By Carolyn Kormann
Glendon had spent the majority of his career working in finance, but he makes a point to stand out slightly, with spiky gray hair, a yellow plaid bow tie, and rectangular brown-and-red glasses. He grew up outside Detroit, in the nineteen-seventies, where he became “familiar at a very young age with things going badly,” he told me. “I became fascinated by the question: Why does that happen in some places and not in others?” Early in his career, he moved back and forth between places that worked well and places that worked poorly: he was an engineer in an auto factory in Detroit and a banker on the South Side of Chicago before moving to a small-business lending program in Russia; then he got a Ph.D. in economic history at Harvard. He joined the investment firm Wellington Management in the late nineties, first as a researcher trying to understand what might become of Asia after the financial crisis. He eventually became a partner. Seven years ago, he started asking questions about climate change.
“What I discovered was that investment professionals talked in a weird way about it,” he said. “They used language for climate change that they wouldn’t use for anything else. They wanted certainty, belief. They didn’t think or talk probabilistically. They talked about it in a way that was binary. That is not how you should think about investing.” He went on, “You can get people in the business community interested in just about anything. You can get uptight white guys to talk about erectile dysfunction and diarrhea, if there are stocks involved. But you couldn’t get them to talk about climate change.”
Glendon started conducting his own research, talking to scientists and reading scientific papers, including climate-change work put forth by W.H.R.C. “What I realized was that this was actually mankind’s first good forecast,” he said. “It was not just one variable but a suite of variables that all fit together—rainfall, season length, night versus day temperatures—a composite of how the world had changed and not changed. By the time I’m looking at this, all these things the scientists had predicted had come true. It became more and more clear to me how disruptive, how painful, how much of a challenge to civilization it would be for these changes to happen.” In pure economic terms, however, he saw a gold mine. “I was working in an industry where, if you were right sixty per cent of the time, you could become fabulously wealthy. And these forecasts had been right for forty years.”
Glendon began speaking to the corporate world about climate risk, and, four years ago, gave a lecture at McKinsey’s global-sustainability summit, in Berkeley, titled “Man’s First Good Forecast.” Soon afterward, he quit his job at Wellington and started helping W.H.R.C. build a team that could make climate science vivid and relevant to the business world. In 2018, Dickon Pinner, a senior partner at McKinsey, contacted Glendon, whom he had befriended after the Berkeley summit, about a new research project.
The report they produced, after a yearlong collaboration, hangs, in part, on a few ideas that had preoccupied Glendon. First, it was researched and written to focus on near-term climate risks—nothing beyond the lifetime of a standard thirty-year mortgage, because many parts of society, such as funding the government and housing, are organized around those time horizons. Also, global heating, owing to the additional carbon already in the atmosphere, is locked in for at least the next ten years and will continue to cause myriad harmful impacts, regardless of the actions that nations now take to decarbonize. “It was surprising to realize the extent of how much risk there is out to 2030, and how much is already locked in,” Mekala Krishnan, a senior fellow at the McKinsey Global Institute, told the crowd, during a panel discussion with Glendon.
The report also emphasized something long understood by scientists but which the McKinsey consultants explained to the crowd as if it were a revelation. The future climate will not resemble the relatively stable climate of the past ten thousand years, which accounts for the full span of human civilization. “Investing in an environment where tomorrow doesn’t look like today is very tricky,” Pinner, the McKinsey partner, who was also on the panel, said. The global economy relies on endless layers of systems that were built within the stable climate of the past. All these physical climate impacts and thresholds—lethal heat waves preventing outdoor labor and destroying harvests, floods imperilling infrastructure and shutting down electric grids—will not just affect G.D.P. or decrease economic activity slightly, Pinner said. “Our sense is: no, actually, it’s an impact on the factors of production that drive G.D.P. And, therefore, it’s more structural.” He went on, “It’s actually an attack on wealth.” He had the room’s attention.
Glendon said, “The economics of climate change,” as it has been calculated and analyzed to date, “will be seen as one of the worst mistakes humans have made, much worse than any of the denialists.” The models are all calibrated on the past fifty to seventy-five years, a period of time when, at least in rich countries, “nothing happened,” he said. “No wars, no Great Depression—one bit of inflation and one financial crisis and that’s it.” Many typical models take data from that historic period and project what might happen in the future. They are also based on the assumption that the experience of the economy is contingent on the climate at that time. But, Glendon said, they haven’t incorporated thresholds, or breaking points. “The actual experience of the economy is contingent on the climate of the future.”
For instance, many economic models still assume that India will keep growing indefinitely. “They just have seven-per-cent growth forever of G.D.P., of demand,” Glendon said. “There is no question about whether climate change might impact this growth. India gets rich forever.” This leads to a major assumption, which “underpins the entire oil market,” among others, Glendon said. But the report found that three hundred and eighty million people work outdoors in India, and less than ten per cent of the country’s homes have air-conditioning. By 2030, possibly two hundred million Indians could be exposed to lethal heat waves, in which the temperature could kill a well-hydrated person who spent only four hours outside, even in the shade, and by which the average number of lost daylight working hours could increase to the point where between 2.5 and 4.5 per cent of G.D.P. could be at risk annually.
