Wildfires have been sweeping through California, causing untold damage and destruction. Hurricanes seem to get stronger and stronger every year. Rising sea levels our forecast to make much of the coastline uninhabitable in the coming decades. This week on Benchmark, we'll talk about how climate change is reshaping economies around the world, and we'll look beyond all the destruction and doom to what business and investors can do to help. Welcome to Benchmark.
I'm Scott Lanman, economics editor with Bloomberg News Washington, and I'm Daniel Moss, columnist at Bloombergan in New York. Joining us this week in our New York studio are two colleagues who are particularly knowledgeable on the topics of climate change, economics, and business. First, we have Dan Shurry. He's the head of Green and Sustainable Finance at Bloomberg New Energy Finance, our company's division that researches clean energy, advanced transport, and
other key topics on the future of energy. Dan, thanks for coming on Benchmark. Absolutely the pleasure to be here. And Next, we also have Emily Chasen. She's the Sustainable Finance editor at Bloomberg News and edits Good Business Bloomberg's free weekly newsletter on sustainable finance. Emily, thanks for being with us, Thanks for having me. All Right, Well, before we talk about all the disasters happening in the world, let's talk a little bit about green and sustainable finance.
It's a topic that we haven't really covered on Benchmark before. What is green and sustainable finance? How big is it? And where is it going? Yeah, I actually get this question a lot people who cover finance particularly haven't always understood whether what's sustainable, what makes that different? So it's actually a huge area. Um Sustainable investors just hit twelve billion in US assets this year. That's one in every four U s dollar invested is invested with some sort
of sustainable or responsible criteria. So that's actually been growing about thirty a year for the past five years. So it's really a rapid increase in this area. And there are three major groups of investors that focus on this stuff. There's a group that just invoids investing in controversial products
like weapons and tobacco or fossil fuels. Increasingly, there's other investors that incorporate environmental, social governance risk and they just sort of try and quantify the risk of climate change or increasing inequality or bad corporate governance on their portfolios,
and they try to invest accordingly. And then there are some investors that have gone so far even in this group, to map companies pie locations and where their key suppliers are and see if they have facilities in areas vulnerable the storms or floods. And then the third group is this group of impact investors, and those are investors that hope to invest in products or services that have a positive impact, like investing in lab grown meat or renewable
energy or sustainable agriculture. It's really just long term investors and they're trying to map the future and figure out what the cost of all these externalities are going to be on portfolios. So many of them are sort of long by and hold type people. And Dan, sure, how how does this play into the topic of climate change and you know other sort of big sweeping things that are you know, really beyond the scope of economies or countries and really go to, you know, how the human
race survives on this planet. So I think it boils down to two key questions that investors are asking, especially when you look at a topic like climate change, which is very large and very nebulous, And the first question is how how do my investments impact the environment around me in the society around me? And the second question is how does the society around me and the changing
climate impact my investments? And those two a very different ways of approaching the same topic, and they result in very different outcomes and very different ways of investing. And green and sustainable finance really encompasses both of them. So it's looking at both sides of the coin, both how you impact the climate and how the climate impacts you. All right, well, let's let's move to the wildfires in California.
They've been called some of the worst in history. Can you just catch us up on what's happening, Why they're so bad, Why these this particular run of fires has been so destructive. Absolutely. So. I've been looking at some statistics actually from from cal Fire, and it looks like fourteen of the twenty largest wildfires have happened in the last fifteen years in California, And in line with that, ten of the last fifteen years have been the hottest
on record on the West Coast. So what we're seeing here is the effects of climate change really impacting the wildfires, so that the fire that we're seeing right now, the camp fires the deadliest in history. There have been over eighty recorded deaths so far. There's still over nine people
who are unaccounted for. So there's a company of utility company the spotlight of this this crisis right now that may or may not be culpable, may may not have started the wildfires in California that we're seeing this campfire and it's really being being impacted, and it's impact in the stock price as well. What we've seen is up to fifty reduction in the share price or the share value of pg n E in the days after the
campfire broke out. It's often said that if California were a separate country, it would be part of the G seven or the G eight. That's how large it's economic footprint is. Do these fires change any of that or have the potential to alter that in any way? Well,
California actually has really strong climate ambitions. The legislature this year passed a bill that would require all of its electricity to come from carbon free sources, and it also became the first state to require solar panels in almost all new homes. So those are actually really aggressive things. In California sort of sees itself as on the front lines of climate change. It's really worried about its beaches eroding and that being a huge part of the economy.
