Carbon Brews and Bubbles


Investors confuse risk with uncertainty to create investment bubbles. Carbon will be next.


Is former vice president Al Gore our next Cassandra?

In Greek mythology Cassandra is blessed with predicting the future but cursed because no one believes her.

Gore wrote his first climate book in the early 1990s. Then came the book/movie, “An Inconvenient Truth.” Now it is another decade. On October 29, Al Gore and David Blood wrote an Opinion for the Wall Street Journal entitled, The Coming Carbon Asset Bubble.

The next day, Generation Investment Management through its Generation Foundation released a 36-page white paper about “Why and How Carbon Risks Should Be Incorporated in Investment Analysis.”

The Opinion piece just touches on the topic of the longer paper, but it warns, “Uncertainty is what good investors usually fear the most because it cannot be measured or priced as risk can be. But when investors mislabel risk as uncertainty, they become vulnerable to the assumption that since it cannot be measured, they might as well ignore it.”

Their message is ignore the risks of carbon at the cost of peril in what they describe as “the subprime carbon bubble.” Ouch. The duo repeats what other experts say—that a two-degree increase in climate temperature is now inevitable and “will likely cause devastating and irreversible damage to the planet.”

“Delaying action to mitigate climate change,” they write, “will not delay climate change itself.” The duo recommend four things: identify carbon asset risks across portfolios, engage corporate boards and executives on plans to mitigate and disclose carbon risks, diversify investments into opportunities positioned to succeed in a low-carbon economy, and divest fossil fuel assets.

Gore and Blood co-founded Generation, “an independent, private, owner-managed partnership,” in 2004. It has offices in London and New York. The Generation Foundation is “dedicated to strengthening the field of Sustainable Capitalism.” As interesting as anything else in the paper are the 122 End Notes, which cover a myriad of subjects and have their own links to everything from Walmart and energy use to water-use in fracking to methane (that other out-of-balance, climate-threatening greenhouse gas).


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