Bloomberg recently published an article titled “Markets’ next black swan is climate change.”, Mark Kongloff (Mark Kongloff) said, “If more measures are not taken to slow down global warming caused by greenhouse gas emissions, global stock valuations will fall by 40%.” [emphasis, links added]
This article is filled with multiple false claims and unverifiable predictions. Here are the claims of the article:
Climate change is really, really bad for stock prices.
A new study from the EDHEC-Risk Climate Impact Institute estimates that global stock valuations will fall by 40% if more is not done to slow the warming of the planet caused by greenhouse gas emissions. Taking into account “tipping points” that accelerate climate change, such as the death of the Amazon rainforest or the massive amounts of gases produced by thawing permafrost, market losses rise to 50%. On the other hand, if the world worked together to limit warming to 2 degrees Celsius above the pre-industrial average, the hit to stock prices would be only 5% to 10%.
First of all, what is a “black swan” event?
A black swan event is an unexpected, rare, high-consequence event that has significant consequences and is difficult to prepare for. The term is based on a Latin expression that assumes that black swans do not exist. The term was popularized by economist, professor and author Nassim Nicholas Taleb.
The article posits that climate change is such an event.
The “very, very bad” part of the article has more to do with the emotional reaction of stock traders than true quantification.
Of course, according to Investopedia, it turns out that stock trading is mostly emotional at first:
- Trading psychology is the emotional component of an investor's decision-making process, which may help explain why some decisions appear more rational than others.
- The main characteristics of trading psychology are the influence of greed and fear.
Given this, it is easy to see how This article and the research it cites could easily be attributed to the fear component of stock trading.
And in the article, fear is used as a driving force:
Like objects in the rearview mirror, the damage from climate change is already closer than it seems. According to the World Meteorological Organization, weather disasters cost the global economy US$1.5 trillion in the 2010s, a figure that was nearly ten times higher than in the 1970s after adjusting for inflation. Reinsurer Swiss Re said insured losses from natural disasters will double over the next decade.
But this concern is based on climate model predictions, not actual data.
If using actual data to look into the future, use multiple indicators, The future trend is for reduced weather (not climate) damage. For example, hurricanes. The data shows no trend:
For tornadoes, not only is there no increasing trend, but the trend is actually negative:
Likewise, heat waves. They had it much worse in the past:
In fact, a combination of many indicators of severe weather events, data showing the number of deaths from extreme weather, has declined dramatically over the past century.
While Bloomberg likes to blame extreme weather events on climate, extreme weather events are just that, weather events. Such events are often conflated with climate change, but this is wrong. Weather and climate operate on very different time scales.
Many real-world data show no increase in droughts or heat waves; no increase in floods; no increase in tropical cyclones and hurricanes; no increase in winter storms; and no increase in severe winds from thunderstorms, tornadoes or related hail, lightning and thunderstorms.
From an investor's perspective, it's all about money. The biggest problem with extreme weather events is that they damage property, But as the planet warms modestly, property damage trends are also declining:
Investors often focus on the “bottom line” to the exclusion of everything else. in this case, Most importantly, there is no evidence that the future will be more dangerous, deadly or damaging.
The ability (or lack thereof) to predict the stock market is as inaccurate as the output of computer models used to predict climate.
Baseball player Yogi Berra reportedly said, “Making predictions is difficult, especially about the future.” This fact is evident every day in the stock market world.
Ultimately, because climate change is not causing increasingly extreme weather, it is not causing increasing business losses – data shows otherwise.
My advice to investors? Focus on data, not money, and advises Bloomberg’s Mark Gonloff to take “reassurance pills.”
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