Clothing of the emperor of climate finance

Stuart Kirk of HSBC (Chief of International Responsible Investment!) delivered an eloquent short talk on the financial risks associated with climate change. link to youtube in case the above insert doesn’t work.

Most of the moments are familiar to readers of this blog, but they are so skillfully staged and in such a prominent place that they are still worth watching.

Why catastrophe?

“I fully understand that at the end of your career in the central bank you have many, many years to fill. You have to say something, you have to fly all over the world at the conference. next guy [or gal]”

Funny hypocrisy:

“Sharon said, ‘We won’t survive’…[ but] no one ran out of the room. In fact, most of you barely took your eyes off your cell phones at the thought of non-survival.”

Regulatory anxiety

“What worries me about this is the amount of work these people make me do”

Good point: markets don’t set prices at the end of the world.

“The markets agree with me. Despite the hyperbole, the more people say the world will end… the more the word “climate catastrophe” is used around the world, the higher and higher the risky assets become.”

Even the worst-case scenarios of 5% of GDP in 2100 are a fly agaric compared to economic growth. Just remember 1922. “The world will become 500-1000 percent richer.” No one will notice that 5 percent less. “In Europe, GDP per capita is 40% less than in the US. This is fine” [Well, it’s not, but it’s a good comparison. The climate “catastrophe” is one eighth the eurosclerosis catastrophe.]

Floods and fires?

“Whatever you put in the denominator in these statistics tends to look like this. People have adapted fantastically to change… and we will continue to do so. [actually 1 meter] underwater in 100 years. Amsterdam was 6 meters [ actually 6 feet, 2 meters] underwater for ages, and it’s really a beautiful place.”

The budget for firefighters in California is 1% of the state budget and 0.1% of GDP.

“One of the tragedies of all this debate that we’re obsessed with at HSBC is that we’re spending way too much on mitigation funding. [high speed train to save carbon] and insufficient for adaptation funding [fire prevention] and i’m sure most of you agree [I’m sure most of the audience did not agree!] “

Good point: decline the size or fossil fuels does not mean lost profits or financial losses for investors.

“Confusion between volume and cost. Anyone who has managed money or anyone who has been an analyst knows this very well, but the climate community does not. There is a big difference between falling volumes and falling price… what happens to prices at the end of this process is completely detached from the transition of winners and losers.”

As the transition progresses, investment in coal oil, etc. stops. Existing companies are making money from their abandoned assets as they gradually get smaller and smaller and solar panels and windmills take over.

“The longest bank loans in HSBC are issued for 6 years. What happens in 7 years doesn’t really matter.”

Central banks

“Central banks are especially annoying because they don’t spend enough time worrying about inflation and why it’s getting out of control, and instead they spend too much time on climate risks.”

How about political risk? We kind of agree that the weather won’t cause a financial crash, so the discussion has shifted to “transition risk” into the financial system. What if regulators kill the economy in the name of the climate? Kirk caught the Dutch Central Bank completely falsifying their climate stress test on the matter. First, they assume that a high carbon tax will lead to a sharp decline in GDP for several years, which is a dubious assumption to start with, especially if more distorting taxes are driving down revenues. First of all, assuming that at the same time there will be a large increase in interest rates, which, of course, will hurt the banks.

“All BOE and central bank climate scenarios run the risk of getting nasty numbers, they sent the financial sector into a colossal interest rate shock … it’s very easy to make a bank look sick if you wipe out their fixed income portfolio. … Even with a carbon tax, even with a blow to growth, they couldn’t get climate risk off the ground, so they had to get their smart little nerds in the back room to run a giant interest rate shock through their models to make headlines “.

He does not add that if there are 5 years of strong negative impact on GDP, traditional views on monetary policy say that interest rates will fall, not rise. Second fake.

And projections of climate damage from 1920 do not take into account the largest increase in human well-being in history.

“Markets are crashing down on our ears… it has nothing to do with the climate… Let’s get back to making money on the transition because we have thousands of opportunities. I agree with a just transition, I agree with the existing opportunities with all these aspects of technology


What was his reward for pointing out that the emperor has no clothes and that everyone who can’t look away from their cell phone when someone says the world is about to end is secretly agreeing? Does his employer reward a bold analyst who thinks for himself and can avoid the crowd in favor of overvalued securities?

No. He was immediately suspended, although he cleared his presentation beforehand. FT coating, daily mail or just google. This emperor, his minions, and his advisors do not like to be pointed out about his lack of clothes.

Why did HSBC go bankrupt so quickly? Fear of waking up investors or fear of regulatory repression? How quickly this obviously out of the box thinker, willing to go against the trend and follow the fundamentals, finds another job will be a good test of whether any competitors remain in the financial arena of large banks.



Reply by Robert Vermeulen of the Dutch Central Bank here