There's tourism, and the wildfires are really damaging this infrastructure like pg n E that Dan talked about. PGNI has like at one point four billion and wildfire insurance and that's definitely not enough given the fires last year and this year. So and that infrastructure is what you need to do more renewable energy and there I mean, California is launching its own satellite to detect methane. But these
wildfires released obviously a lot of carbon emissions into the atmosphere. Um, they do set the state back, and it's um, it's really the I know Donald Trump was saying it was forest management um that caused the wildfires, but California is actually a tinder box for a totally different reason. That just had very scant rainfall and hot, dry winds and just been bone dry. About eighty eight percent of California was abnormally dry as of October two, and there are
wildfires like this all over the world. There's Scandinavia, Greece, there's record heat in Texas, Japan, Africa over the past year UM and it's just the droughts and the wildfires are all very interrelated. And the droughts are also a huge um source of an issue for agricultural jobs or food supply. The the economic initiatives that the finance initiatives that you're just talking about, you know, not just in California but around the world. How long will it take
for these industries. Are these initiatives to sort of make up for the kind of damage that's being done in the various fires that you also cited. So when we look at California, for example, I think there's going to be more damage for a while before we start to
see any sort of improvement. If you look at the potential liability that the PGNI might incur, the cost that they might incur if they are proven to be the cause of these fires, it could well cause a bankruptcy and that would have a knock on impact for the
end consumer. You know, we talk about pgn E being being a victim of climate change, but really it will be passed onto the rate pair, the electricity pair that will have a few huge knock on impact on the cost of power for residents, the cost of power for industries in California, which might well impact the the the entire face of industry in California. If power becomes too expensive,
then that might cause a corporations to move elsewhere. Yeah, in the US, we have a very centralized electricity system and UM electricity empower utilities are actually really it's moving from fossil fuels to electricity empower utility sort of being on the front line of climate change here, and investors concerns about what kind of fuel they're using, and UM using natural gas and fossil fuels increasingly people are worried
about that. So, but to decentralize the climate system and to have more wind and solar, those windy and solar places are like different places in the in the country, so you have to rebuild the whole electric grid and that people say that could take like thirty years. So we have a long road ahead of us. So are people trying to actually fund that for thirty years? Are people that forward looking, our investors that forward looking, or or do things tend to be more shortsighted? For sure?
Some investors have told me that they wish the government would fund the upgrades to the electrical grid, and they'll invest in the wind and the solar projects because they know how to do that. It's really hard to do that, but there's increasingly transmission lines and electricity trading so and stuff like that. But the government really controls a lot of the infrastructure there. So that is definitely a project
that should happen. And is this likely to be a federal initiative should it come to pass, or is it going to be a patchwork of individual state programs. I'd say as long as the federal government isn't that interested in climate change, and then it'll probably be a patchwork of states. What we see now is as a complete fragmentation in different states taking different stances on climate change
and what their role should be. California happens to have a very very very strong stance on climate change with a very very very high target for the issue. Here is that PG and E is a very key player in reaching those targets. So if they were to be wiped out by bankruptcy proceedings following this fire, rather ironically, they're actually going to be needed to help meet these targets in the first place, and the stack is actually up today because investors are betting that California will back
them because they need them. All Right, Well, let's move on to hurricanes and other major storms like typhoons. We've seen plenty of that. This year, we had the second year in a row at least in the US with multiple storms that have caused wide scale destruction. It might even be more than two years. Uh. Hurricanes getting more frequent and stronger. So when you look at hurricanes, it's
not so much the frequency the matters. It's the strength that matters, because that's where the damage comes from, and that's ultimately where the cost is incurred. And they're getting stronger. If you look at the damage that's that's been incurred in the US since the nineties, we've seen that actually, what thirty of total damage costs from hurricanes happened in seventeen alone from three hurricanes, Hurricane Harvey, Maria, and Erma.
