We would like to offer up our perspective on the climate change debate. We do not think this is a political or ideological debate as is presented in the media and by politicians, but one about risk management.
The question is not whether you believe human action is causing climate change - the question should be “how sure are you?”.
This is a different question, and based on probability theory first adapted by French mathematician and philosopher Blaise Pascal. Pascal proposed an approach to dealing with uncertainty, particularly around the realisation of low probability events with severe outcomes. See “Pascal’s Wager’ if you are interested in seeing this approach in a theological application.
Simply, from a risk management perspective, you would have to be 100% certain that climate change was not caused by human economic action to take no action.
To make our point, even if there is just a 1% chance that it is human action destroying the environment - on a risk management basis the capitalist system must react. This is because the low risk outcome - unliveable habitats, rising sea levels and risk to food security are such an enormous risk to human existence – action must be taken. This is not a debate around opinion, or a moral suasion - but an existential one.
Furthermore, it will not be ideology or debate that prevents human induced climate change, it will be the power of the global capitalist system that can make then change to reduce impact.
If value is placed on the environment to prevent a ‘tragedy of the commons’, the capitalist system can respond. The ‘tragedy of the commons’ is a well-known economic theory where a shared resource system exploited by individual users acting independently in their own self-interest destroy the common good of all users by depleting or spoiling that resource through their collective action.
If the capitalist system is tasked with repairing the environment, we will see wholesale innovation (which has clearly already begun) but could accelerate as a price on the environment is implemented and consumer preferences change.
Of course, there are industries that will suffer, particularly those structured around fossil fuels – but this is unfortunately a price that must be paid from a risk perspective.
So ultimately, individuals have the right to believe climate change is a fabrication, they can be be a ‘climate change denier’ - but still understand the risk that it might not be a farbrication, and that action is required.
“Just because you don’t believe something doesn’t mean it is not true”
- Albert Einstein
Tim has 22 years’ experience in the investment and securities markets. Tim was a partner of Goldman Sachs JBWere and during his 15-year tenure at the firm had senior experience across all areas of equities investing. Tim was Head of Australian...
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