Radical biodiversity loss, species and cultural extinction, greenhouse house gas emissions leading to unprecedented global warming and other factors resulting in climate change over the past 70 years have made Wall Street stop and listen. Why? Because a recent study1 conducted by the UNDRR and the Centre for Epidemiology in Brussels reported:
“In the period 2000 to 2019, there were 7,348 major recorded disaster events, claiming 1.23 million lives, affecting 4.2 billion people (many on more than one occasion) resulting in approximately US$2.97 trillion in global economic losses” and conditions and costs are worsening year on year.” The impact is material.
Examples include, in 2023, Vanuatu lost 80% of its GDP2
in two days due to two
category 4 tropical cyclones. 80% of the population found themselves without power and food. Water supplies were patchy. Recently, tropical storm Filipo hit Mozambique just one year after the devastating cyclone Freddy ravaged several parts of Mozambique and Malawi, and left millions of people without food, water, or shelter. Dubai was under water in what has been termed apocolypytic rainfall in July. Twice the UAE›s yearly average fell in a single day, leaving much of the city›s outdoor infrastructure under water. Many have been affected by water born diseaes as a result. Extreme weather is symptomatic of climate change and is increasing in severity, frequency and locality year on year.
CLIMATE CHANGE AND THE COMMODITIES SECTOR
I have listened to many reputable economists on stages I have shared, either demonstrating a lack of understanding of the difference between climate and weather – using the terms interchangibly, or invalidating the risks of climate change impacts on the stability of markets or future asset value in commodities and other sectors. Typically, economic risks such as interest rates and inflation have
been referred to as the biggest threats, demonstrating a clear lack of understanding of interelationships between escalating climate risk and inflation and interest rates. UNCTAD released a report in July 2023 called “Managing commodity price volatility in commodity – dependent developing countries”3
They acknowledged the periods from the 1960’s where commodity price volatility was particularly high and referred to the first oil shock between 1973-1974; the second oil shock in 1979, the collapse of the oil price in 1986, the Gulf War In 1990-1991; the global financial crisis of 2007/08, then the pandemic in 2020 which includes the war in Ukraine in 2022 – until now, which has seen the longest period of continued volatility in that history, coming into 4 years.
UNCTAD identified the the macro drivers of commodity price volatility and they included climate change (Fig.1, ). They also illustrated how that volality transmits into various commodities channels (Fig. 2, overleaf)
However, their recommended tools and solutions ignore the unpredicability and increasing frequency of catastrophic climate events and, there are no tools to effectively mitigate those risks and the risk of extended periods of volatility.
Imagine you had positioned your portfolio to take advantage of what was expected to be a surplus of cobalt in the market because conventional economic and market indicators showed an expected slowdown in China. Imagine a large scale disaster in the DRC for example, similar to cyclone
13 | ADMISI - The Ghost In The Machine | Q3 Edition 2024
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36
