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Jeremy Grantham on investing, resource scarcity and climate change



Ben Goldsmith, head of sales and marketing and a partner at WHEB, speaks to Jeremy Grantham, the chief investment strategist at GMO, about resource scarcity and climate change and the implications for investors.

Ben Goldsmith (BG): Jeremy, you have said in the past how focusing on data related to resource use can clearly show what problems we are up against. For those who still think that climate change and resource scarcity are some sort of conspiracy dreamed up by environmentalists, what would you say?

Jeremy Grantham (JG): Our approach has always been to interrogate the data, and it is data that drove me to the problem of resource shortages. My team specialises in spotting bubbles in asset classes and we had an infamous exhibit called ‘all bubbles break’ – all the important bubbles we could find had broken and we had had a similar view of oil. It took me, I’m ashamed to say, two years to realise that oil was probably not an example of a bubble breaking back to a pre-existing trend, and instead was the first paradigm shift that I’d ever come across out of the literally thousands that we’d looked at.

BG: But is it only oil? Or is there a wider pattern emerging?

JG: Well, being rather slow on the uptake, it took me another two years to gestate the question why oil would be the only finite resource to respond to the pressure it was meeting. As we studied the data, we realised that of course it was not, and that the world had begun to change pretty dramatically around the year 2000. We came out with a big report, which has been my one and only scoop, and showed that we were clearly entering a new era of scarce resources and rising prices. The commodity price declines that we had seen for 100 years had been incredibly helpful in creating wealth at about 1.2% a year or a total of 70% from 1900 to 2000, but then from 2002 to 2008 it gave the 100 years back and we were back to where we had been in 1900.

Why was this? There was no world war three, there was no fight with Saudi Arabia and yet it was a bigger move than what happened during the second world war. So that was really an amazing story. Commodity prices had tripled and oil had quadrupled without any fuss, without anyone really screaming about it. People focus so much on housing and finance that they were missing one of the great commodity moves of all time. Perhaps it is the single most important event since the industrial revolution because we really are beginning to run out of resources and if we live in a world where prices slowly rise, there will be a very critical shift in the economic environment, one that will cause a substantial slow-down in economic growth.

Early action is important in dealing with a lot of resource scarcity issues, but the area where time really isn’t on our side is in dealing with carbon emissions and climate change. We have got to somehow rise to the occasion on carbon emissions, even at a time when the pain from climate change is not immediately obvious. That’s the real problem. We are slowly being warmed in the pan and we can’t find the incentives to react yet. Meanwhile the damage is accumulating and, as you probably know, there is no confidence from scientists that limiting warming to two degrees will save our bacon. Two degrees may turn out to be irreversibly bad and there are many more people who think that today than 10 years ago.

BG: Not forgetting climate change’s ugly twin sister, ocean acidification, which nobody really talks about!

JG: Thank you – yes. It’s unarguable that rising carbon dioxide emissions are making the oceans become more acidic, in turn threatening life in the oceans and the more than one billion people who are directly dependent on the oceans for their livelihoods.

BG: So where are we likely to see the impacts of rising resource scarcity?

JG: Well, we are already seeing some of these impacts, and one region that is particularly vulnerable in my view is North Africa and indeed much of the Mediterranean circle. This region is particularly wheat dependant. So, in Egypt for example, you go and buy your wheat and take it home and it has USA printed on the sack and when the price triples, which it did, the country has to pay triple. Wheat is often subsidised for the individual but, in the end, Egyptian society has to pay the difference and Egypt’s oil has peaked and the reserves are not there to pay for these resources.

Meanwhile the population is still going through the roof. It has gone from 3 million in Napoleon’s time to 80 million today with forecasts of a further 60 million to come. Egypt is already very productive and so can’t easily increase its output, so who’s going to buy the food for the next 60 million people? My concern – and we are perhaps already seeing this – is that this sort of things destabilises society, and around the Mediterranean rim, you’re going to find country after country, unless they’re lucky, becoming dangerously destabilised.

BG: Ok, that is all pretty stark, but is it all doom and gloom?

JG: Well actually population and the global birth rate is one area of good news. It was actually in 1961 that the global birth rate peaked at 2.1% per annum and since then it has been in decline. A decline that has been literally transcendental – the only word I can think of that adequately describes the change. In Iran in 1961, the average woman had seven children; now it is 1.6. Even in a dirt poor country like Bangladesh, the average has gone from seven to 2.2 – just a tiny bit above replacement level.

Country after country is coming down – the whole of Asia is way below replacement. The whole of Europe is way below replacement and, in the very last numbers, the US just dropped to 1.9. So this was utterly unexpected. A complete godsend in my opinion and with luck and some encouragement we could stabilise the global population at 8 billion and then have it drift down from there.

BG: Where else can we see really positive trends?

JG: One area is in renewable energy, particularly solar. The progress in renewables is so much faster than the typical, reasonably well-informed businessman realises. The price of solar panels is now just a quarter of what it was just three years ago. Solar is on the cusp of literally changing the whole utility industry. In California, 97% of new energy infrastructure that is expected to be built in the second half of 2013 is going to be solar, with the remaining 3% in biomass. In Europe, 70% of new energy infrastructure is renewable energy and in China it is over half.

BG: So the good guys – as far as renewables goes – are winning. Are investors in renewables leading the charge?

JG: Don’t get too carried away! England has an attitude that is notoriously dopey on these issues and is still influenced by the ‘bad guys’ that to a degree is only seen in the US, and investors are not really moving as fast as the science and engineering. Really, they are just following along and it’s down to the brilliant leadership of places like Germany and California. It isn’t being driven by eager minded, capitalists, to be fair. It will eventually be driven by the market. As the numbers keep ticking through, capitalism will fully engage and the attitudes in England and America, particularly in America, will be swept away.

