Grantham, who predicted the tech bubble and financial crisis, discussed how the climate race is rapidly altering the world’s economic and investing future.
What’s your reaction to Larry Fink’s vow that BlackRock, the world’s largest asset manager, will make climate change a priority?
I say, “Brilliant well done, Larry.” That was necessary and incredibly welcome and may set a good example. And now we know you can bark loudly. Can you bite? And will you perhaps think about having your giant index funds vote a little greener? They’re right at the bottom of the list. Legal & General in the UK is way at the top of the list, and Northern Trust is not so bad, and right at the bottom is BlackRock. So they can do better. You’re not going to lose business in the index business because you become a little greener in how you cast your proxies. It’s the one area I can think of where there’s no real cost to either the buyer or the seller.
What’s been holding back companies and investors from doing more?
Capitalism has this strange ability to kind of paralyse the altruistic part of humans. So at the weekends, they’re altruistic, they love their grandchildren. Then during the week they take on the character of the corporation whose only job description, says Milton Friedman, is to maximize short term profits. If a human being does nothing except maximize their self interest, they’re a sociopath. That’s how it’s defined. So during the week you behave like a sociopath and as if you have no grandchildren-or as if you hate the ones you have. And then at the weekend you become a loving grandfather again. That is apparently what capitalism does to us, based on the evidence.You’ve argued that investors should sell oil and gas investments. What does it mean if more investors start to divest?
Divestment is not an economic issue in terms of how it affects the oil companies. The economic impact is for the person who is dumping the stock. He is getting out of an industry that has been put on notice that they’re going out of business.
In the last 10 years they’re up 5 per cent or 10 per cent and the S&P 500 has tripled. It has been absolutely awful and I am proud to say that for those 10 years I’ve been saying, “Don’t buy oil stocks.” Forget the ethics for a second. It’s a bad economic idea. Going forward, if they rolled with the punches and they tried to redesign their business as an energy provider-rather than oil-they could do okay and get a decent return.
But they fight it. If you want to lose money in a capitalist system, that is how you do it. You underestimate the forces you’re dealing with.
Which of the major oil and gas companies has the most potential to pivot?
The Europeans are always thinking greener thoughts, and longer-term thoughts, than their American brothers. The Americans have not been good at this stuff. They have held us back at least 10 years. Without that push back, we would be perhaps a leader in this field and life would be quite different.
The long term goal is to make them a pariah industry. It took us 20 years on tobacco. Until they were pariahs, politicians would not take a bite out of them. They had misrepresented the dangers of their product. They knew it was causing cancer, et cetera, and they denied it. Energy companies knew that oil was a dangerous product and they obfuscated it. It will take us a while, but they have to become pariahs.
What would you do about investments in the chemical industry?
I think chemicals are about to engage in a war of a thousand cuts. Plastics will get banned. The growth rate will become negative within five years, if not sooner. Sometimes these flashpoints are very rapid. Pesticides will be banned in enlightened countries and their health will immediately improve. Europeans already ban lots of chemicals. We do not.
When you sit down with foundations, endowments and other institutional investors, how have their attitudes shifted on climate change?
When I gave my first climate change talk at a GMO annual conference dinner 10 years ago, there was, to say the least, some eye-rolling. A few people who were visibly upset.
This 10 years has been a revolution in a typical group of clients. They’ve begun to realise they have to take it into account, that it has portfolio implications. And the last two years has seen an acceleration in that, as the general public has gotten more involved in Europe and North America, particularly last year. Things are beginning to happen much faster.
Why aren’t college and university endowments divesting from fossil fuel stocks?
I’ve spoken to over 1,000 investment committees, and they are the most conservative organisations on the planet. And that is the reason that almost all of the universities have had problems divesting, although they’re now beginning to.
But at the top end, what about MIT, Harvard and so on? They receive hundreds of millions of good research dollars to do perfectly good, valuable research-from the oil industry. One of the leading university’s leading people said to us-and I’m sure she’d be happy to deny it-“we simply can’t afford to step away.” I’m mildly sympathetic. You can do a lot of terrific research for $US200 million. You wouldn’t lightly walk away from it, would you? But having said that, you’re still bought. You sold out for a high price, but you’re still bought.