The Great Climate Migration is good news for banks

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In my last article on Hurricane Helene I briefly quoted Professor Jesse Keenan, an academic at Tulane University.  The point he made about the existence – or rather non-existence – of climate safe havens piqued my interest enough for me to dive into more of his writings.  He’s an expert on architecture and the built environment, and his research explores how changes in climatic conditions have shaped, and will continue to shape, human cities and civilizations.

Prof. Keenan’s ideas fit neatly with a common theme covered by both Louie and myself:  that an assessment of climate risk must be dynamic, considering the effects of climate change on the world as it will be, not the world as it currently is.  Too much of the focus of climate stress testing is on the long-term effects of global warming on static portfolios, analysis that will have very little relevance where the rubber meets the road.  It would be more productive to instead consider the financial exposures that might exist in a world transformed by climate change, and the kinds of funding arrangements required to get from here to there.

Today I want to think about what the world might look like if we fall a fair way short of the Paris target of “well below 2°C” and the climate stabilizes somewhere in the vicinity of 3°C above pre-industrial temperatures.  This is an interesting topic for speculation, because it is a level of temperature rise that will have profound implications for society – but will also be survivable (perhaps even ‘thrivable’) given humanity’s high degree of adaptation and flexibility. 

It is also interesting because Nordhaus (2018), among many others, have provided forecasts of the economic impact of such a temperature increase that indicate a wide range of possible outcomes.  Nordhaus himself is generally considered to be at the optimistic end of projections – estimating a 2.1% decline in global GDP at 3°C relative to the counterfactual – while climate scientists tend to be far more pessimistic. (See, for example, Keen, Lenton, Godin, Yilmaz, Grasselli and Garrett (2021)). Moreover, Nordhaus (1994) conducted a very interesting survey of different expert opinions on the GDP/climate relationship that lays bare the contrasting views of economists and physical scientists.

My own view, and I’m generalizing here, is that climate scientists do not give enough credence to the adaptability of the human species.  They tend to focus too much on how society functions now as opposed to the way it will in a warmer world.  According to these experts, economists like Nordhaus (and myself) fundamentally misunderstand the nature of the physical climate threat, which means we underestimate the scale of the horror to come.

So let’s give credence to both sides:  perhaps people will be good at adapting to extreme climate change but be hampered by the severity of the physical changes that are actually taking place?  Instead of saying either that “things will be fine” or “we’re doomed”, I want to ask a slightly different question:  In order to constrain economic damage to around 5%, what kinds of adaptation will actually be required?  

The exact nature of future technological progress is impossible to predict.  We know it will happen but we don’t know how – or how fast.  Someone might invent a Star Trek-style transporter next week, allowing us to adapt to climate change by simply beaming people from one hemisphere to the other twice a year.  It’s probably safer to assume we won’t populate Mars, live in underwater cities, or travel long distances in hyperloops, but something will undoubtedly come along.  If life is becoming unbearable due to rising temperatures, powerful incentives will exist to find technologies that make people more comfortable.

One low-tech way to adapt is to move.  You could imagine populations migrating from coastal areas inland (to avoid sea-level rise), from lower elevations to higher elevations (to avoid flooding), from dry areas to places with more moisture (to avoid wildfires) and from low latitudes to higher latitudes (to avoid heat and hurricanes).  

We shouldn’t limit our attention to areas that are currently populated, by the way.  I’ve seen many articles in recent weeks asking “is anywhere safe?” and everyone has responded with the name of a city.  Perhaps the answer should actually be 58°30'53.3"N 116°21'12.5"W or 66°09'34.0"S 63°34'59.6"W.  Remember that the world is dynamic; society will look very different in 100 years even if a miracle occurs and the climate stabilizes all by itself right now.  Shenzhen had a population of just 30,000 in 1980.  Now it’s a wealthy mega-city with about 18 million inhabitants.  Perhaps 66°09'34.0"S 63°34'59.6"W will house a city of five million in a century’s time?

In proposing Dayton, Ohio, as a potentially safe location in this US-focused Gizmodo article, Prof. Keenan justified his choice thusly:  

“Therefore, the first step in answering the question of where we should live is acknowledging the limitations of how we currently live. The goal should not be to build resilience to an unsustainable way of life. The goal should be to conceptualize our geographic migration as a form of adaptation that gives consideration to the sustainability of our future footprint. This raises all kinds of questions about who goes and who gets left behind, as well as what happens to the people that we might crowd out when we arrive. So, where can we sustainably live in the future?”

In identifying “climate magnet” locations, he focuses on history and culture.  The industrial hubs of the US rust belt were previously more heavily populated than they are today, implying that they could soak up new arrivals without as much upheaval as smaller towns and cities.  He is also concerned about the ability of the “magnet” locations to sustain larger populations in terms of water availability, waste disposal, energy abundance, and the built environment.  He warns that especially attractive locations in an even warmer world will be limited in their capacity, and points out that regions like the Canadian prairies could play host to major new population centers, assuming that the political system is flexible enough to accommodate the flow.  

Even for a large country like the US, this sort of mass movement will be a significant upheaval.  For bankers and financiers, though, there is more to be excited about than fearful of.  I mean, Wells Fargo has a stagecoach as its brand, don’t they have some experience of forging new frontiers?   

Of course, migration in the US continues to flow southward and toward the coast, so what do I know?  The critical point is that banks like people moving around, even if it’s counterintuitive.  

They like it because it means more mortgages and business starts for them to profit from.  They simply don’t care if people move for leisure or for climate safety.