Alarmists, Deniers and Investors

The Wall Street Journal recently carried James Huffman’s review of Patrick Allitt’s new book, “A Climate of Crisis”.  Mr. Huffman’s opening paragraph is a concise summary of the dilemma facing investors.

“Climate change has been the dominant environmental concern of the 21st century.  Public discussion of the topic is less an informed exchange of ideas than a strident debate pitting alarmists against deniers-at least that is how each side labels the other.  Both are secure in the knowledge that truth, reason and the moral high ground undergird their positions”.

In the early sixties, works such as Rachel Carson’s “Silent Spring” catalyzed a growing awareness that chemical pollution was threatening the natural world.  Subsequently, a number of alarming theories and projections were publicized, including Al Gore’s well known film, “An Inconvenient Truth”.

Investors should consider that to some extent, both sides have valid points.  Clearly, legislation such as the Wilderness Act, the National Environmental Policy Act, the Endangered Species Act, the Clean Air Act, the Federal Water Pollution Control Act and the creation of the Environmental Protection Agency were beneficial.  There have been dramatic reductions in pollution, expansions of national parks and wilderness areas, and the restoration of several threatened species.

On the other hand, the alarmists were not deterred when such dooms-day forecasts as global famine and ecological ruin failed to materialize.

In any event, all of this has been very costly, with little or no cost-benefit analysis.

Investors are not well positioned to influence the outcome of the seemingly endless debates between alarmists and deniers.  However, investors can and should assess trends and regulations with a view to appropriately evaluating the potential impact on corporate operating results.  Bear in mind that clear answers tend to be illusive.  Long range projections can take years, if not decades, to develop.

Investors should be particularly wary of claims contending that “the science is settled”.  Today’s world and the body of knowledge has changed dramatically over the last several decades and continues to change, at what sometimes seems to be an accelerating pace.  It hasn’t been that many years since “settled science” held that the earth is flat and Earth was the center of the universe.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA