Stuart Kirk’s now infamous presentation at the Financial Times Moral Money conference has thrown the cat among the pigeons in the world of climate finance and climate politics. In this, he has, maybe, done us all a favor by getting us to question all too comfortable assumptions and beliefs that the battle against climate change is being won, that anyone worth listening to is well on board, and that those who take a different view are amoral or incompetent mavericks who should just be ignored or shouted down.
While we can all argue about the finer technical points of Kirk’s presentations, that would amount to arguing over how many angels can dance on the head of a pin. More important are the broader lessons to be learned.
A few points from Kirk’s speech are worth pulling out.
First is his suggestion that climate financial risk is of marginal relevance to short term investment decisions. It would be foolish to argue that this statement is totally off base. It has a significant amount of truth as shown by actual investment behaviors and returns.
Another point is that central banks have become politicized to the extent that they are tying themselves in knots and making unreasonable modeling assumptions under pressure to show meaningful climate-related risk in their stress testing. Whether underlying modeling assumptions are credible or extreme can, again, be the subject of endless debate. More important is that if enough people start to agree with Kirk’s narrative, central banks’ credibility will be shot to pieces. Outraged denials are an insufficient response.
He also made clear that policy makers have it in their power to make climate risk relevant for investors by imposing a ‘whopping great carbon tax’ – something that, currently, seems politically impossible to do.
Whatever the rights and wrongs of the technical arguments put forward by Kirk, his error was not in expressing contrarian views and stimulating debate. Rather, his error was a political one. He delivered his presentation using a flippant approach about a subject that many feel is existential. His statement ‘who cares if Miami is six meters under water in 100 years’ was a cack-handed and insensitive way of expressing two serious points – that most investors don’t have a 100-year horizon; and that we should not underestimate humans’ ability to adapt.
Kirk was also not helped by delivering his challenges to climate orthodoxy from a position as head of asset management at a private financial corporation that has had to deal with its fair share of political controversy. I warrant that if the exact same set of facts and arguments had been delivered analytically in a tedious monotone by a Professor of Finance from some esteemed institution, we would have seen none of the subsequent hysteria. But it might also not have led us to step back and consider the bigger picture.
HSBC’s response to the episode was possibly too quick to come across as well considered. It almost immediately suspending Kirk and put out a bland, and, to some, barely credible corporate statement of commitment to fighting climate change that did not address any of the substantive points made in Kirk’s flippant speech.
The Bigger Issue
There is a bigger issue that the current reactions to Kirk’s speech should not lead us to miss. That, as the speech clearly laid out, the lens of financial risk is a highly inadequate one through which to evaluate the human, societal and political costs associated with climate change. In trying to co-opt finance to help tackle climate change, too many of us have maybe adopted the lens and language of finance in the hope that it would have more resonance within the industry. The result may well end up being the opposite – that we all become co-opted by the financialized way of seeing the world while missing the bigger picture.
As some wag once put it about economics, the narrow economic way of thinking may well lead us to conclude that it’s not worth saving humanity because it’s simply not cost-effective to do so. For those who think of this as a joke, we should remember that in the 1970s, Japanese economists concluded that the most cost-effective approach to whaling was to hunt whales to extinction and then re-tool the whaling boats for other purposes.
The lesson – beware of trying to address climate issues exclusively through the lens and language of finance; or to give the focus on financial risk more importance and airtime than it deserves. Maybe HSBC would have done us all a favor, and enhanced their credibility, if that had been their public response to Kirk’s useful presentation.
Written by Dr. Joe Zammit-Lucia.
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