When I was last here flapping my contrarian wings, I painted a rather depressing picture of dictionaries obsessing over the existence of a rather rare and endangered creature called the ‘climate change denier’ but almost completely overlooking the existence of the much more prevalent ‘climate change sceptic’. The evidence seemed to be suggesting that climate change scepticism may no longer have a legitimate voice because it doesn’t even have lexical endorsement. However, there is another way of looking at this. It’s a perspective that is a million miles away from the parlour game debates that you will find on the internet and it is equally removed from the world of propaganda that one encounters in everything from BBC ‘specials’, COP jamborees, the vast majority of op eds gracing the world of journalism, and the Merriam Webster dictionary. I speak, of course, of the world of commerce and industry. Because, when all is said and done, that is the real world where action really does speak louder than words. And it is a world in which, I think you will find, climate change scepticism still very much rules the roost, irrespective of the dictionary’s fondest desires.

It’s about balancing risk

From the outset, the call for action on climate change has been based upon the argument that the risks due to inaction are simply intolerable. Implicit in this argument is the assumption that any risks associated with potentially precipitative or unnecessary action are small in comparison – otherwise, nothing can be gained in terms of risk reduction. Climate change scepticism (as opposed to the swivel-eyed denial trope beloved of dictionaries, the Guardian and the BBC) is simply a challenge to that view. In climate change risk management circles, the business risks resulting from a changing climate are known as the physical risks, whereas risks resulting from the push for carbon neutrality are referred to as transition risks. Formally stated in corporate climate change risk management terms, climate change scepticism is the concern that transition risks may turn out to be more damaging to an organisation than the physical risk posed by a changing climate.

So, this is the sixty four thousand dollar question: As far as the industrial and commercial worlds are concerned, which of the two is deemed the more significant risk? Is it the transition risk associated with attaining carbon neutrality or the physical risk posed by a changing climate? Because if one could find evidence that industry and commerce thinks it is the former, that would put those who are currently responsible for generating our global wealth firmly into the climate change sceptic camp.

Fearing the transition

Businessmen and businesswomen are realists; those that are not do not survive very long. So when they look seriously at transition risk it is because they recognise that the society within which they operate has already committed itself to the transition and so nothing remains but to guard against the associated risks and to make sure they take whatever opportunities come their way. From a business perspective, such risks are not hard to imagine and they are relatively easy to analyse. Not the least of these risks will be those resulting from the likelihood that they may have to compete against organisations who are not operating in societies equally committed to the transition. You can add to that the need to protect any investment you may have in technologies that are at risk of obsolescence. Then, of course, there are regulatory risks and the risk of penalties for non-compliance, risks associated with changing taxation, risks associated with reliance upon emerging and unproven technology (including technologies that may never emerge) and the risk of disruption caused by an uncertain energy supply and an inadequate transport infrastructure. And, of course, all of these risks are increased significantly as the rush for transition is made ever more urgent. It is indeed easy to understand how many organisations may come to see the risk of being consumed by fire as being less than the risk of being trampled underfoot in the mad rush for the fire exit. But is there any evidence that this is actually the attitude adopted by most organisations within industry and commerce?

In a word – yes. In fact, there is lots.

Academia does have its uses

In September 2020, four researchers working for the Hutchins Center of the Brookings Institute published the results of a study [1] in which they assessed relative levels of concern within leading US companies. And, much to their chagrin, they found that disclosures of risk were heavily biased towards transition risk, with little said regarding physical risk. According to the abstract:

“We assess how rising concerns about climate change are affecting disclosures to financial markets by looking systematically at 10-K filings from the 3000 largest U.S. publicly traded firms over the last 12 years and samplings of Official Statements from all U.S. municipal bonds. For equities, disclosure has risen sharply. Today, 60% of publicly traded firms reveal at least something about climate change, but the largest volumes of information are skewed heavily toward a few industries (e.g., electric utilities, oil & gas, mining) and concern valuation risks due to possible transition away from fossil fuels. By contrast, there is much less disclosure around the physical risks of climate change. In municipal finance, disclosure of physical risks is even weaker, although many municipalities are highly exposed to flood, fire, heat stress, and other perils that could both destroy infrastructure and undermine the tax and income bases essential to repayment of long duration bonds.”

The researchers were so appalled, that the title of their study accuses business investors of ‘flying blind’; they also gave the study a subtitle implying that the lack of reference to physical risk is the result of widespread ignorance. In their concluding remarks, they are no less critical:

“First, this pattern of disclosure reflects of [sic] lack of imagination. The latest science about climate change shows the system changing rapidly, with synergistic impacts that will have substantial and growing impacts on physical assets and public welfare, including the economic viability of communities on the front lines.”

The authors continue with growing confidence:

“These impacts are no longer abstract or decades into the future, and extensions of the latest climate science suggests that plausible tail risks are even larger and more immediate.”

They then return to their main concern:

“The problem of disclosure reflects a problem of imagination, with the mental models used to assess much of the risk around climate change focused in the areas that are easier to measure and imagine (transition risk), whereas the real need for imagination is around physical risk.”

