CAPM 2.0 is so named because we felt the classical capital asset pricing model, the way assets are valued in the private and public markets, does not take into account the effects of climate change. This week we strongly encourage you to watch a compelling panel discussion held last year by theMilken Institute entitled: If We Do Nothing: Earth’s Climate at the Tipping Point. The panelists include Matt Rogers from McKinsey, two hedge fund investors, Edgar Bronfman Jr and Robert Gibbins, the founder of Project Drawdown, Paul Hawkens, and Roland Hwang of the National Resources Defense Counsel.
CLIMATE APOCALYPSE? Paul Hawkens: “We are in a slow-motion climatic apocalypse. There’s no other word for it.” McKinsey’s Matt Rogers: “The thing that has struck us most sharply recently is what was 20 years ago a one in 300-year event is now a one in ten year event. So, we’ve had a 30 time increase in the likelihood of a tail event happening.” Roland Hwang of the NRDC says: “Climate change is here now and it’s having a devasting impact on people’s lives. And it’s worse than we thought and it’s going to get worse in the future…Five of the ten worst wildfires in California have happened in the last two years. Hurricane Harvey struck Texas in 2017 was a one in a 500,000 year storm that caused $300 billion in damage.”
WHAT NEEDS TO BE DONE? Roland Hwang: “We have to act now. We have to cut global emissions in half in the next ten years and then half again in the next ten years and get to net zero by 2050.” Robert Gibbins: “this requires an explicit price on carbon. When you think about stranded assets…think about how your companies perform, with an explicit price on carbon…The cost of carbon will go to the cheapest cost of industrial scale marginal abatement. Put that in your portfolio and see what happens. It’s not pretty…The vol of vol is going to explode.”
ROLE OF CAPITALISM. Paul Hawkens: “it’s not about protecting the capitalist system. Instead can we have a capitalist system that protects life on earth?” Bronfman: “capital formation needs to create far more renewable energy and find much better ways to lower emissions…Instead of thinking of climate change as things we have to stop, we should think of it as an enormous opportunity to build new industries…Capitalism only deserves to survive if it can save the planet first…Capitalism has no business promoting the extinction of humanity. Capitalism has to prove that. And it can, but time is running out.”
ROLE OF THE UNITED STATES. Roland Hwang: “The single most important decision maker to the fate of the planet is that person in the White House…We need common sense performance based signals that send a signal to industry to tell them where to invest and what kind of technology to deploy and match that up with investments from government.” Edgar Bronfman: “If the US doesn’t participate, there will never be a price on carbon. The US has to lead it. If we are the last best hope as a country, if we are the indispensable nation, we actually have to do something indispensable. The only country that has the innovation, the economic might and economic influence to lead this fight is the United States.”