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Ecology equals economy: Savvy businesses find opportunities in climate change

Katherine Reynolds LewisNJ Star Ledger, July 19, 2006

Think climate change is a worry best left to science?

Think again. It's already costing you money.

Take energy, for starters. Global warming is blamed primarily on the burning of coal and oil. But just as many governments are trying to limit use of fossil fuels, worldwide demand has soared. That combination raises energy prices, which boosts manufacturing and transportation costs and inflates the price of everything you buy.

Next, there's growing evidence that a warmer Earth heightens the risk of extreme weather events, jacking up insurance rates and hurting the property markets.

Spending to protect against and clean up after natural disasters means less capital for creating jobs and, potentially, lower economic growth.

"The complete underpinnings of our economy worldwide are at risk," said Mindy Lubber, director of the Investor Network on Climate Risk, which analyzes global warming business risks and opportunities for institutional investors managing a combined $3 trillion.

But while global warming threatens to boost some business costs, it could also lead to new opportunities.

"There are opportunities to make money in attempting to deal with this threat," said Eugene Linden, author of "The Winds of Change." "It could be a great engine of growth."

It's undeniable that temperatures are rising. The warmest 10 years in recorded history have all occurred since 1990, with 2005 the warmest on record. That has increased the likelihood of a rise in sea level and worse damage from hurricanes, typhoons, drought, wildfire and heat waves, according to an April white paper by Marsh Inc., a risk and insurance services unit of the Marsh & McClennan Companies.

"Climate risk cuts across almost every industry in every corner of the world: energy producers and consumers; transportation providers and those reliant on it; forestry, agriculture and food producers; construction; chemicals, pharmaceuticals and the life sciences; real estate; communications and technology; tourism and hospitality; the retail industry; and more," the Marsh report said.

Last year's hurricane season provides an alarming example. Storms caused $39 billion in damage to insured buildings in Louisiana and Mississippi alone, according to Insurance Services Office, an industry advisory organization based in Jersey City. That's more than the $34 billion in premium payments insurance companies had collected over the previous 23 years in those two states, said Michael Murray, ISO assistant vice president for financial analysis.

While Murray isn't convinced global warming is at fault, predictions of continued severe hurricanes have caused property insurers to raise premiums in coastal areas and to pull back from some markets.

"Economic losses related to weather are almost off the charts," said Stephen Leeb, New York-based author of "The Coming Economic Collapse." "Last year there was about $200 billion in weather-related losses. For the entire decade of the '60s, we had $740 million."

Government -- that is to say, taxpayers -- must cover gaps in the insurance market, noted Linden. "You could see a scenario where a climate crisis leads to a housing crisis, which leads to a financial crisis," he said.

Several prominent companies, meanwhile, have taken voluntary steps to reduce greenhouse gas emissions, become more energy-efficient and make products that combat global warming.

Since 1990, DuPont has cut greenhouse gas emissions 72 percent and saved $3 billion through energy conservation measures, said Edwin Mongan, director of energy and environment. The Wilmington, Del., company is halfway to a goal of using 10 percent renewable energy by 2010.

"We certainly felt that the science was compelling enough that it was time to take action," Mongan said. "We view this as an opportunity and as something our customers are going to demand from us."

DuPont makes high-efficiency insulation materials for buildings, environmentally acceptable refrigerants, a plant-based polymer for use in making fabrics, and eight of the nine essential components that go into solar energy cells. It also recently launched a joint venture with BP to develop fuel from biological materials.

In November, Goldman Sachs released an "environmental policy framework" acknowledging the scientific consensus around global warming. The firm vowed to cut greenhouse gas emissions linked to its facilities 7 percent by 2012, increase its use of recycled materials and energy-efficient equipment, purchase more products locally and develop green building standards.

Goldman also pledged to create markets for environmental products and services, research environmental risk on businesses, and refrain from financing environmentally suspect projects. The firm is a leading Wall Street investor in renewable energy, with stakes in wind and ethanol companies.

Even firms without a public position on global warming are tackling the problem, given their business interests in other countries or U.S. states that have been more aggressive than the federal government in requiring cleaner, more energy-efficient products.

"Business has been reacting because they're in a global economy," said Thomas Van Dyck, senior investment management consultant at Piper Jaffray & Co., a brokerage firm based in San Francisco. "We have to meet European standards to export there."

General Electric last year launched Ecomagination to develop products and services -- from cleaner coal to aircraft engines and household appliances -- that provide measurable environmental performance advantages to customers.

Spokesman Peter O'Toole said the "eco" refers to the economic as well as the ecological impact.

"This wasn't GE suddenly becoming a flowers-in-its-hair environmental organization," O'Toole said. "We've been focused for 128 years on serving customers and shareholders. It had to be something that was cognizant about the increased reality of the concern about greenhouse gas emissions, but also make us money."

Katherine Reynolds Lewis can be contacted at

(c) 2006 The Star Ledger (c) 2006 All Rights Reserved.


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