Certainly, a good imagination serves a risk analyst well, but not more so than does realism and practicality. Anyone can imagine a risk – just look at RCP8.5. The real skill is in quantifying risk and focusing one’s efforts on those areas where uncertainties are not distorting risk perception beyond recognition. It also helps to focus upon those areas where risk reduction measures are likely to be the most effective. Besides which, the study’s authors are guilty of an extraordinary hubris in assuming that the vast majority of the risk management specialists in the commercial world have simply not considered physical risk, as opposed to having done so and assessed it as being either relatively low to them or subject to too much uncertainty. Essentially, the report has ably demonstrated that the industrial and commercial worlds are deeply climate sceptic, whilst at the same time effectively labelling them as climate deniers.

None of this is to say that disclosure of climate change risk has not become a big issue. Evidence the recently formed Task Force on Climate-Related Financial Disclosures (TCFD) with its proposed framework. It’s very big on disclosure of both transition and physical risks, although, when you look into it, the emphasis does seem to be on declaring sustainability targets and making all the right noises for the newly-woke shareholders. Whilst industry remains climate sceptic, I’m afraid its would-be regulators are most definitely not.

Reasons to be thankful

I suppose we ought to be thankful that the guys from the Hutchins Center didn’t wax lyrical about availability heuristics, as per the legions of psychologists that are currently riding the climate change bandwagon. But the fact remains that a bunch of academics from a Washington think-tank, suitably brimming with imagination, feel that they would do a much better job of running industry if only they were to be given the chance. And I’m sure they really wouldn’t be able to see why any oil company might rate the appointment of two climate activists onto its executive as a greater existential threat than a full season of hurricanes and flooding. But we do have one huge reason to give thanks to these people, because, without their sterling efforts, we may never have been aware that the industrial and commercial worlds are seemingly quite relaxed regarding the physical risk from climate change, and yet are deeply concerned about the risks associated with the measures proposed to avoid it. Without the Hutchins Center, we would not have the evidence to prove that the world of industry and commerce is thinking a lot like us. Climate change scepticism, whatever its origins, and no matter how it is labelled, is very much alive and kicking.


[1] “Flying Blind: What Do Investors Really Know About Climate Change Risks in the U.S. Equity and Municipal Debt Markets?”, Victor, David, et al, Hutchins Center Working Paper #67, September 2020.


  1. John, this is an interesting perspective. I was going to bring up the infiltration of oil companies by characters bent on their destruction if you hadn’t mentioned it. If shareholders want to destroy their assets, it’s all good. I would suggest to shareholders who differ that they might like to sell up their stake (that is not financial advice, just a gut feeling).

    I suppose also the future landscape is not only one where climate change itself has no impact at all on businesses, but it is one where Stupid Regulations have a huge impact. Car manufacturers will no doubt all switch to electric vehicles, not because they have the faintest chance of having the slightest impact on the climate, but because if they stuck to their guns they would be regulated into the ground. The scale of regulatory credits is already mind-boggling; it means if manufacturers don’t want to send Millions to Musk, they have to build EVs:


    The regulatory sales credits represent pure profit for Tesla, and in 2020 represented $1.58 billion in revenue for the EV manufacturer. But Tesla only registered net profits of $721 million in 2020, meaning that the company actually lost money on its main business of building and selling cars.


    During the first lockdown, the AA’s president Edmund King shamefully asked for more to be spent on broadband. Mate, you get paid to represent drivers, not internet users. It’s a funny old world.


  2. Jit,

    By all means address the infiltration of oil companies. I only mentioned it in passing. It would benefit from more attention.


  3. thanks for the link Ron – partial quote

    “But have no doubt where API stands. Stated succinctly, API believes that “reducing methane emissions is a priority for our industry to address the risks of climate change”, and that the petroleum industry must tailor its activities in to “reach the ambitions of the Paris Climate Agreement.””

    I’m confused (again) is it CO2 or methane that’s the main problem ?

    ps – take it methane emissions is in the extraction problem area.


  4. I ponder over the ethical elasticity of the big fund managers. I have not looked too closely at vanguard but BlackRock seem to be playing both ends against the middle in a very merrie way. So they have a fund invested in mining companies. They have another fund invested in mining, energy and renewables. They have ESG funds (speak platitudes but make money) funds. The lack of overall morality is intriguing or cynical. The BlackRock Energy and Resources fund has 56% in mining companies, about 10% in oil companies, 3% in Vestas, the windmill company. As Claude Rains said, “I know which way the wind is blowing… And it is coming from Vichy.” It is diversification with a human face. Those funds that rely overmuch on wind and solar, with their funding underpinned on taxes on electricity consumers are not nearly so honest. (I am not giving investment advice for which I have no insurance indemnity). Besides, BERI might not even be ESG compatible. I just did a search and there are at least 28 different criteria for ESG investments. However, the investment criteria for this fund might make you wonder about the honesty


  5. Michael Shiellenberger has an interesting and somewhat optimistic piece on how Biden’s climate agenda is flopping. I liked this bit:

    And the limitations of weather-dependent renewables are more visible than ever. If California’s large wind energy project is built, it will provide less than half of the energy of California’s Diablo Canyon nuclear plant Newsom is planning to close in 2025, and it will be unreliable. During the heatwave-driven blackouts last summer, there was little wind in California or other Western states, meaning we can’t count on wind energy when we need it most.

    In other words, the Democrats’ climate change and renewable energy agenda is rapidly falling apart, and the reasons have far more to do with physics than with politics.



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