Friday, June 10, 2016

The Frame War: How Skeptics Lost the Climate Debate

Many in the community Eli slums in twit and blog about Exxon, about climate risk and recent attempts to force fossil fuel companies to confront the risk to their business of climate change.  At the Exxon stockholders meeting just last month a motion to that effect failed with 37% of the voting shares being in favor.  That is an outstanding shot across the bows of Exxon management, 37% means that many significant economic players have come over to the side of yeah, climate change is not only a risk to people, but also our money, but there is more.

Now some, not Eli to be sure, who might not be paying attention, indeed Eli was not, but the Bunny was at a recent seminar on the economic issues of climate change with some of the high and mighty holding forth, and they kept coming back, one might, only might say smugly, to three letters of the alphabet, FSB and the Bloomberg Committee.

Eli sat up bolt upright because he thought that there were four letters FASB, the US Financial Accounting Standards Board, basically the guys who killed defined benefit retirement by making the costs appear out to infinity on any employer who offered one.  They also trashed the Bunnies retirement health insurance plan for the same reason.  Were they taking an interest in meeting the accounting challenges of climate change?  Big news if so (and this will require looking into)

But no, this is the Financial Stability Board, a construct of the G20, more exactly the Finance and Treasury ministers of same the G20 being the 20 most economically important countries in this Galaxy (Eli thinks that astrobiology is a crock).  The FSB was formed after the recent 2008 economic meltdown

The FSB promotes global financial stability by coordinating the development of regulatory, supervisory and other financial sector policies and conducts outreach to non-member countries. It achieves cooperation and consistency through a three-stage process, including monitoring implementation of agreed policies.
and as a creature of governments and especially the finance ministries of governments it is not to be sneezed at.  The FSB IS concerned with how the threat of climate change to economic stability
Policymakers have an interest in ensuring that the financial system is resilient to all forms of risk. In April 2015 the G20 asked the FSB to consider risks related to climate change and in November the FSB proposed the creation of an industry-led Task Force to develop recommendations on climate-related financial disclosures. Appropriate disclosures are a prerequisite for financial firms not only to manage and price climate risks accordingly but also, if they wish, to take lending, investment or insurance underwriting decisions based on their view of transition scenarios.
Just what the activist shareholders are trying to drag the fossil fuel companies to, and they are resisting.  The task force was put together in December 2015, and Michael Bloomberg is the chair.

That should cause some bunnies to sit up in their seats.

A first report on the lay of the land has already been published (more later) and
During the second phase, the Task Force’s work will focus on delivering specific recommendations for voluntary disclosure principles and leading practices, if appropriate, with a view to issuing a report for public consultation by end-2016. As part of its work the Task Force will conduct public outreach to engage a wide and varied range of stakeholders as it develops its recommendations.
The intent of the FSB can be read in the next paragraph
The work of the TCFD builds on the successful work of the Enhanced Disclosure Task Force (EDTF), which was created to provide recommendations on developing more effective bank risk disclosures
and that is what the TCFD is about
The Task Force on Climate-related Financial Disclosures (TCFD) will develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The Task Force will consider the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures across industries. The work and recommendations of the Task Force will help firms understand what financial markets want from disclosure in order to measure and respond to climate change risks, and encourage firms to align their disclosures with investors’ needs.
Stress tests for Exxon bunnies and voluntary is likely to become not optional real quick as governments implement the rules.


Anonymous said...

"likely to become not optional real quick"

Hah. I can't see where I'd be likely to reuse that, but I wish I could.


Trump may look like Evita on a bad hair day, but when UNEP, the GTO & the FSB annoint Bloomberg to chair

"coordinating the development of regulatory, supervisory and other financial sector policies a creature of governments and especially the finance ministries of governments... to manage and price climate risks ... and encourage firms to align their disclosures with investor needs ."

only Syndicalist bunnies should clap their paws in unison.

Aaron said...

The FSB/TCFD considers risks based on IPCC scenarios. However, the IPCC scenarios were developed by folks focused on the atmosphere. IPCC neglected the full store of CO2 in the biosphere

Reality will be more stressful than anything TCFD proposes. Investors that want truth should go for a walk in India. and 2 weeks later; ; overall

The European heat wave in 2003, was just a black swan, to tell us such things are possible, NOW. There was the Russian heatwave in 2010. Thus, heat waves also happen in the north. The North Coast of Greenland is melting, today.

The only stress test that matters is the one proctored by Mother Nature.

John said...

The text reads that "Appropriate disclosures are a prerequisite for financial firms not only to manage and price climate risk appropriately..."

The folks on Wall Street do not have a good record for pricing in the risk on home mortgages, credit default swaps, structured finance, financial engineering,, or much of anything. Recall that back in 2008, the global economy collapsed in the largest and most widespread collapse in the history of the human race. And the central culprits were the speculators on Wall Street.

