Investments that Ignore Climate Change Just Burn Money

Like many of you, I have been shocked reading the stories about the Camp fire in Northern California and the Hill and Woolsey fires, just west of Los Angeles. Fires have long been a feature of Californian life, but the concept of “megafires” is a new one.

The Camp fire which started on Thursday and destroyed the town of Paradise on the weekend is already the state’s most destructive fire on record. Fully five of the top 10 most destructive California fires – judged by the number of buildings destroyed – have occurred since 2015.

This year has been especially tough on crews in southern California because firefighting resources in northern California are busy with the Camp fire, so are not able to come to the aid of their southern California brethren fighting Woolsey and Hill.

Daryl Osby, Los Angeles fire chief, believes that climate change is increasing the intensity of California fires. Scientists might equivocate on this point, but the circumstantial evidence is strong. Consider that five of the top ten fires have occurred within the last three years – years immediately following the severe drought of 2012-2015.

A recent study by NOAA scientist, Eugene Wahl, and colleagues found evidence that effects of the recent Californian drought on the areas of southern California and the Central Valley was likely the most extreme experienced since 1571 (not a typo!). While this historical drought was followed by rains brought by the El Niño of 2015-2016 (see also Chris Farley’s explanation), the El Niño rains did more to help northern California than they did the south. Wahl et al’s paper finds that recovery in the south may take decades.

You might think this study is purely an academic curiosity, fit only for squabbling about in scientific conferences. You would be wrong.

Consider the economic productivity of southern California. If the combined Los Angeles and San Diego metropolitan areas formed an independent country, its GDP would rank fifteenth largest in the world – between Spain and Mexico (SoCal vs The World).

Regarding the Central Valley, according to the US Geological Survey, this region produces one quarter of all food in the US and two fifths of the “fruits, nuts and table food” – crops worth an estimated $17 billion per year. What’s more, the Valley is phenomenally productive – generating its enormous bounty while only making up 1% of total US farmland. Keep that tidbit in mind the next time you are in your local grocery store’s produce section.

The points are clear:

1. Southern California and the Central Valley represent key regions of wealth creation and agricultural fecundity in our nation and
2. These areas are already ecologically compromised by drought – the effects of which may last generations.

One look at the photos from the Woolsey fire, which has razed homes in one of the most exclusive residential areas in the world, is enough to convince me that climate change is already starting to have an effect on the value of real and financial assets, whether these values are yet reflected in market prices or not.

Many might read this article and think that I am focusing only on the risk of the downside scenarios. But in my mind, the upside scenarios are more compelling and infinitely more exciting.

Rather than worrying about the risk to present farms, we can invest in the technology required for a new farming paradigm (see my October 31 article). Rather than worrying about destruction of present communities and the attendant decrease in real estate values and municipal tax bases, we can invest in the technology required to build and maintain sustainable communities.

Climate change is real. Its effects are, at this point, inevitable. Investing in a way that recognizes this fact is not only a moral imperative, it is the only sensible path for someone looking to create or maintain intergenerational wealth to take.