Bush Faces Wall Street Pressure on Global Warming (Update1)
By Kim Chipman
Sept. 28 (Bloomberg) -- The deadliest U.S. hurricane season in more than a century has some Wall Street investors sounding like members of the Sierra Club.
Firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co. are telling U.S. clients for the first time that climate change poses financial risks. With damage estimates for Hurricanes Katrina and Rita as high as $200 billion, an increasing number of investors are joining public pension funds in urging action on global warming, which scientists say may be making storms more powerful.
``Definitely there will be more attention paid on Wall Street to natural disasters and global warming,'' said Michael Johnston, a New York-based investment strategist at Capital Group Cos., the third-largest U.S. mutual-fund firm, which manages more than $1 trillion.
Katrina hit the Gulf Coast on Aug. 29, followed three weeks later by Rita, which at its peak was the third-most-intense Atlantic hurricane ever. The devastation disrupted energy supplies, and insurers and economists say they worry about another big storm hitting this year.
``Katrina is going to be a big stimulus for Washington to act,'' said Morton Cohen, a hedge fund manager at Cleveland-based Clarion Group, which manages $200 million in assets, almost half of which are energy-related. ``It's pretty obvious we have to do something about building refineries in this country and diminishing our amount of coal-burning toxins.''
President George W. Bush has questioned the science behind climate change and rejected calls for a mandatory federal cap on carbon dioxide and other greenhouse gases.
`A Little Spooked'
Katrina will make Bush's opposition to mandatory limits harder to defend, some say. The idea that hurricanes are becoming more devastating in the Gulf ``is difficult to avoid,'' Neil McMahon, a London-based oil industry analyst at Sanford C. Bernstein & Co., said in a Sept. 2 report to clients. ``More worryingly, recent research suggests that this trend is highly likely to continue as it's linked to global warming.''
While a single storm can't be directly linked to climate change, environmental advocacy groups such as San Francisco- based Sierra Club point to recent studies showing that rising sea temperatures are causing more ferocious storms.
Storm Intensity
Kerry Emanuel, a climate professor at the Massachusetts Institute of Technology in Cambridge, wrote in the journal Nature last month that storm intensity has risen by 50 percent over the past half-century as ocean temperatures have risen.
``The potential for damage is much larger than we've seen in the past,'' said Theodore Roosevelt IV, 62, a Lehman Brothers Inc. managing director in New York and great-grandson of the 26th U.S. president. ``The markets are a little spooked about our refining capacity and our ability to pump for oil in the Gulf of Mexico.''
Possible steps to curb greenhouse gases include a mandatory carbon emissions limit that would require companies to install new equipment and possibly revamp operations; a carbon emissions-trading program; and a renewable energy initiative, already adopted by several states, that calls for a certain percentage of power supplies to come from wind or other alternative sources.
Kyoto Protocol
The expense of such steps gives some investors and politicians pause, said John Holdren, environmental studies professor at Harvard University in Cambridge, Massachusetts. ``The real consequences are far away,'' Holdren said. ``The cost of doing something is immediate. There's a strong temptation to say `wait and see.'''
``Analysts are worried about the next 12 hours; climate change is way too long-term for them,'' said William Andrews, who manages about $4.5 billion at C.S. McKee & Co. in Pittsburgh, including Chevron Corp. shares.
Democratic President Bill Clinton, whose administration agreed to the 1997 Kyoto Protocol mandating greenhouse-gas emissions cuts, never submitted the accord to a Senate vote because countries like China and India weren't covered, and opposition to the accord among lawmakers was overwhelming.
Bush rejected the Kyoto accord in 2001, saying it would cost the U.S. 5 million jobs. Since then, he's touted voluntary reductions, incentive measures and ``market-based'' programs.
`In a Box'
The concerns on Wall Street may step up pressure on Bush to drop or soften his opposition.
``The Bush administration has gotten itself in a box,'' said Marc Levinson, a JPMorgan Chase economist in New York. ``It continues to say global warming may not really be a problem, even though by now almost everyone who has seriously looked at the issue says this is a problem.'''
Even before Katrina flooded 80 percent of New Orleans, Goldman's chief investment strategist, Abby Joseph Cohen, was signaling a shift on Wall Street.
``Environmental issues, in particular climate change, are receiving increased focus from the investment community,'' Cohen said in an Aug. 26 report to clients.
Utilities including Exelon Corp. and lawmakers including Senator John McCain, an Arizona Republican, support national limits on greenhouse emissions.
McCain-Lieberman Measure
McCain, along with Senator Joseph Lieberman, a Connecticut Democrat, tried to push through legislation earlier this year that would reduce emissions to their 2000 level by 2010. While the measure failed, McCain said in June that eventually ``we will win'' because ``climate change is real.''
Bush likely will have to tackle climate change head-on at some point, said Barry Abramson, a utility industry analyst who helps manage $28 billion at Gabelli Asset Management in Rye, New York.
``It does appear that the scientific evidence is increasing, as well as pressure from other companies and prominent politicians in the U.S.,'' he said. ``The storms have people thinking, and that continues to ramp up the pressure.''
Companies such as Chicago-based Exelon and Fairfield, Connecticut-based General Electric Co. say they want federal guidelines so they can map strategies for future expansion. They also want to avoid the confusion of complying with various state emissions rules.
Carbon-Related Risks
Responding to pressure from pension funds and other investors, companies are factoring climate change into the risks and opportunities faced by their businesses, according to the Carbon Disclosure Project, a group of 155 institutional investors who oversee $21 trillion.
The group, which includes the California Public Employees' Retirement System, the largest U.S. public pension fund, got 60 percent of the largest U.S. companies to participate in its annual study, reporting their emissions and their plans to reduce them. Calpers is among a group of funds overseeing $3 trillion in assets that in April pledged to invest $1 billion in companies that reduce greenhouse-gas emissions.
Calpers is talking to the U.S. Securities and Exchange Commission about requiring companies to disclose their carbon- related risks, said Winston Hickox, Sacramento-based portfolio manager for environmental initiatives and former head the California Environmental Protection Agency.
Hickox said it's ``just a matter of time'' before the White House catches up with states, companies and investors and ``gets serious'' about climate change.