Legendary investor Jeremy Grantham, co-founder of Grantham Mayo & van Otterloo, sees a distinct upside to the coronavirus pandemic, as he tells ThinkAdvisor in an interview.
His forecast includes global trade, consumer behavior and other aspects of the world economy, all embracing what he perceives as COVID-19’s benefits to winning the fight to save planet earth from the ravages of climate change. This battle has been his focus for the last 13 years.
The long-term value investor has in fact deployed a reported 98% of his billion-dollar personal wealth to the cause via The Grantham Foundation for the Protection of the Environment. Its chief goal: to decarbonize the global economy. Among the green technology investments — and the biggest proportion — are solid state lithium batteries. They’re necessary for electric cars and other “electrification,” as he puts it.
Grantham, 81, who heads GMO, famously forecast the 1989 bubble in Japan, the technology sector meltdown of 2000 and the U.S. housing market bubble of 2007-2008, as well as calling the March 2009 bottom of the global financial crisis.
In the interview, he discusses the fight to defeat climate change, which he has likened to “a minor war.”
Government regulation is the only way all business will act to ultimately overcome climate change, he argues.
Grantham also talks about the GMO Climate Change Fund — managed by Lucas White (Tom Hancock is head of equities) — which launched in April 2017. It invests in clean energy, batteries, regenerative farming, aquaculture and copper mining, among other environmentally focused entities.
ThinkAdvisor interviewed Grantham on Thursday. Speaking from his office in Boston, he declined to address the market per se, but nonetheless provided insight into what he believes will be changing consumer demands resulting from coronavirus — all positives for battling climate change.
As for his in-depth comments on that subject, he said: “My job description is to proselytize green behavior.”
Here are highlights of our conversation:
THINKADVISOR: You’ve said that because of climate change, there’s a 50-50 chance that we’ll end up with a world about as stable as it is presently. Please elaborate.
JEREMY GRANTHAM: The bad news isn’t that the species goes out of business but that global society becomes, to one degree or another, destabilized. There’s just over a 50% chance that we’ll start to unravel. Actually, the unraveling process has been very clear for a while.
How will coronavirus affect the global economy?
The reduction in global GDP goes straight to the bottom line. However, if we knock a couple of points off global GDP, that buys us a year of grace in terms of the long struggle to reduce CO2 emissions [greenhouse gases].
Are there any other effects that the coronavirus pandemic will have on the fight to save the earth from climate change?
This is a perfect example that even this ill wind is benefiting something. In this case, it’s [fighting] climate change. If everyone travels less, stays at home and plays it safe for a while, then pollution goes down and traffic deaths go down. More or less everything unpleasant goes down for a while to mitigate the unpleasantness of coronavirus.
What impact will COVID-19 have on global trade?
We’ve become overcommitted to single-source supplies, and a lot of them are in the Far East. Now everywhere in the West, people are reconsidering how critical it is to have a little more diversification.
I think that going forward there will be at least a minority of emergency suppliers closer at hand. So instead of having [goods] 100% sourced in Vietnam and China, you have 20% sourced in Europe and 20% in the U.S. Also, shortening the supply lines is a great help [to combat] climate change: less shipping, less energy involved. In general, global trade has been good for the economy but bad for climate.
What lingering effects might coronavirus have on consumer lifestyle, and consequently some areas of the economy?
Some of the effects will echo for a long time; for example, one’s view of taking a cruise — unnecessary ships going around the world puffing carbon dioxide. For the indefinite future, people will perhaps think longer and harder about taking a cruise, depending on how serious the virus will be considered looking back in a year or two.
What about plane trips?
The same with airline travel. Later, you’ll be more frugal taking flights. Right now, every corporation that’s responsible is saying, “Don’t take any unnecessary flights.”
What other effects do you see?
Because of coronavirus, I think China will have reduced pollution by so much that in the North they may have saved more lives this year than they’ve lost to COVID-19. I worked it out carefully, and it’s quite likely this will end up being the case. And [with people staying home], traffic accidents have dropped rapidly. So that goes into the pot as well.
Presumably, there’s been an improvement in personal hygiene in trying to avoid catching coronavirus. How much will that impact avoiding routine flu in the future?
Hundreds of millions of people are adopting more hygienic behavior — washing their hands [frequently] and keeping more of a distance from one another. That will deal with the seasonable flu as a freebie. In fact, it may save more seasonal flu deaths than are lost form coronavirus. Going forward, these patterns of good behavior will stay. So coronavirus will reduce seasonal flu deaths quite a few years — a decade or two — into the future.
You’ve said that no industry is doing all it can to fight climate change. What will it take?
If it comes down to good behavior based on altruism, then welcome to an age of 5 degrees centigrade warmer and a very tenuous civilization. Sooner or later, it has to be regulation done at the top level. It has to be legislative because it’s a big move.
