Resilience and Disaster Mitigation
Recent catastrophes provide an opportunity to practice a future-planning mindset.
It’s obvious that significant Earth changes are occurring these days—in the past month alone, we’ve seen several major earthquakes, ravaging fires, devastating hurricanes, and torrential flooding. When we wrote The Resilient Investor a few years ago, we anticipated future volatility and uncertainty due to climate change and other factors, but we didn’t know how immediately prescient our insights would be. The September trifecta of superstorms in the Atlantic provided a stark reminder that as resilient investors, we must incorporate disaster mitigation, in addition to disaster preparation, into our financial analysis and planning—for there are few places in the world that will be truly “safe” from the impacts of climate change.
To this end, our top priority must be a bold adjustment in how we produce and consume energy. The good news is that businesses and local governments had already begun to take steps in this direction before our current, climate-change-denying Administration took power. In fact, despite a near-total absence of leadership by the federal government, Americans are on target to meet he 2025 CO2 reduction targets set by the Paris agreement (1800 million tons of CO2); by the end of 2016, we were halfway there. Carbon-based utility generation is down 25% already, ten coal plants are closing, and many states are setting aggressive renewable energy goals.
The shift is happening—and although it’s not fast enough, it’s already clear that it makes good economic sense. This is one reason why we continue to invest in renewable energy: to reward those utilities that are serious about moving in this direction. Investors are sending a powerful signal regarding the energy they will support going forward; business, as usual, will either adapt or die.
This future-planning mindset is a central component of resilient investing. For resilience is just as much about planning ahead as it is about responding to crises. The past few generations have achieved unsustainable growth, fueled by unfettered industrialization and globalization. They have grown our economy and communities at the expense of intelligent design of our homes, neighborhoods, cities, and ecosystems. Straightening rivers, building and farming in floodplains, living in dry, over-harvested forests or on mountain ridges: all of these practices expose us to unnecessary risk. They are examples of intellectual laziness that is coming back to haunt us.
In considering the future, one often overlooked yet critical concern is soil health. The world has lost 30% of its arable land over the past forty years, according to the University of Sheffield’s Grantham Centre for Sustainable Futures, due to conventional farming methods. Deforestation, monoculture, continuous cultivation of crops not suited to the local climate, and heavy agro-chemical use that depletes the soil and poisons waterways are all examples of how our irresponsible stewardship of ecosystems is contributing to a future catastrophe: a global crisis in food supply.
Part of the challenge in how we move forward is our mindset. How do we act upon scientific knowledge of catastrophes in the making? Do we simply repeat past behaviors and practices as we recover from disaster—or can we seize the opportunity to consider and try out alternatives. After Hurricane Sandy, for example, the government bolstered construction requirements to make homes safer and to reduce insurance costs: people now need to raise their houses to the base-flood elevation levels determined for each community by the Federal Emergency Management Agency, plus one extra foot in New Jersey as set by the state’s Department of Environmental Protection. For those living in some flood-prone areas, those elevations must be on wood or cylindrical concrete pilings, while in less vulnerable coastal areas, masonry blocks can be used. Piling foundations require open sides or breakaway walls so that if another flood were to occur, the water would wash right through the base of the house. Wiring and utilities also must be placed above the elevation levels. Houston, Miami, and New Orleans could learn something from these commonsense regulations; investors are certainly willing to invest in financial institutions that support community development and responsible fixed-income mutual funds that support local green infrastructure and housing. These are the kinds of investments that can help mitigate the damage caused by superstorms.
Sustainable agriculture and forestry also are key aspects of climate change mitigation, as these practices enhance soils and protect waterways, increase groundwater storage, reduce surface flooding. We need to set a price on carbon to create financial incentives for reforestation. Healthy forests, including agroforests, serve a vital role in attenuating the effects of climate change.
As resilient investors, we champion these investments because we understand that climate catastrophes are the new normal. Our survival instincts should inform us of the need to adapt our reality accordingly. If blind, shortterm thinking is part of what got us into this situation, only long-term strategic thinking will enable us to survive—and thrive—for generations to come.