So they're getting more powerful. That's because sea levels, sorry, sea levels are rising, but also the temperature of waters is increasing, which makes them more intense. When they're more powerful, we get category five hurricanes for example, making landfall. That's what the damage happens. Last year, there are a lot of billion dollar storms, so the damage is definitely increasing from these hurricanes when they make landfall and then and I have both lift overseas in Asia, which is also uh,
you know, suffering from typhoons that we read about. Can you tell us how how these kinds of storms are wreaking havoc in Asia as well or other places around the world. Yeah, So the typhoon that we saw in Asia this year was the most powerful on record, I believe, and the fact that it happened to hit some major cities and we're seeing huge over not overpopulation, but we're seeing huge population rises in coastal areas around Asia, Hong Kong for example. That the damage is tangible and you
can really see it in the cities there. So cities happened to make two options. The first one is to either make themselves more resilient with flooding defenses and storm defenses, or it's a case of you know, essentially giving up and moving inland. And that hasn't happened yet, but that's something that you know, the frequencies, if the frequency of large scale and strong storms happens to go up, then that might be the only option in the future. That
is already happening in New Orleans in the US. And home prices in the US have actually fallen around the hurricanes and wildfires and um, I think Bloomberg found that homes in areas exposed to fires and hurricanes were worth less last year on average than a decade earlier. So you are starting to see this risk get incorporated in that. And you know, people buying flood insurance are being able
to obtain flood insurance exactly. And even in Puerto Rico we saw a fifteen percent reduction house prices following Hurricane Maria last year in the most affected areas that was over is economics treated as something distinct from climate change? And do you see this year or perhaps the past two years, as being a watershed in how people view economics. In other words, it's not just how much do I get and am I working? It's all of these things
that can contribute to the economic well being of one's country. Yeah, I'd say that wildfires, droughts, storms, and floods are sort of the most tangible impacts on climate change that we see today and seeing them reak such havoc um is
sort of elevating the issue for people into the present day. Um. It seemed like a thing that was really far off, but the u N just a few weeks ago came out with this report that said, we're really going to start to see effects of one point five degrees of global warming by and that's something a lot of people who are here today will still be around to see. UM. So the investors that I talked to are usually long term investors. Maybe they'll hold stocks for thirty years, they
want to hold them for a really long time. So for them is actually just around the corner. And if they're going to hold forever and not sell, they really want to make sure that their companies are incorporating this
risk because it really changes the basis of operations. And it's not even just the risk of the storms and the floods, but the risk that the governments will start to get involved and change all the structures and costs that people are used to and change their business model overnight to sort of combat this effect because it's really
going to affect human life. And this is called the tragedy of the horizons, which essentially this concept that the cycles, economic cycles and what we look for in in the finance community happens on a much shorter scale than the true impacts of things like climate change. I think you're absolutely right in that we're starting to see a shift
away from that mentality. We're starting to see you know, dots connecting between various climate incidences and you know, various catastrophes and rising costs of of things like living living near the coast. And I think people are starting to put the dots together on these things. But what we really need more is is kind of awareness and education in the market to show that there are short term implications as well as long term implications for things like
climate change. And that's where initiatives like the Task Force and CLIMB related financial Disclosures of the TCFD are extremely useful. They provide a framework for companies to disclose the risks that they envisioned for that corporation, the long term and the short term operational risks of their businesses, and what the financial implications of that might be. And that's that's crucial for investors. So there is a little bit of a silver lining and all this doom and gloom that
we've been talking about today. Can you talk a little bit more about some of the initiatives or or um ways that investors can make a difference or or or business can make a difference in in dealing with the effects of climate change with respect to hurricanes, or maybe even some other issues like agriculture or other things that we haven't discussed. Yeah, I mean the TCFD which Dan
brought up. They talk about the rest of climate change, but they also want businesses to spell out what their opportunities are in climate change, right, because when there's change, there's opportunity on both sides. So we definitely need some sea walls probably you know, like we're abandoning areas of New Orleans or something. But you know, the Netherlands has been under sea level for quite a long time, so that's an area where some people are really looking for investment.
