National Review Online, May 27, 2022

Scientists have traditionally tended to appreciate the usefulness of disagreement or, where necessary, to take it in stride and move on. (A flat Earth, you say? Oookay.) But in many faiths, dissent is heresy. The offender must be cast out, or worse.

Moral Money is, as its name implies, a particularly sanctimonious corner of the Financial Times. It is focused on the likes of ESG (a variant of “socially responsible” investing that measures actual or potential portfolio companies against environmental, social, and governance standards), “stakeholder capitalism,” and other facets of a kumbaya capitalism superior to the Gekko-hearted incumbent, or so the cleverly marketed corporatist story goes.

Moral Money has also become a brand, helping the FT carve out its niche in the flourishing ecosystem that has evolved around ESG and its kin. There are Moral Money events, including, just recently, a Europe “summit,” with a theme (“Turning Talk into Action to Hit ESG Targets”) that would normally be of interest only to true believers, those doing well out of that ecosystem (or who want to), or stalwarts who will put up with almost anything for a day out of the office. On this occasion, however, something occurred that was interesting, unexpected, and for anyone not too shocked to think it through, of considerable value. To the U.N.’s former climate chief, Christiana Figueres, it was “one of the most irresponsible public statements we have heard in years.” Sounds promising.

This supposedly irresponsible statement — a talk, actually — came from Stuart Kirk, the global head of, uh, “responsible investments” (I know, I know) for HSBC, a large bank. What’s more, Kirk is a Financial Times alumnus (the former editor of the newspaper’s famed Lex column no less) who can also boast of real experience in asset management, something worth remembering in light of his remarks.

Please watch for yourself what Mr. Kirk said here. If you do, you will hear him admit that his thesis — that “climate change is not a financial risk that we need to be worried about” — is a “heresy,” the right word to use given the distinctly religious aspects of some strains of climate-related environmentalism. What you will see is someone speaking a great deal of truth, the most unforgivable of all heresies, to what was in effect a congregation, with, adding to the horror, jibes aimed at, to pursue the analogy, some of its bishops:

I completely get that at the end of your central bank career there are many, many years to fill in. You’ve got to say something, you’ve got to fly around the world to conferences. You’ve got to out-hyperbole the next guy.

Kirk later jeers that the central bankers have been spending too much time on climate risk and not enough on inflation. Snarky maybe, but underlying that jibe is a legitimate concern: the mission creep now underway at a number of central banks. Kirk also suggests that they have been monkeying around (my phrase not his) with some of their forecasts to produce more desirably alarming results.

There could be no doubt that Kirk’s criticisms extended beyond central bankers to their allies in the climate wars. And, if anything, he understated the rewards that the leading climate warriors’ skillful appropriation of ancient apocalypticism can bring in. Far from merely being a pleasant career coda for former central bankers (offering little more than air miles and the chance for some moral preening at a conference or two), playing up prophecies of ecological catastrophe is, for those who know how to do so, a pathway to power and/or money.

And how many really do believe in a disaster on the scale that they so regularly predict? Sharon Thorne, the chairwoman of Deloitte Global, one of the innumerable consultancies feeding off the rich pickings that “climate,” sustainability, ESG, and all the rest have generated, had, earlier in the day, apparently been warning that doom lies ahead. Kirk noted that “Sharon said, ‘We are not going to survive.’. . . [But] no one ran from the room. In fact, most of you barely looked up from your mobile phones at the prospect of non-survival.”

However flippantly (another “sin,” it seems, but he is a talented debater of a certain, very English, type, and that comes with the territory), Kirk was making an important point. Rather too many of those who hector us about the climate do not behave as if they believe in the horrors they predict. To be sure, there is Barack Obama, with his purchase of a waterfront property — on an island, no less — but there are numerous less prominent cases. Others are both curiously and tellingly oblivious to the importance of setting an example. Thus John Kerry, our climate Metternich, is no stranger to the pleasures of the private jet.

To be clear, Kirk is no “denier.” He didn’t “doubt the science at all”: “There will be fires.” But, as mentioned above, what he did question was the extent of the financial risk posed by a changing climate, a question that economist John Cochrane, no denier either, has been asking and answering for some time, in these pages and elsewhere. The notion that climate change poses a risk to the financial system is, Cochrane has argued, “absurd.” Although Cochrane and Kirk are examining climate risk from somewhat different perspectives (Cochrane has a greater focus on systemic financial risk, while Kirk puts a bit more emphasis on investment risk), the issues they cover frequently overlap, and the time horizons of those putting capital to work is central to both of their cases. Both agree, moreover, that the arguments now being pushed by policy-makers about the financial risk posed by climate risk have been significantly overstated.

I wondered whether Cochrane had heard about Kirk’s talk and turned to his (must-read) blog. Indeed he had. He even offered up a few choice quotes, plus some commentary of his own.

Cochrane recounts Kirk’s belief that even the worst-case climate scenarios of a 5 percent hit to GDP by 2100 are trivial when compared with the economic growth that can be expected by then, a proposition he supports. “The world,” reckons Kirk, “is going to be between 500 and 1000 percent richer. . . . If you lop 5 percent off that in 2100, who cares? You will never notice.”

Kirk stressed that not enough attention is being paid to the adaptability of our species:

Anything where you put a denominator on those statistics tend to look like that. Human beings have been fantastic at adapting to change . . . and we will continue to do so. Who cares if Miami is 6 meters [actually 1 meter] underwater in 100 years? Amsterdam has been 6 meters [actually 6 feet, 2 meters] underwater for ages and that’s a really nice place.

(The corrected figures are Cochrane’s, and that Cambridge Union tone is Kirk’s.)