What’s your forecast for that happening?
Slowly but surely we’ll get it done. But climate change is about time. Eventually technology will solve the problems. The [issue] is when that will happen. Time is precious. Climate change has already done a lot of damage, and a lot more will be done — much of it irreversible.
Are you saying the situation dictates that laws must be changed and new ones instituted?
We’re not going to come out of this in good shape without enlightened legislation — a carbon tax and other [measures]. My guess is we’ll have that. But will we have it fast enough and as much as we’d like?
I’m assuming that we’re not going to win the fight against climate change in our lifetime. Correct?
That’s wrong to assume because we know from psychology how things work: There are flashpoints [that is], you do nothing, do nothing — and then your neighbor puts a solar panel on the roof. And the next summer, there are five neighbors doing that. There’s nothing more persuasive than the behavior of your neighbors.
What about the behavior of business and government?
Two years ago corporate America wasn’t talking about climate change, and today they are. The politicians of the Republican variety dared not mention the [term]; and today, increasingly, they do. Next [election], one candidate for president will have climate change as a top two or three issue on their agenda. That will be huge for America. So, the wheels are turning.
With the Trump presidency, we took a step back in caring for the environment. He didn’t seem to recognize the problem of climate change.
Worse than that — he’s gone out of his way to undo a lot of the Environmental Protection Agency’s work and backtracked. He appointed a coal lobbyist. I mean, a coal lobbyist to protect us from environmental damage! It would be a joke if it weren’t true. It’s completely unbelievable! And that’s reflected all the way through the environmental regulations.
Is there a bright side to that?
Having an anti-science president and administration has caused a pushback at state level and at the level of science. You could say that almost the moment Trump was elected, scientists began to stand a little firmer — they had been understating the issue. Trump may not be the only factor, but he’s been a very big factor. And the activists have been stimulated just as the damage has accelerated. The good guys needed a kick in the pants.
Hopefully the next administration will move things forward, not backward.
It’s clear that if we have a “green” president, we’ll be much better off. But I’m not sure we’d be materially better off under just an ordinary president. Obama wasn’t much of a “green” president, either.
You’ve put much of your personal money into saving the earth from climate change. What about other philanthropists? Don’t they see the light?
On the margin, one or two of the new billionaire types do see the light and have joined our group, loosely speaking. The bad news is that most philanthropy [goes to] your alma mater or a museum, say — [institutions] that don’t really need [the money]. Your college, a museum or your church aren’t going to count for much if the world starts to go to hell in a handbasket because [the earth] is 4 or 5 degrees centigrade warmer. A third of America will become unlivable if that happens.
How will people cope?
Everyone will be crowding into the North and desperately trying to grow new kinds of food.
GMO is offering the GMO Climate Change Fund (GCCHX). What’s its objective?
It’s not an ESG [environmental, social and governance] fund. It’s a making-money-understanding-climate-change fund. So it owns a lot of copper, and it owns lithium [for batteries]. Copper is central to electrification, which is essential to greening our economy. You do need some fairly dirty metals to drive that greening process. It’s absolutely vital.
What else does the fund invest in?
It has a lot of energy-efficient plays — [concerning] wind and solar [power] — and it invests in regenerative farming, which is essential because bad farming pollutes the water. So going from bad farming to good farming is a win-win.
Any other wins?
It produces food that’s less toxic because it has less violent killer chemicals. And if done well, the farmer makes more money. I think that good, sensible regenerative farming is the biggest single input we can have over the next few decades.
Are you aware of Jane Fonda’s protests against climate change? She’s been arrested several times.
Yes. Magnificent. She’s a fairly recent recruit. But where was I at age 55 [now 81]? I knew nothing and did nothing [about climate change]. There were people out there, like Prince Charles who 35 years ago moved to regenerative farming and talked a good game on climate change.
Did one particular thing trigger your move to do something about it?
No. One thing led to another. I had developed a theory about land being a terrific investment vehicle, and one way to make a return while you held the land was growing trees. Then my son got a job in tropical trees’ management. We got drawn in and became environmentalists. A year or two later we began to realize that climate change was doing its [bad] job.
When you made your famed accurate calls about the economy and market, did people heed what you were telling them right away?
In 2000, in round numbers they didn’t listen. We had a better audience in 2007-2008 and 2009. But still, you’re shouting against a heavy wind. I started [speaking about] climate change 13 years ago at a dinner talk I gave to our clients. There was quite a bit of eye-rolling. Some of the questioners were skeptical. That has completely disappeared from our client base. They’ve all been very interested and sensible for quite a number of years now.
Returning to the subject of COVID-19, how would you sum up its impact?
It’s very hard to come to a net gain or loss quickly. These things work in a mysterious way, and there are many repercussions. Not the least is on climate change.
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