Some Don’t Like It Hot

Levels of body temperatures at which extreme hot and cold sensors are triggered – data source: An Immense World – Ed Yong

In January this year, the southern hemisphere experienced, in some cases, record-breaking heatwaves, with temperatures reaching 50.7° C in Western Australia. In the last few weeks, it has been the turn of the northern hemisphere.

In the UK this week, we recorded the highest day (40.3° C in Coningsby in Lincolnshire) and night (25.8° C in Kenley in Surrey) temperatures ever. What is clear is that climate change has already significantly changed the probabilities of extreme weather events occurring in the UK, meaning that our own past experiences of weather ranges and likelihoods are now out of date.

This is likely to have many consequences. This week our railways literally went into meltdown in places, with New Street operating an “exit only” policy for a period while no trains were running to or from the station at all. Overhead cables were damaged, requiring lengthy repair work and buckling rails led to widespread speed restrictions across the network. This is because the heat tolerances of our railway system were set in cooler times, meaning that most of the network can operate up to around 46° C. As track temperatures can be up to 20° hotter than air temperatures, this threshold was widely exceeded.

So, if our infrastructure has limits, what about life on the planet? Well yes, in animals these are controlled by proteins called TRP channels, which allow neurons to be stimulated at temperatures which would be immediately extremely harmful to the organisms concerned. A few of these are shown above. In humans, this is a body temperature of around 42° C (a healthy temperature is around 37° C and our bodies work hard to keep it there, but we starts to feel unwell from 37.8° C upwards and may become comatose at 42° C. We are likely to die or at least suffer serious brain damage at 43° C), but the hot and cold limits vary hugely between different species. So rapid changes in the temperature distributions means that habitable areas, which would need to be at temperatures well short of these limits, for a wide range of animals and plants will also be changing rapidly, requiring migration or extinction for many.

In humans, where we have more control over our environments, we will still need to adapt many of our practices, from how we construct our infrastructure, to how we use resources and spend our time. One obvious question that has come up this week is why we don’t have a maximum workplace temperature (currently we don’t have a minimum either, although we do have guidance around minimum temperatures). The House of Commons Library Briefing Note on this from 2010 can be found here.

In Germany, a maximum of 26°C is the norm but the guidelines state that, if the outside temperature is higher, a workplace temperature may in certain circumstances be higher than 26°C.

In Spain, Real Decreto 486 of 1997 lays down that, in places where sedentary work takes place, the temperature should be between 17 and 27°C. In places of light physical work, an acceptable temperature will be between 14 and 25°C, although there are some limitations and conditions around these requirements.

There are clearly complications around setting a maximum comfort level which would probably also need to account for humidity and activity, but the Health and Safety Executive have suggested 30° C in their guidance as a maximum acceptable temperature, less if the work is strenuous. They also suggest polling employees to see if a particular temperature is comfortable, making adjustments if more than 10% are uncomfortable in an air-conditioned office.

There are now renewed calls to introduce a maximum workplace temperature in law. And, as Lord Turner so eloquently put it on Sky News, this is at only 1.2°C warming. If all of the promises made at Glasgow are kept we may stay between 1.8°C and 2.5°C. However in the UK, the Climate Change Committee, the body set up specifically to monitor our compliance with our climate commitments, has already said that our current programmes will not deliver net zero. And Liz Truss, who may be Prime Minister in 6 weeks, has vowed to halt the only green levies we have so far been able to put into law.

In the meantime, it appears to be a great time to be a Melanophila, or fire-chasing, beetle.

Ant Music

But how do they know where they’re going? Spikes! Stop eating them!

I am currently reading a wonderful book – An Immense World by Ed Yong – which I am certain will feature in much of my writing over the next few months. Today I want to talk about what Ed’s book has to say about ants and, in particular, ant pheromones.

Pheromones override all of an ant’s other senses. An ant will walk itself to death if its pheromone trails are laid in a circle (“the army ant death spiral”). And if an ant happens to get covered with one of the pheromones that signal that it is dead, it will continue to be treated as if it is dead however much it protests.