The result has warped priorities. We spend too much on mitigation and not enough on adaptation (California’s fire budget is, Kirk observed, 1 percent of its state budget or 0.1 percent of its GDP), priorities made, I think, even more bizarre by China’s behavior (not something that HSBC, as anyone who knows anything about HSBC will know, will ever criticize too forcefully) and that, say, of Russia and India. The West’s efforts by themselves are unlikely to be enough to ensure that the world hits the emissions goals that the climate establishment would like to see.

Kirk also attacked the myth surrounding “stranded assets,” doomed relics of the carbon-heavy past often cited as one reason to back the popular but dubious claim that adopting ESG is a way of doing well by doing good:

The confusion between volume and value. Anyone who has run money or anyone who has been an analyst knows this very well, but the climate community doesn’t. There is a big difference between falling volumes and a falling price. . . . What happens to prices at the end of this process is completely divorced from the transition winners and losers.

Or, as Cochrane puts it, “as we transition, investment in coal, oil etc. stops. The existing companies make money off their ‘stranded’ assets as they slowly become smaller and smaller and solar cells and windmills take over.” It’s a process, I would add, that will — barring some technological leap, never, of course, an impossibility — take far longer than the central planners now ordain.

And, on financial risk, Kirk makes another point that will resonate with those who have read Cochrane’s earlier writings on this topic: “The longest bank loans at HSBC are 6 years out. What happens in year 7 is actually irrelevant.”

That goes a long way to explaining why markets have typically not been pricing in climate risk, at least to any meaningful extent. To put it bluntly, absent making guesses about some unexpectedly dramatic new move by government regulators or their proxies, there is, within the typical investment horizon, little or nothing to price in. In Kirk’s opinion, the valuation of most companies (even in the tech sector) does not take into account anything that might happen after “about year 20.” That’s not to say that markets have ignored the climate issue. Investors are well aware of what policy-makers are up to, and they will look for ways to play it. Kirk alludes to this:

The markets are crashing around our ears . . . having nothing to do with climate. . . . Let’s get back to making money out of the transition because we have thousands of opportunities. I agree with the just transition, I agree with the opportunities that exist with all these facets of technology.

Unfortunately, some of those, who, scenting dollars, invested in “climate stocks” (electric vehicle SPACs, to take one particularly expensive instance), or investors who bought the same securities simply because others were doing so, have not done well, but that’s a story for another day.

And the response to Kirk’s speech? Well, Christiana Figueres was just one of many to object.

The FT:

Beau O’Sullivan, senior campaigner on the Bank on our Future campaign, described the comments as “regressive and grossly flawed”. “Climate change does pose a material risk to financial assets, which Kirk should be well aware of given his role in responsible investment,” said O’Sullivan.

“Pension fund clients should note that HSBC Global Asset Management might not be as serious about protecting their capital from the effects of climate change as it claims to be, and they should be looking for a more responsible asset manager,” he added.

But O’Sullivan did not stop there. What if more heretics were lurking within HSBC’s walls? He told the Guardian that

the bank must now explain how such offensive and inaccurate comments were signed off, to what extent other senior execs share Kirk’s views, and what sort of culture HSBC is breeding that allowed the comments to pass unchallenged.

Ah yes, “offensive,” an adjective rarely missing from the arguments of those who have none worth making.

Back to the FT for another Kirk critic:

Jeanne Martin, of responsible investment NGO ShareAction, said in a tweet that Kirk’s comments “should raise red flags to any clients of HSBC [Asset Management] that care about net-zero”.

Not really. But comments by Nicolas Moreau, chief executive of HSBC Global Asset Management should.

The FT:

[Moreau] . . . said in a statement that Kirk’s remarks “do not reflect the views of HSBC Asset Management nor HSBC Group in any way”. The asset manager was “committed to driving the transition to a sustainable global economy” and had a fiduciary responsibility to ensure its clients’ assets “are managed for positive long-term environmental and social outcomes”.

No, HSBC’s responsibility to its clients is, unless they specify otherwise, to generate maximum risk-adjusted return over whatever period the clients may choose.

The FT:

Moreau said that HSBC “regards climate change as one of the most serious emergencies facing the planet, and is committed to supporting its customers in their transition to net zero and a sustainable future”. Both the asset manager and its partner were committed to achieving net zero by 2050, he added.

HSBC’s CEO, Noel Quinn, posted similar comments on LinkedIn:

Our ambition is to be the leading bank supporting the global economy in the transition to net zero. I hope my colleagues, customers and others will all know, from our work and my public comments, that HSBC is absolutely committed to a net zero future. Given our global reach and capabilities we have an obligation to lead.

And his obligation to HSBC’s shareholders?

In one intriguing twist, the FT reported that the “theme and content” of Kirk’s talk “had been agreed internally before [he] spoke on Thursday, according to people with knowledge of the event’s planning.” Banks are cautious places, ESG and climate are sensitive subjects, and it’s unlikely that the talk would have been just waved through.

Moreover:

The title of the presentation — “Why investors need not worry about climate risk” — had been agreed two months earlier and publicised on the website in the run-up to the event.

If HSBC was (at least broadly) aware of what Kirk would say (although not, perhaps, his tone, some of his language — the term “nut job” made its merry way into his speech — or, obviously, any improvisation: Poor Ms. Thorne!), it’s not unreasonable to suspect that its subsequent distancing from Kirk was driven not by what he had said, or even how he had said it, but by the reaction to it.

Kirk has, disgracefully, been suspended by the bank, a perverse compliment of sorts. HSBC, which does a lot of business in China (that land of net-zero enthusiasts) is the bank that, in 2020, gave its backing to Beijing’s new security laws in Hong Kong and, more recently, has been asked by U.S. lawmakers why it has been freezing the accounts of activists working for democracy in Hong Kong, as well as those of independent media organizations and other groups.