The Profits of Climate Change

I laughed out loud upon reading the opening sentence in the second story in the May 15^th edition of “Bloomberg Green,” a newsletter to which I subscribe. In the Section “Sustainable Finance in Brief,” the first sentence reads as follows: “The climate crisis is accelerating so fast that it’s outpacing Wall Street’s ability to profit from it.”

The irony was so rich, at first. But upon further reflection, the deeper the irony seeped, the more the light of a fundamental truth flickered as it strove to peer around or shine through cracks in ideological obfuscation. It was a flashing red warning sign.

When I let myself go I am prone to grand truth-claiming proclamations. So I’ve skipped back to the beginning of this paragraph to add the qualification that this is only my opinion. And so, in my opinion, if there will be no fundamental and long-lasting change in the power structures of our social order, then the next couple of generations may be among the last humans to live in what passes for human civilization.

If we don’t pick up the pace of change, the termination of human civilization on Earth, such as it is, will flow not as much from the engulfing cataclysm of climate change as from “our” civilization’s inflexibility. Our current arrangements are inflexible. The social order whose persistence we suffer would go down in bloody conflagration before it would ever permit the fundamental and long-lasting structural change that would be required to successfully confront and adapt to climate change in a way that does not richly reward Wall Street. And so we had all better pray that Wall Street, and the global economy who’s blood is its sustenance, catches up quick and keeps pace with climate change enough to profit handsomely from it.

The reason that profound structural change is prerequisite to success in dealing with climate change is that such success will require aggressive use of authority. Such authority may be that of a government acting on behalf of a democratic majority. It may be the authority of a majority acting to sweep aside an obstructing government bent on protecting oligarchs from majority tyranny. More likely than either of these, however, is government authority acting on behalf of the survival needs of a global oligarchy.

This authority will succeed by bringing all progress of social democracy to a halt.

Remember that oligarchy is nothing without a human population from which to extract wealth, power, and privilege. Oligarchs want to survive climate change as much as the rest of us do. But they require that their status as oligarchs be preserved. That is the essence of their survival. The rest of us could probably survive climate change without oligarchs. But that could happen only if the oligarchs are dispossessed of their wealth, power, and privilege. How the hell else could it happen? How would the public works, the mass mobilizations, the re-orientation of all our daily labors, all required to survive and adapt to climate change, happen? Where else is the money going to come from?

Remember that the whole point of checks and balances and the careful separation of powers among three branches of government, wastefully duplicated across fifty states, is the defense of the minority of wealth. Our government is purpose-built for dysfunction. I grant that protections against majority tyranny have served, however slowly and grudgingly, to protect, some of the time, racial minorities from the worst the white majority could do.

But the real original purpose of the design of our public institutions was to protect the minority of wealth from change. Amending our constitution is deliberately next to impossible, unless the delegates to a constitutional convention are prepared to undergo scuba training so they can tediously negotiate while submerged under rising seas.

The fastest route to surviving climate change is the path down which the power and privilege of wealth is preserved. Its preservation will require structural change, as do the other paths down which we might walk. In this case structural change amounts to surrendering hard-won progress in social policy. We’re seeing it today in all of the back-pedaling on women’s rights, racial justice, gay rights, and workers’ rights. And we’re seeing it in Wall Street’s efforts to turn a profit on climate change. And this path-of-least-resistance will not be without violence. We’ll see it when sections of the majority surrender to hopelessness and nihilism and begin to organize as terrorists. They will have decided that rolling back social progress is not a price they are willing to pay to survive climate change.

Our great-grandchildren’s children’s survival will hinge on Wall Street’s finding profitable ways to invest in climate change. Wall street won’t invest unless it smells profit. So how does Wall Street profit from climate change? You might (or might not) be surprised to learn that last year’s most profitable hedge fund strategy involved climate change-inspired catastrophe bonds. Insurers use catastrophe bonds, a $47 billion market, to transfer risks from natural disasters.

Hedge funds have been licensing wildfire risk models for use in pricing such bonds. The models proved inaccurate. “Secondary risks” such as wildfires proved difficult to predict. The models were adjusted. Higher interest rates on bond deals resulted. Last year catastrophe bonds increased in value by 20%. Profits!

Imagine the offices of a successful hedge fund. It’s not what you are thinking. Picture a former post office located across the street from an auto-repair shop. The reception area is cluttered with meteorology journals. There are complex physics equations scrawled on white boards. Computer models of complex patterns of weather risk run on large servers behind a glass window and inspire investment strategies. This is the scene at the offices of Fermat Capital Management of Westport, Connecticut.

The founder and fund manager at Fermat, John Seo, is a physicist. His firm owns more catastrophe bonds than anyone else in the world. Trade in these bonds is the reason property owners from Florida to New Zealand can purchase insurance policies that protect them from hurricanes. Living in a trailer park and can’t afford the insurance? You’re out of luck when the next big one comes. But those who could buy the insurance will recoup losses. See? It’s a solution that preserves the class hierarchy. Financial oligarchy preserved!

At the end of the May 15 issue of Bloomberg Green was an invitation to attend the inaugural “Bloomberg Green Festival.” So this is where Earth Day has gone! It’s changed its address on the calendar and moved in with Michael Bloomberg, a finance industry oligarch worth $106.20 billion dollars as of May 14, 2024. To be fair to the oligarchy, and to nod in the direction of balance in my muckraking, I should mention that Mr. Bloomberg is a liberal philanthropist who gave away $3 billion in 2023 and has given away over $17.4 billion over his lifetime. Mr. Bloomberg plans to give away his stake in Bloomberg LP (88%) when he dies, or perhaps even sooner.

The invitation to the Bloomberg Green Festival reads: “The world needs radical solutions to address global warming and climate change . . . “ (I sigh.)  “ . . . The festival will immerse attendees in solutions-driven experiences with world-renowned experts to inspire climate action.”

“Get your tickets today.”