Top Investment Fund Chairman on Climate Change: Grantham Says Buy It

Jeremy Grantham, Chairman of the Board of Grantham Mayo Van Otterloo (GMO), a Boston-based asset management firm, one of the largest managers of such funds in the world, has written in his quarterly letter:
Conspiracy theorists claim to believe that global warming is a carefully constructed hoax driven by scientists desperate for … what? Being needled by nonscientific newspaper reports, by blogs, and by right-wing politicians and think tanks? Most hard scientists hate themselves or their colleagues for being in the news. Being a climate scientist spokesman has already become a hindrance to an academic career, including tenure. I have a much simpler but plausible “conspiracy theory”: that fossil energy companies, driven by the need to protect hundreds of billions of dollars of profits, encourage obfuscation of the inconvenient scientific results.
Grantham's asset management fund controls over 170 billion dollars. He is the investor and fund manager who predicted the failure of the bubble style of economics, postulating that economies had a tendency to "return to the mean."  The quarterly report by Grantham gives his view on the direction of the economy and the trends therein. He has included a section (on page seven), entitled: Everything You Need to Know About Global Warming in 5 Minutes and recommends investment in industries that will reduce our dependence on fossil fuels.

A summary of his points are as follows (
full report here - PDF):

• Rising C02 in the atmosphere is a fact with a 40% increase since the advent of the Industrial Revolution.

• The greenhouse effect of rising C02 is proven by physics.

• Changes in solar output cannot account for the rise in temperature over the last 50 years.

• "A warmer atmosphere melts glaciers and ice sheets, and causes global sea levels to rise. A warmer atmosphere also contains more energy and holds more water, changing the global occurrences of storms, floods, and other extreme weather events."

• Grantham refutes skeptics who argue that money should not be spent because of uncertainty. He posits that "since the penalties can rise at an accelerating rate at the tail, a wider range implies a greater risk (and a greater expected value of the costs)."

• He brings up Pacal's question: What is the expected value of a very small chance of an infinite loss? Pascal's answer, "Infinite." Grantham expounds on Pascal here:

The benefits, even with no warming, include: energy independence from the Middle East; more jobs, since wind and solar power and increased efficiency are more labor-intensive than another coal-fired power plant; less pollution of streams and air; and an early leadership role for the U.S. in industries that will inevitably become important. Conversely, what are the costs of not acting on prevention when the results turn out to be serious: costs that may dwarf those for prevention; and probable political destabilization from droughts, famine, mass migrations, and even war. And, to Pascal’s real point, what might be the cost at the very extreme end of the distribution: definitely life changing, possibly life threatening.
• The biggest cost of global warming will be the lack of biodiversity, which he reminds his readers is priceless.

• He has a message to his own group that he labels as "die-hard contrarians"

Dear fellow contrarians, I know the majority is usually wrong in the behavioral jungle of the stock market. And Heaven knows I have seen the soft scientists who lead finance theory attempt to bully their way to a uniform acceptance of the bankrupt theory of rational expectations and market efficiency. But climate warming involves hard science.
• He warns that fossil fuel corporations are using denialists and conspiracy theorists to obfuscate the truth that warming is happening in an attempt to preserve their profits.

• Grantham asks why we are even arguing the issue. He points out the pattern of behavior from the tobacco industry and warns that many of the same operatives responsible for the delays in the truth about the dangers of smoking are now working to do the same with climate change.

The obfuscators' simple and direct motivation – making money in the near term, which anyone can relate to – combined with their resources and, as it turns out, propaganda talents, have meant that we are arguing the science long after it has been nailed down. I, for one, admire them for their P.R. skills, while wondering, as always: “Have they no grandchildren?”
Grantham's last two points stand best without editorialization:
"Almost no one wants to change. The long-established status quo is very comfortable, and we are used to its deficiencies. But for this problem we must change. This is never easy."

"Almost everyone wants to hear good news. They want to believe that dangerous global warming is a hoax. They, therefore, desperately want to believe the skeptics. This is a problem for all of us."
Investors, take note. One of your own has weighed in on the fact of climate change and has recommended that you buy it.  His buy order:  The benefits, even with no warming, are too profitable to pass up. The risks, at the very least, are too great to ignore.

Grantham's entire report is available at this link (PDF).


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