Compared to ants, the current Conservative Party leadership candidates obviously bestride the world like colossi, but I think I have spotted a similarity in the contest so far. Public First have attempted to put all of the policy announcements by each of the candidates together on a single spreadsheet and what is noticeable is that there is only one row which has an entry for every candidate: tax and economic growth. More popular than immigration, Brexit & Europe or any of the other issues one would expect any Conservative leader to have an immediate policy on. And, with one exception (the architect of the current economic policy which has been going in a different direction, Rishi Sunak), they all seem to be proposing a variation on generating economic growth as a result of tax cuts. I will not comment further on whether this is a coherent policy, as that has been done very well here.

However it did occur to me that tax cuts might be doing the same job for Prime Ministerial hopefuls as pheromones do for ants, ie something which, once emitted, makes everything else about your policy positions irrelevant. The problem of course is, whereas the success of an ant colony depends very largely on the coordination of a huge number of individual insects to follow a path, recognise an individual (or more likely a member of a group), identify their own young, etc, the leadership race is supposed to be giving the candidates a chance to differentiate themselves from each other. Even allowing for the fact that many in the race have no expectations of making the last two, but are merely indicating their level of ambition in a way designed to be noticed by one of the two who do, it does seem as if they have already coalesced into two teams – Ready For Rishi and Not Remotely Ready For Rishi. And noone running appears to be obviously looking for a job from Rishi Sunak.

The dangers of making policy a reflex rather than a reflective activity, particularly with respect to the economy, are obvious. Because the pheromones act on all of the ants, including those emitting them, this doesn’t suggest an eventual winner who is likely to be able to change economic direction beyond usual Conservative Party instincts, whatever is actually going on in the economy. Ed Yong has already used the army ant death spiral as a metaphor for the United States’ response to the pandemic.

It should all become a lot clearer tonight when the ones who cannot get 20 MPs to support them will drop out. It would be great if one of them would make a break with Elgar and use Ant Music as their campaign song instead. Then we would all know where we stood.

What Stuart Kirk was not criticised for and what this tells us about financial markets

For those of you totally immersed in the daily to and fro of the finance industry, this post about Stuart Kirk will probably seem a little late in the day. For those of you who are not, let me explain briefly what I am talking about today!

Stuart Kirk was Global Head of Responsible Investments at HSBC Asset Management. On 19 May 2022 he gave a talk at the FT Live Moral Money Summit Europe conference with the provocative title of Why investors need not worry about climate risk. Stuart’s talk was a real crowd splitter. Many called for his dismissal (HSBC subsequently suspended him), others regarded his talk as a missed opportunity and full of things which were not true, while others have regarded his stance as speaking truth to power.

However what interests me most about all of the column inches devoted to the affair is what he has not been criticised for and what this tells us about financial markets.

What Stuart said was structured around the following 12 statements:

  1. Unsubstantiated, shrill, partisan, self-serving, apocalyptic warnings are ALWAYS wrong.
  2. As the warnings became ever graver, the more asset prices INCREASED in value.
  3. One of only three explanations can explain the impending end of the world and higher risk asset prices:
    1. Climate risk is negligible.
    2. Climate risk is already in the price.
    3. All investors are wrong.
  4. Even by the UN IPCC own numbers, climate change will have a negligible effect on the world economy – A (large) temperature rise of 3.6 degrees by 2100 means a loss of 2.6 per cent o global GDP. Let’s assume 5%.
  5. Adaption is cheap and effective: climate related costs relative to GDP and mortality rates are down.
  6. Perhaps the biggest error of thinking with climate risk is confusing volumes and values – Plenty of things happen between a volume disruption and a move in asset values.
  7. Climate “winners” and losers” can create value. Climate “winners” and “losers” can destroy value.
  8. The difference between volumes and value is regularly made clear in markets.
  9. Even if climate risk isn’t negligible, it’s too far into the future to matter for most companies.
  10. To make climate change appear like a significant threat, scaremongers are torturing their models.
  11. It’s easy to show that climate change is an investment risk if you engineer a bond market collapse.
  12. Climate change isn’t a long-run risk just like wars, energy crises, pandemics, financial crises and so on (with the graphs shown above to supposedly prove this point).

