Will Big Business Finally Reckon with the Climate Crisis?

In a mansion built by the heir of an oil tycoon on New York’s Upper East Side, a group of financiers, philanthropists, and corporate executives recently gathered to discuss the climate crisis. The occasion was a new report, co-authored by an unlikely combination of McKinsey consultants and scientists from the Woods Hole Research Center (W.H.R.C.), on how physical climate risks will affect socioeconomic systems in the next few decades. During a presentation on the report’s findings, much of it in the preening language of fixed assets, liability risk, and flow charts, Spencer Glendon, an economist and senior fellow at W.H.R.C., was especially blunt with the crowd. He said that he tells decision-makers things such as “ ‘You know how many people in India are going to die from this, if you do nothing? Ignoring that now is on you.’ ” If investors and business leaders don’t account for these risks, “that will be unforgivable,” he said. “Because everyone knew they were coming.”

Glendon had spent the majority of his career working in finance, but he makes a point to stand out slightly, with spiky gray hair, a yellow plaid bow tie, and rectangular brown-and-red glasses. He grew up outside Detroit, in the nineteen-seventies, where he became “familiar at a very young age with things going badly,” he told me. “I became fascinated by the question: Why does that happen in some places and not in others?” Early in his career, he moved back and forth between places that worked well and places that worked poorly: he was an engineer in an auto factory in Detroit and a banker on the South Side of Chicago before moving to a small-business lending program in Russia; then he got a Ph.D. in economic history at Harvard. He joined the investment firm Wellington Management in the late nineties, first as a researcher trying to understand what might become of Asia after the financial crisis. He eventually became a partner. Seven years ago, he started asking questions about climate change.

“What I discovered was that investment professionals talked in a weird way about it,” he said. “They used language for climate change that they wouldn’t use for anything else. They wanted certainty, belief. They didn’t think or talk probabilistically. They talked about it in a way that was binary. That is not how you should think about investing.” He went on, “You can get people in the business community interested in just about anything. You can get uptight white guys to talk about erectile dysfunction and diarrhea, if there are stocks involved. But you couldn’t get them to talk about climate change.”

Glendon started conducting his own research, talking to scientists and reading scientific papers, including climate-change work put forth by W.H.R.C. “What I realized was that this was actually mankind’s first good forecast,” he said. “It was not just one variable but a suite of variables that all fit together—rainfall, season length, night versus day temperatures—a composite of how the world had changed and not changed. By the time I’m looking at this, all these things the scientists had predicted had come true. It became more and more clear to me how disruptive, how painful, how much of a challenge to civilization it would be for these changes to happen.” In pure economic terms, however, he saw a gold mine. “I was working in an industry where, if you were right sixty per cent of the time, you could become fabulously wealthy. And these forecasts had been right for forty years.”

Glendon began speaking to the corporate world about climate risk, and, four years ago, gave a lecture at McKinsey’s global-sustainability summit, in Berkeley, titled “Man’s First Good Forecast.” Soon afterward, he quit his job at Wellington and started helping W.H.R.C. build a team that could make climate science vivid and relevant to the business world. In 2018, Dickon Pinner, a senior partner at McKinsey, contacted Glendon, whom he had befriended after the Berkeley summit, about a new research project.

The report they produced, after a yearlong collaboration, hangs, in part, on a few ideas that had preoccupied Glendon. First, it was researched and written to focus on near-term climate risks—nothing beyond the lifetime of a standard thirty-year mortgage, because many parts of society, such as funding the government and housing, are organized around those time horizons. Also, global heating, owing to the additional carbon already in the atmosphere, is locked in for at least the next ten years and will continue to cause myriad harmful impacts, regardless of the actions that nations now take to decarbonize. “It was surprising to realize the extent of how much risk there is out to 2030, and how much is already locked in,” Mekala Krishnan, a senior fellow at the McKinsey Global Institute, told the crowd, during a panel discussion with Glendon.

The report also emphasized something long understood by scientists but which the McKinsey consultants explained to the crowd as if it were a revelation. The future climate will not resemble the relatively stable climate of the past ten thousand years, which accounts for the full span of human civilization. “Investing in an environment where tomorrow doesn’t look like today is very tricky,” Pinner, the McKinsey partner, who was also on the panel, said. The global economy relies on endless layers of systems that were built within the stable climate of the past. All these physical climate impacts and thresholds—lethal heat waves preventing outdoor labor and destroying harvests, floods imperilling infrastructure and shutting down electric grids—will not just affect G.D.P. or decrease economic activity slightly, Pinner said. “Our sense is: no, actually, it’s an impact on the factors of production that drive G.D.P. And, therefore, it’s more structural.” He went on, “It’s actually an attack on wealth.” He had the room’s attention.

Glendon said, “The economics of climate change,” as it has been calculated and analyzed to date, “will be seen as one of the worst mistakes humans have made, much worse than any of the denialists.” The models are all calibrated on the past fifty to seventy-five years, a period of time when, at least in rich countries, “nothing happened,” he said. “No wars, no Great Depression—one bit of inflation and one financial crisis and that’s it.” Many typical models take data from that historic period and project what might happen in the future. They are also based on the assumption that the experience of the economy is contingent on the climate at that time. But, Glendon said, they haven’t incorporated thresholds, or breaking points. “The actual experience of the economy is contingent on the climate of the future.”

For instance, many economic models still assume that India will keep growing indefinitely. “They just have seven-per-cent growth forever of G.D.P., of demand,” Glendon said. “There is no question about whether climate change might impact this growth. India gets rich forever.” This leads to a major assumption, which “underpins the entire oil market,” among others, Glendon said. But the report found that three hundred and eighty million people work outdoors in India, and less than ten per cent of the country’s homes have air-conditioning. By 2030, possibly two hundred million Indians could be exposed to lethal heat waves, in which the temperature could kill a well-hydrated person who spent only four hours outside, even in the shade, and by which the average number of lost daylight working hours could increase to the point where between 2.5 and 4.5 per cent of G.D.P. could be at risk annually.

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