Florida is another one of the report’s case studies. Many mortgages on homes and properties along the Florida coast now require owners to have flood insurance. Insurance contracts are renewed every year. If, at a certain point, insurance companies will no longer cover properties in a given area, owing to their climate exposure, then owners may risk defaulting on their mortgages. “If you say there are parts of the country where thirty-year mortgages don’t make sense, even just because of uncertainty, bad things will happen in that place,” Glendon told me. “These places will be financially underwater long before they are physically underwater.”
Lending institutions in places with flood-prone properties are already disproportionately pushing these mortgages onto Fannie Mae and Freddie Mac. Those agencies, which are government-sponsored, buy up conforming mortgages, which are based on a fairly simple algorithm, one that does not include expectations about the future. “I think everyone else kind of thinks that someone else holds the risk,” Pinner told the crowd. “Ultimately, the backstop is the federal government.”Pinner pointed out that this is already happening in California, where extreme wildfires are now virtually an annual event. Utility companies are in a tailspin, and state regulators have blocked insurance companies from dumping fire-vulnerable customers. If investors don’t change direction now, at some, far-too-late point, the government, through decarbonization and other regulatory efforts, will likely “have to pull that lever hard,” Pinner said, “and I think that would cause a lot of massive, massive disruption.”
For now, of course, that is not the case. In January, President Trump gave a keynote speech on the first day of the fiftieth annual gathering of the World Economic Forum, in Davos, Switzerland. Although this year’s forum was focussed on climate change, Trump instead celebrated the “American energy revolution,” particularly the booming production of fracked oil and natural gas. He criticized those who would warn about the climate crisis. “To embrace the possibilities of tomorrow,” he said, “we must reject the perennial prophets of doom and their predictions of the apocalypse.”
The good news, Pinner said, is that “asset managers are beginning to wake up.” In the forum’s own risk ranking—based on a survey of hundreds of its powerful members—the top five most probable global risks were, for the first time, climate-related. BlackRock, the world’s largest asset-management firm, responsible for more than seven trillion dollars, recently announced that it would begin to reallocate its capital away from fossil fuels, stating in its annual letter to investors that climate change has set us “on the edge of a fundamental reshaping of finance.” The European Investment Bank announced that it would phase out its multibillion-euro funding of all coal, oil, and gas projects by 2021.
Corporations, however slowly, are starting to do more, as well. In January, Microsoft declared that it would be “carbon negative” by 2030, with the goal to, by 2050, remove from the atmosphere all of the historic carbon that the company has emitted (both directly and by electrical consumption) since it was founded, in 1975. Microsoft’s president, Brad Smith, said, “If we don’t curb emissions, and temperatures continue to climb, science tells us that the results will be catastrophic.” But, as Tim Wu recently pointed out in the Times, for every Microsoft there is a Johnson & Johnson, which was recently fined more than four hundred and fifty million dollars for fuelling the opioid crisis, and an Ericsson, which made the hollow claim that expanding 5G networks will fight the climate crisis. And, as Emily Atkin, who runs the climate newsletter Heated, reported, Microsoft is still donating to Senate Majority Leader Mitch McConnell, one of fossil fuel’s biggest political allies, and funding artificial-intelligence-technology research that directly aids fossil-fuel development. Without a dramatic shift in government leadership and regulation on climate now, the crisis will only grow.
After the McKinsey presentation, the crowd moved into a wood-panelled room, where waiters served smoked grapefruit and blowtorched salmon. Jeff Gitterman, a boutique wealth-fund manager, said that he had heard Glendon speak before, and admired his ideas. He thought things were changing in the right direction—increasing numbers of clients call him to ask about their sustainable-investment fund, for instance. But, he said, although private finance was changing, public markets were still not accurately pricing climate risks. “They think quarter to quarter,” he said. In terms of the fossil-fuel divestment movement, the problem, for now, was still “what we call the pale stale males.” (He acknowledged that he, too, was a pale stale male.) “They just want to ride out the bull market, retire, play golf, go party on their yacht.”
According to a recent report from the Institute for Energy Economics and Financial Analysis—a think tank partly funded by the Rockefeller Family Fund—and contrary to Trump’s statements at Davos, this was the “Terrible, Horrible, No Good, Very Bad Year for Oil and Gas,” in which “the energy sector (which does not include renewable energy) finished dead last in the S&P 500, the second year in a row it has held that distinction,” and the fossil-fuel “industry continued to collapse in value, relative to the broader stock market.” In light of such returns, more executives and investors will likely start to agree that climate science is the first good forecast, as Glendon has said, and that these prophets of doom are just doing their job. “I don’t think people understand vividly enough what is coming,” Glendon said. “We’re trying to make it vivid—at least the consequences we can foresee.”
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