Erste Asset Management Investment Blog

Climate risks: Is climate change that bad?

Climate risks: Is climate change that bad?
Climate risks: Is climate change that bad?
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This year’s September went down as the warmest in recorded history, and for many people in our region it was a wonderful extension of the summer. Climate change is not as bad as they say! Ok, at Christmas there will be no snow in (Eastern) Austria again, but hardly anyone remembers a white Christmas anyway. Besides, snow is only nice to look at for a short time before it turns into a brown mess.

Let’s fight inflation first instead of making fossil fuels more expensive. 1.5 degrees or 2 degrees or 3 degrees more, you probably won’t feel the difference anyway. Let the others do something first, if we humans have any influence at all – after all, who really knows?

A worrisome discovery

More than 50 years ago, the scientists of the largest oil companies made a worrisome discovery that called their entire business model into question: the burning of fossil raw materials causes an increased concentration of greenhouse gases in the atmosphere, as a result of which the sun’s rays can no longer be reflected back into space, as if by a mirror, and the earth will be heating up increasingly.

Subsequently, this will lead to the melting of the polar ice caps and thus to a rise in sea levels. The increased air temperature will cause more moisture to be absorbed, resulting in less regular rainfall and instead torrential downpours. Welcome to the year 2023!

The most successful lobby in human history

From the oil companies’ point of view, this news was worrying because it meant that if they were forced to change their business model, all capitalised, on-balance sheet fossil reserves would suddenly be a complete write-down and thus worthless (N.B. at that time, oil companies were among the largest companies in the world by market capitalisation).

This had to be prevented at all costs, and so the Petroleum Association was convened, which developed a very effective counter-strategy: disinformation. Through media campaigns, the existing scientific knowledge of man-made climate change was called into question and doubts were fuelled (N.B. California filed a lawsuit against the largest oil producers this year based on these practices. [1]) With extraordinary success that continues to this day.

The approach is quite simple: pseudo-scientific studies are placed in daily newspapers or TV shows with wide coverage, and only few people in the audience question the seriousness of the sources. The commissioned agencies would already be experienced in disinformation, as they had previously prevented non-smoker protection for years on behalf of the tobacco industry, with the argument that nicotine was not harmful to health.

CO2 is like hypertension …

… you don’t realise you have it until one day you suffer a stroke. This also made it easier for the disinformation campaigns because the concentration of greenhouse gases in the atmosphere, which was increasing every year, would hardly have any noticeable consequences for a very long time.

This has changed abruptly in recent years. We are the first generation in human history to notice a change in the climate over our own lifetime. This is less great than it sounds, because it means that the first signs of the impending stroke are already there.

Greenflation vs. brownflation

Still, those parties that continue to deny climate change and advocate for fossil combustion vehicles in an open-minded manner are currently experiencing a particularly strong influx. There are probably two central reasons for this: On the one hand, the prices of fossil fuels have exploded in the course of the Ukraine war. In the process, it became (briefly) clear that my heating not only harms the environment, but also supports authoritarian regimes. Instead of switching to green, domestically produced energy with local jobs, renewable energies are blamed for the high inflation. It is not the price increases for fossil fuels (which received record subsidies of USD 1,000bn worldwide last year[2]) that have driven inflation. Instead, the necessary expansion of renewables is apparently to blame for the fact that at the end of the day less remains in the wallet, i.e. the so-called greenflation.

Always shoot the messenger

The second reason is that the multiple crises create great discomfort. It is deeply human to listen to those who allay these fears and provide arguments why others are to blame, and nothing really needs to change anyway (“Who knows if climate change is real?”). This quickly turned the mandatory change in Germany’s heating system into a so-called “heating hammer” (“Heizhammer”) and, with the help of the tabloid media, warned of the downfall of democracy. Before the Ukraine war, few people thought about how their heating system worked. Since the “heating hammer”, however, many people know that it must not be a heat pump under any circumstances – no matter the heating costs in the end. Let them stop building coal-fired power plants in China first.

The other China – the one not in the headlines about coal-fired power plants

While the headlines in Europe regarding China were dominated by coal-fired power plants, many people failed to see that China was making massive investments in research into batteries, solar power, wind energy, and electric cars. With the result that they are now world market leaders in almost all areas and we Europeans are dependent on Chinese suppliers on the road to green transformation. Yet there used to be a German solar industry that dominated the market. Unlike the fossil industry, however, it did not find the corresponding political support.

Do I have to be a do-gooder to be interested in climate risks?

Three years after the introduction of Erste AM’s ESGenius-score, we in the Responsible Investment Team have developed a Climate Score that allows us to identify the best performers in all sectors, i.e. those companies that are better positioned in a worsening climate crisis in comparison with their peers. Erste Group has also produced a climate report for the first time, transparently showing how climate risks are taken into account in the banking business. 

It would be a great pleasure if our climate focus turned out to be irrelevant, because this would mean that climate change has been stopped. However, current policy changes and discussions unfortunately do not suggest this conclusion.

Read more articles from the ESGenius Letter on the topic of “Climate Risks” here!


[1] California sues oil companies claiming they downplayed the risk of fossil fuels | California | The Guardian

[2] Fossil Fuels Consumption Subsidies 2022 – Analysis – IEA

For a glossary of technical terms, please visit this link: Fund Glossary | Erste Asset Management

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