, he was able to keep up the deception. He also was in the military reserve at the same time and would be deployed for long stretches of time leaving her in charge.

"I felt he was using her to have basically three jobs (and she had a lower hourly office manager position), but she was fine with all of the perks she got out of the arrangement (fancy daily lunches, autonomy, an easygoing boss). He was eventually found out and kept the higher paid consulting position in addition to the reserve, but I'm sure he was making significant income while it lasted." – Wendy L.


Berna Barshay
August 23, 2021

Whitney Tilson
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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to more than $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

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