Taking stock of Climate Change

23 August 2019 - Recently in July 2019, reports emerged that the Greenland ice sheet had experienced an unusually extreme thawing event. A simple news search results in many stories about the severity of the event and its implications for how we view Climate Change. But while there will undoubtedly be refinement of the data as time passes, one thing is clear, business continued as usual; no major economic or exchange rate index was affected by the reporting of the event.

How can this be? The nature and scope of this event seemingly demands that we reconsider our perception of the speed of climatic change, that ill effects are indeed happening much sooner than we thought, and how this possible new timeline might affect economic processes. Climate Change events usually spawn stories predicting effects which will occur some ways off in the distance, decades or perhaps centuries away. This Greenland story, however, is of interest because of its immediacy, and it could be assumed that as indexes are measures of the current, we should have witnessed some sort of reaction.

It is understandable that other world events will register on economic indexes: Brexit, unrest in the Middle East, a change of government. They are all of importance to financial and business planners. But could the outcomes of some of the more transient Brexit developments be so much more weighty than the thought of sea level rises happening much quicker than predicted? If we could predict that cyclonic events would be 10% more powerful, would markets then react? What would it take?

In the coming weeks we will be looking at how today’s economic indexes are seemingly either immune to, or are somehow purposefully ignoring, Climate Change developments. Is the free market, non-predictive nature of indexes compatible with long-term risk assessment? Does a reinforcement cycle form which excludes some topics? Our next installment will look more closely at the nature of economic indicators and indexes; what exactly do they measure? And is it naive to expect more?