Guest blog: Asset Allocation for Geoengineering?

Adam Dixon

I feel compelled to write about long-term investment strategies after reading Ashby’s blog from last Friday about positioning SWFs’ portfolios for the looming effects of climate change. Specifically, I thought I’d offer SWFs and long-term investors a potential scenario that needs to be on their radar: geoengineering! That’s right, technologies that attack the problem but not the cause are no longer in the realm of science fiction (i.e., reducing solar radiation without reducing CO2).

I don’t claim to be an expert on the subject, but those that are have assured me that the costs of particular geoengineering technologies, such as putting sulphur aerosols in the atmosphere, is not prohibitively expensive. In fact, the costs are actually so low that an individual country could do it, or even a wealthy individual.

For the last six months or so I’ve been working on a project with two climate modellers and another social science colleague of mine at the University of Bristol, School of Geographical Sciences in looking at the relationship between climate and economic growth to understand potential country preferences for different geoengineering scenarios.

There is one serious caveat: The ethical and political implications of this are huge. The risk of changing the global distribution of heat and precipitation are high (notwithstanding other environmental damage like acid rain). So while geoengineering can provide a means of reducing global mean temperature, the consequences of doing so for some (or all of us) may be catastrophic. This suggests that efforts to do so will be highly politically contentious (and probably should be).

Yet, if other efforts to reduce atmospheric CO2 fail and global mean temperatures increase to dangerous levels, geoengineering could find sufficient support. If geoengineering solutions were employed prior to climate change becoming a major threat to human and economic wellbeing (i.e. within the next 50 years or so) this would have implications for a long-term asset allocation that expects inevitable climate change.

Long story short: if you’re in the business of scenario planning and risk planning, you might want to put geoengineering in the mix.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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