Can you spot the pattern here? All of these statements are about the map that Stuart is standing in (think of Joey standing in his map to orientate himself in Friends). It is a complicated map of asset prices and charts and reports written by lots of other people standing in the map with Stuart, but it is still just a map. And the map is the territory as far as Stuart is concerned. If something does not appear in his map, it is not worth worrying about. And climate risk is struggling to make it into his map. In Stuart’s view, this is a problem for climate risk, and the people “torturing” their models to make climate risk appear significant and piling him up with regulatory reporting responsibilities are very annoying.

But of course this take is completely upside down. This is not a problem for climate risk. Rather climate risk is a problem for us and the fact that it does not appear in our models unless we torture them (which I am sure is true) means that we have the wrong models. Because the scientific consensus about the consequences of climate change on our current trajectory of between 3 and 4 degrees warming are (amongst others from Mark Lynas’ Six Degrees: Our Future on a Hotter Planet):

Africa […] split between the north which will see a recovery of rainfall and the south which becomes drier […] beyond human adaptation.
Indian monsoon rains will fail. The Himalayan glaciers providing the waters of the Indus, Ganges and Brahmaputra, the Mekong, Yangtze and Yellow rivers [will decrease] by up to 90%.
The Amazonian rain forest basin will dry out completely. In Brazil, Venezuela, Columbia, East Peru and Bolivia life will become increasingly difficult due to wild fires which will cause intense air pollution and searing heat. The smoke will blot out the sun. Drought will be permanent in the sub-tropics and Central America.
Australia will become the world’s driest nation.
In the US Gulf of Mexico high sea temperatures will drive 180+ mph winds. Houston will be vulnerable to flooding by 2045. Galveston will be inundated. Many plant species will become extinct as they will be unable to adapt to such a sudden change in climate.
The [IPCC] in its 2007 report concluded that all major planetary granaries will require adaptive measures at 2.5° temperature rise regardless of precipitation rates.[and] food prices [will] soar. Population transfers will be bigger than anything ever seen in the history of mankind. [The feedback effects from the] Amazon rain forests dry[ing] out and wild fires develop[ing] [will lead] to those fires [releasing] more CO2, global warming [intensifying] as a result, vegetation and soil begin[ning] to release CO2 rather than absorb[ing] it, all of which could push the 3° scenario to a 4°-5.5° [one].

Much of the discussion about the talk was that Stuart was speaking out bravely and that HSBC had only suspended him to silence inconvenient truths, that he had been silenced by “extreme environmental ideology“. I have no idea about all of the reasons why HSBC suspended Stuart other than their official statements, but it seems clear to me that many people in the finance industry agree with what he said. This suggests to me an extreme ideology of its own of resolutely refusing to look out of the window.

In Kim Stanley Robinson’s excellent New York 2140, global sea levels have risen by 50 feet. Everyone lives in tower blocks connected by sky bridges which occasionally topple into the canals which were once streets. I used to think that money markets would not survive events like this, but Robinson posits what I believe is a more likely future scenario. The Intertidal Property Pricing Index is developed instead, carefully constructed to be reasonably stable despite the instability of the actual real estate being valued, and people bet on it. And soon everyone is fixated on what this index is saying daily rather than the buildings collapsing around them.

This is exactly what our finance sector will do of course, there will be money to be made out of such activities after all. And so expectations that they will, in any way, be a leader out of the climate emergency are, in my view, unrealistic.

We will however need the finance industry to facilitate aspects of how we transform our economies over the next 10 to 20 years. And this will involve much more of the regulation which annoys Stuart and others so much.