BG: What would you say needs to change to get investors to play a more constructive role here? Is it back to having a longer term investment horizon?

JG: I am not sure I have anything particularly profound or original to say on this. I would do away with quarterly reports, and the short-term measurement periods for managers. You need to be very careful about incentive payments and make sure that they’re symmetrical. It’s all quite obvious how you’d make improvement. If we had to depend on the leadership of the investment management industry, it would be very slow. I think if we make it through this, it will be because the technology will move fast enough and the venture capitalists and some capitalists will move fast enough and it will be down to these asset managers. For the clients, it will become increasingly obvious that it’s a done deal. They won’t have to be heroes and they won’t have to use their brain. Things will just fall into shape.

The question at the end of the day is if we’ve been very lucky or slightly lucky and scraped by, in what condition will we have left the planet and what are the interactive effects of a warmer destabilised climate on the critical issue of food production? Even this in my lucky outcome, that is not knowable; it is not knowable how bad the weather will get; it is not knowable how adaptable ecosystems will be. They’ve had 10,000 years of very stable weather; they are designed for a world which is beginning to go out of business. The degrees of uncertainty are so great on climate change and that is what makes it so dangerous.

Ben Goldsmith is head of sales and marketing and a partner at WHEB; Jeremy Grantham is the chief investment strategist at GMO. This article originally appeared on WHEB’s blog.

Further reading:

One day soon, we hope all investment will be sustainable, responsible and ethical – before it is too late

From ethics to sustainability: shifting the investment debate for 2014

The sustainable investment tipping point is now

Not over the long-term? Unsustainable investment’s ‘black swan’ moment

Climate change? Let’s talk about…

Articles, features and comment from WHEB Group, an independent investment management firm specialising in opportunities created by the global transition to more sustainable, resource efficient economies. Posts are either original or previously featured on WHEB's blog or in its magazine, WHEB Quarterly.


Will Self-Driving Cars Be Better for the Environment?



self-driving cars for green environment
Shutterstock Licensed Photo - By Zapp2Photo |

Technologists, engineers, lawmakers, and the general public have been excitedly debating about the merits of self-driving cars for the past several years, as companies like Waymo and Uber race to get the first fully autonomous vehicles on the market. Largely, the concerns have been about safety and ethics; is a self-driving car really capable of eliminating the human errors responsible for the majority of vehicular accidents? And if so, who’s responsible for programming life-or-death decisions, and who’s held liable in the event of an accident?

But while these questions continue being debated, protecting people on an individual level, it’s worth posing a different question: how will self-driving cars impact the environment?

The Big Picture

The Department of Energy attempted to answer this question in clear terms, using scientific research and existing data sets to project the short-term and long-term environmental impact that self-driving vehicles could have. Its findings? The emergence of self-driving vehicles could essentially go either way; it could reduce energy consumption in transportation by as much as 90 percent, or increase it by more than 200 percent.

That’s a margin of error so wide it might as well be a total guess, but there are too many unknown variables to form a solid conclusion. There are many ways autonomous vehicles could influence our energy consumption and environmental impact, and they could go well or poorly, depending on how they’re adopted.

Driver Reduction?

One of the big selling points of autonomous vehicles is their capacity to reduce the total number of vehicles—and human drivers—on the road. If you’re able to carpool to work in a self-driving vehicle, or rely on autonomous public transportation, you’ll spend far less time, money, and energy on your own car. The convenience and efficiency of autonomous vehicles would therefore reduce the total miles driven, and significantly reduce carbon emissions.

There’s a flip side to this argument, however. If autonomous vehicles are far more convenient and less expensive than previous means of travel, it could be an incentive for people to travel more frequently, or drive to more destinations they’d otherwise avoid. In this case, the total miles driven could actually increase with the rise of self-driving cars.

As an added consideration, the increase or decrease in drivers on the road could result in more or fewer vehicle collisions, respectively—especially in the early days of autonomous vehicle adoption, when so many human drivers are still on the road. Car accident injury cases, therefore, would become far more complicated, and the roads could be temporarily less safe.


Deadheading is a term used in trucking and ridesharing to refer to miles driven with an empty load. Assume for a moment that there’s a fleet of self-driving vehicles available to pick people up and carry them to their destinations. It’s a convenient service, but by necessity, these vehicles will spend at least some of their time driving without passengers, whether it’s spent waiting to pick someone up or en route to their location. The increase in miles from deadheading could nullify the potential benefits of people driving fewer total miles, or add to the damage done by their increased mileage.

Make and Model of Car

Much will also depend on the types of cars equipped to be self-driving. For example, Waymo recently launched a wave of self-driving hybrid minivans, capable of getting far better mileage than a gas-only vehicle. If the majority of self-driving cars are electric or hybrids, the environmental impact will be much lower than if they’re converted from existing vehicles. Good emissions ratings are also important here.

On the other hand, the increased demand for autonomous vehicles could put more pressure on factory production, and make older cars obsolete. In that case, the gas mileage savings could be counteracted by the increased environmental impact of factory production.

The Bottom Line

Right now, there are too many unanswered questions to make a confident determination whether self-driving vehicles will help or harm the environment. Will we start driving more, or less? How will they handle dead time? What kind of models are going to be on the road?

Engineers and the general public are in complete control of how this develops in the near future. Hopefully, we’ll be able to see all the safety benefits of having autonomous vehicles on the road, but without any of the extra environmental impact to deal with.

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New Zealand to Switch to Fully Renewable Energy by 2035



renewable energy policy
Shutterstock Licensed Photo - By Eviart /

New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.

New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.

Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.

Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”

The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.

Zero net emissions by 2050

Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.

Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.

She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.

Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”

A worldwide shift to renewable energy

Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.

Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.

Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.

Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.


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