Supposedly the risk was priced into the structure of the "financial instruments". Supposedly.

Many observers think it's only a matter of time until "it" happens again. There really were safeguards once upon a time (Steagull-Glass act) but that was repealed. After the 2008 collapse, the effort to reform Wall Street ended up with Dodd-Frak, which is miserably inadequate.

Having said that, it's a good sign that Bloomberg and others are taking the issue seriously. Bloomberg business week had a cover story after Superstorm Sandy, with a headline


David B. Benson said...

Eli --- And all other galaxies as well. See the appendix of The Logic of Chance by Eugene Koonin.

William M. Connolley said...

> in 2008, the global economy collapsed in the largest and most widespread collapse in the history of the human race.

No it didn't.

> And the central culprits were the speculators on Wall Street.

No they weren't.

Anyway, back on topic: the fact that the FSB has been tasked with drafting standards is certainly a blow to all those who insist that such standards already exist, no? This is worth doing, and it will be good to have consistent reporting rather than individual companies making up their own way of doing it. But I'm doubtful it will get "activists" what they want, which appears to be "zomg, now we account for carbon, we'll have to shut down".

Fernando Leanme said...

Since this "climate risk" has to be based on a professional well thought out perception of the future, I expect we will see the financial risk community discover the fraud inherent in the use of RCP 8.5 as "Business as Usual".

Once they realize the IPCC has been engaged in fraud they will have to prepare more sensible emissions pathways with sounder climate change scenarios. At that point it will become evident that climate change risk is exaggerated by polítical agents and communist popes engaged in political shenanigans under the "climate change danger" Trojan Horse.

Anonymous said...

I don't know why you keep pushing the crap of Eugene V. Koonin.

Humanity won't be missed. You are not special.

EliRabett said...

Yes William, such standards exist, and no William they a) do not exist everywhere and b) differ where they exist giving ample chance to game the standards where they do exist. So, shock horror, global REGULATIONS are needed for reporting risks. This will pain you no end no doubt, but you do recognize that

As to the 2008 collapse, yes William, based on the cost of the losses 2008 was the biggest ever (although certainly inflation plays a role in that) but yes William the securitization games that the banks played was the primary cause of the size of the loss.

Please remember that your guru Timmy comes from a for sale eco department that always goes with the highest bidder.

EliRabett said...

Dearest lying scum Fernando, perhaps you will explain why the Earth is following RCP 8.5 if it is such a fraud. Allow Eli to find the data for you

It is rather the low pathways which now require technologies that we do not have that are the science fiction.

Yes, Eli is having a bad hare day. Live with it.

Brian said...

Astrobiology is a crock? That requires its own post.

Kevin O'Neill said...

Comparing different economic eras is often difficult if one is looking to make confident statements. So, which was worse, the great depression or the great recession? Depends on which metrics and which timeframes one wants to choose. There's data to support both.

The short-run shock to the system and resulting effects were probably greater in 2008 than in 1929. But the overall effects were probably worse post-1929 than post-2008. There's a major confounding factor though -- policy response, particularly in the USA. Another confounding effect is pure luck - the timing of China's industrialization growth. Remove the US and China from world statistics in the aftermath of 2008 and we see that the rest of the world barely managed to tread water for a prolonged period of time. And, of course, without them the rest of the world would have been economically even worse off.

As for what caused the 2008 meltdown. Unregulated 'shadow banking' that led to the creation of worthless derivatives in search of ever increasing profit margins regardless of risk that spawned an entire industry of real estate fraud.

I've already suggested to WC that he go back and read pre-crisis accounts of what was going on; specifically Tanta at Calculated Risk.

"So now that we’ve “innovated” our way into a situation in which nobody has the first bloody idea what’s going on with a huge portion of recently-originated mortgage loans, we’ve noticed that we’ve innovated our way into a situation in which nobody has the first bloody idea what’s going on with the securities they’re in or the CDOs that buy the tranches of the securities or the hedge funds that buy the tranches of the CDOs of the securities of the mortgages that were written on a hope and a prayer and a FICO. And this is a “teething” problem? Holy Mastication, Batman, you think this thing will improve if it grows some fangs?” -- Tanta at Calculated Risk, June 2007

Libertarian fantasies may say otherwise, but that's why they're characterized as fantasies - they bear little resemblance to reality. WC and his libertarian fixation have simply become boring.

Anonymous said...

Astrobiology is a crock? That requires its own post.
Indeed, I also think it requires its own post :-)

Susan Anderson said...

I'm glad I'm not the only one who thinks of it as slumming at times. Good thing to do if you have time on your hands ...