Hot globe, hot profits

A melting iceberg near Greenland demonstrates the retreat of arctic ice, which opened up the Northwest Passage for some ships. 

Associated Press

A melting iceberg near Greenland demonstrates the retreat of arctic ice, which opened up the Northwest Passage for some ships. 

Last year, Beluga Shipping discovered that there's money in global warming.

Beluga is a German firm that specializes in "super heavy lift" transport. Its vessels are equipped with massive cranes, allowing it to load and unload massive objects, like multiton propeller blades for wind turbines. It is an enormously expensive business, but last summer, Beluga executives hit upon an interesting way to save money: shipping freight over a melting arctic.

And in there lies an interesting story. If you looked merely at the realm of politics, it would be easy to believe that the question "Is climate change really happening?" is still unresolved. But there's one area where doubt hasn't grown — and where, indeed, people are more and more certain that climate change is not only real, but imminent: the world of industry and commerce.

Beluga had received contracts to send materials on a sprawling trip that would begin in Ulsan, South Korea, and head to the Russian port city of Archangelsk — located near the border with Finland — and wind up in Nigeria. Normally, this route requires Beluga's ships to navigate an 11,000-mile route through the Suez Canal. But in 2008, executives for Beluga Shipping decided that global warming had eroded the arctic's summer sea ice significantly enough that their ships could travel the Northeast Passage along the north coast of Russia. Beluga CEO Niels Stolberg said that since the shorter passage requires generating far less CO2, it's "greener"; it's also more ironic, since it was high concentrations CO2 that helped melt the route in the first place.

"I am convinced," Stolberg said, "that the arctic will become an area of quite regular sea traffic at least during summer."

Companies exist to make money. Their primal greed also plants them inevitably in the "reality-based community." If a firm's bottom line is going to be affected by a changing climate — say, when its supply chains dry up because of drought, or its real estate gets swamped by sea-level rise — then it doesn't matter whether or not the executives want to believe in climate change.

Railing at scientists for massaging tree-ring statistics won't stop the globe from warming if the globe is actually, you know, warming. The same applies in reverse, as the folks at Beluga Shipping adroitly realized: If there are serious bucks to be made from the changing climate, then the free market is almost certainly going to jump at it.

This makes capitalism a mechanism for cutting through ideological haze and manufactured doubt. Any serious industrialist who's facing "climate exposure" — as it's called by money managers — cannot afford to engage in self-delusion. Wander the websites of various industrial associations — aluminum manufacturers, real estate agents, wineries, agribusinesses, take your pick — and you'll find straightforward statements about the grim reality of climate change.

Last year Wall Street analysts issued 214 reports assessing the potential risks and opportunities that will come out of a warming world. One by McKinsey & Co. argued that climate change will shake up industries with the same force that mobile phones reshaped communications.

Insurance firms have always carefully studied real-world data to figure out what, precisely, constitutes a risky activity. As a result, they were among the first to notice that weather was getting more violent, and more unpredictably so.

"It's just a logical consequence," says Peter Hoppe, head of the "Geo Risks Research" division of Munich Re, the multinational reinsurance firm. "Global warming affects our core business."

With climate-change models predicting increasingly erratic weather, a new generation of startups is heading into the insurance field, figuring that almost any firm might want to hedge against the bad economic effects of weather — such as clothing manufacturers (who could suffer massive losses in coat sales if an unexpectedly mild winter emerges), airlines (since weather is the top cause of delays) or sporting-event promoters (when it's rainy, everyone stays away). Weatherbill is one of them. Founded by Google expatriates, it lets anyone use their Web site to quickly create weather insurance for almost anything.

For all this, though, the number of climate visionaries in industry is still small. The grand majority are deeply myopic, focused narrowly on goosing profits in the next quarter — who cares what'll happen 10 years from now?

To make corporations true partners in tackling climate change, investors need to push for basic changes in the way companies function, says Mindy Lubber, president of CERES, an association of environment-minded investors whose members have $10 trillion under management. CEOs whose bonuses are based on bumping next-quarter results will make short-term decisions. Those who are paid based on reducing carbon usage will make long-term ones — investing in technology and processes that reduce greenhouse gases.

Right now, though, there's probably only one force that will get today's blithe firms to snap to attention, and that's legislation. If Congress actually puts a price on carbon, it'll hit the world of industry with tsunamic force.

The farsighted firms — and the ones who work on the colder fringes of the world — can see the future clearly, because they're living it. But with the stroke of a pen, President Barack Obama can bring it a lot closer. Whether it's a melting arctic or a bold new law, the biggest forces shaping industry are, as it were, man-made.

Hot globe, hot profits 04/24/10 [Last modified: Friday, April 23, 2010 4:21pm]

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