Climate change, economy, environment, interest rates, retirement, risk management, SRI

Climate Change impacting Economic Growth

In the past decade the global economy has struggled to produce sustained economic growth. While the financial crisis of 2007-2009 and the Great Recession left a lasting impact on companies and decision-makers, the structural changes to the economy since then have been substantial.

Companies have adapted by changing the employment structure of how they operate. Many companies, to cut costs, have changed many jobs from w2 positions to contractor or out sourced positions. This has allowed large companies to pay less in terms of benefits to their workers; benefits such as health insurance, disability insurance, life insurance and retirement savings.

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economy, income, interest rates, retirement, risk management

Negative Yielding Bonds and Risk

Bonds are traditionally used within investment portfolios to reduce equity risk and generate income through the yields they carry. For example, a 10 year bond with a face value of $10,000 with a 5% yield generates $500 in income. Most recently the US 10 year yield was 2%.

However, over the past few years central banks in Europe and Japan have experimented with Quantitative Easing and driven rates below zero%. In late June 2019, the amount of negative yielding bonds reached over $12 trillion. Yields in Europe continue to fall as the ECB in June indicated its plans to lower the discount rate further in upcoming meetings. A slow-down in the European economy and low inflation has left businesses and economists frustrated. (1)

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Climate change, economy, environment, interest rates, retirement, risk management

Rising global temperatures will hurt global GDP

A study released by the science journal Nature makes the connection between the rise of global temperatures and the negative impact this has on GDP around the world. In the study, titled “Global non-linear effect of temperature on economic production”, researchers found that “fundamental productive elements of modern economies, such as workers and crops, exhibit highly non-linear responses to local temperature even in wealthy countries.” Meaning as temperatures rise, the effect is much greater and accelerates in ways that are potentially disastrous. (1)

One of the lead authors, Marshall Burke of Stanford’s Department of Earth System Science, calls their study “the first evidence that economic activity in all regions is coupled to the global climate.”

The study continues, “If future adaptation mimics past adaptation, unmitigated warming is expected to reshape the global economy by reducing average global incomes roughly 23% by 2100 and widening global income inequality.”

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Climate change, economy, environment, ESG, new economy, risk management, Socially Responsible Investing, SRI

David Hume, “State of Nature” and Climate Change

When you examine the behavior of corporations today you begin to wonder… Is there a moral philosophical underpinning to their behavior? What determines right and wrong? And in an age of anthropogenic climate change what is the responsibility of business to the larger society?

I decided to revisit the philosophy of David Hume and see if I could scrape together some clues to better understand what we are experiencing. Hume was an English philosopher in the 18th century. Along with John Locke, Hume wrote several treatises that became the foundation of philosophical thought in England, but also importantly, for the United States. Hume’s insights can be found in the Declaration of Independence, the Articles of Confederation and the Constitution. As a result, his thinking played a crucial role in the development of business and industry, and the policies that supported their development.

To understand how government developed and the role it played in regulating behavior, Hume and others described an original condition (prior to government) he called the “State of Nature”.

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