How do you make money off of a sea wall? I mean, isn't that kind of a more of a government project? But somebody has to supply the concrete. So yeah, I hear a lot of investors talking about concrete. That's a very interesting area. And also there's some swipes of cement and concrete that can be used to store carbon and become a carbon sink that they actually pull carbon out of the atmosphere to create the cement. So people
are trying to make even that really good. UM. There's a lot of stuff in electric vehicles, UM, hydrogen fuel cell vehicles, the automakers are really probably the next area that people are looking at after UM energy production. And then there's also in the drought areas, desalination plants so that people can make more water and have water for agriculture and all these areas where there are wre strouts, yeah,
and and definitely sustainable agriculture. People are looking at things that do function to cerbant carbon sinks, like the oceans and UM coastal wetlands and forests and trying to see if they can invest more in those areas and make them tangible. But that's something that really hasn't been done that much before. And what we're seeing in the financial community of brand new products and innovations that have been really interesting in raising awareness of both the impacts and
the risks associated with things like climate change. Take for example, a brand new concept you know it only earlier, really grew in the last couple of years or so green bonds. Green bonds are essentially normal corporate bonds, but the the issuer has committed to disclosing around the environmental impacts of of the proceeds that have been raised by that bond,
and green bones have grown phenomenally. We've seen upwards of five billion dollars worth of green bonds issued in the last three years alone, and those can be financing anything from renewable energy to sustainable agriculture to biodiversity. So we're seeing a real uptick in financial instruments that are helping to convey the message and the importance of of of climate change and environmental degradation, but also showing you the benefits of doing so. All right, last question, Dan and Emily,
China or the United States? Which one is going to be bigger in the world of green investment, sustainable finance, whatever you want to call it. Which one is going to be bigger, say twenty years from now. I know, when I was an editor for Bloomberg in China, I was starting to hear a lot about green bonds and that sort of thing. And China likes to make a lot of noise about how it's uh, you know, going to be big on these kinds of issues. What's your
take on it. Well, I think China is going to be the market leader in this space, but that comes at a caveat. So when we look at the future, we look at say to fifty, we expect around nine point three trillion dollars worth of investments into renewable energy new renewable energy build globally. Five point five trillion of that will be in in the Asia region and the
majority of that will be in China. So in terms of absolute numbers, China will certain lead, but the caveat being when you look at things like green bonds and green finance, China's view of what green is is very different to the rest of the world. When we look at green bonds specifically, China believe is that clean coal is actually a category of financing that that is sustainable and that is green that doesn't fly anywhere else. So they will be the market leader, but they have a
slightly different definition of what green is. Yeah, and a lot of the investors I talked to you, they say China is already winning a little bit. They've definitely invested a lot the past few years. Um just put billions into green band issuance into building solar um You know so much that the US did the tariffs on their
solar panels this year. They're really the capital for a lot of this renewable energy infrastructure and technology coming out of there, and the US like hasn't really gotten its act together as a government to know that's a lot of investors are worried. It's kind of a missed opportunity here. All right, Well let's leave it there. Dan Shurry of Bloomberg New Energy Finance and Emily Chason of Bloomberg News
and the Good Business new Letter at Bloomberg. Thanks so much for taking the time to be with us today. Thanks for having us. Thank you. Benchmark will be back next week. Until then, you can find us on the Bloomberg Terminal, Bloomberg dot Com, or Bloomberg app, as well as podcast destinations such as Apple Podcasts, Spotify or wherever you listen. We'd love it if you took the time to rate and review the show so more listeners can find us. And you can find us on Twitter. Follow
me at Scott Landman. Dan Moss, You're at Moss on the School Pico. Dan Shurry, you are at Daniel S Page You are You and Emily you are at e chasen ch a s A. M all Right. Benchmark is produced by Toper Foreheads. Francesca Levy is the heat of Bloomberg Podcasts. Thanks for listening and wish all of our American listeners are happy Thanksgiving. See you next time.