Put climate change on a war footing: Jeremy Grantham

Investing legend Jeremy Grantham has called for a ‘wartime-like effort’ to tackle climate change, and issued a warning for over-confident investors.

Jeremy Grantham, co-founder and chief investment strategist at GMO, a high profile US hedge fund player. Picture: James Croucher

Investing legend Jeremy Grantham has called for a ‘wartime-like effort’ to tackle climate change, as he warned asset owners and managers not to ignore environmental risks in their portfolios and cautioned on the outlook for “bubbly” investment markets.

The co-founder and chief investment strategist of GMO, speaking at the Morningstar Investment Conference on Wednesday, predicted “a day of reckoning” would come for frothy real estate markets and labelled US equities “heroically overvalued”.

“We’ve turned the pressure up and up: more money, more moral hazard, and here we are at the peak.

“And it won’t take bad news or a bad economy to bring this market down. It will take a perfectly good economy and perfectly optimistic outlook but a little less (optimistic) than it was a week ago, a month ago,” he warned.

The long-term value investor is confident a downturn will hit markets, and suggested it may not be far off.

“It’s a fairly miserable world, so I welcome lower asset prices, which I’m confident will come.”

“My guess is the super SPACs peaked in January, the Nasdaq peaked in February, and maybe in a few months, the (pessimism) termites will get to the rest of the market.”

But there is still good value to be found in emerging markets, he said.

Cautioning on Japan’s experience in the late 1980s, Mr Grantham warned of the risk of multiple asset bubbles.

“If you’re going to have a bubbly market, make sure you only have it in one major asset class. Pulling two at the same time (like Japan) means 32 years later their land and stock market are not back to where they were in 1989. The higher you go, the greater the fall.

“You can’t get blood out of a stone. You can have a high-priced asset or a high-yielding asset. You can’t have both at the same time.”

Oil under fire

Arguing for more action on climate change, Mr Grantham took aim at the oil industry, saying that while he believed engagement with companies was the way to go, this did not apply to oil.

“The oil industry ran a deliberate campaign, political propaganda, to deliberately mislead the world. They put out, basically, fake news, saying it didn’t really matter, that climate change was a hoax.

“It’s cost the world perhaps 10 years of progress on climate change. And this is absolutely a threat to our existence as a stable global society … It’s increasing faster than it ever has. The rate of glaciers melting, ocean warming … these are really alarming rates.

“All these disasters are accelerating and we are simply not winning. We need a wartime-like effort to get behind it. We need to put masses of money into research and development, and into nuclear too, fusion research. You can’t afford to miss a trick, you don’t know in the end what may save our bacon.”

Asset owners and managers must not ignore ESG concerns, he warned.

“I suspect (social and governance) will be good for business. S and G are terrific, what’s not to like about good behaviour.

“But E is a matter of survival. And it’s clear that if you ignore E you’re likely to wake up and find that the biggest industry loss of value in history is behind you and you missed it.”

He provided a grim outlook for the oil industry.

“There was never a year where people came out and said the oil industry was collapsing. It will collapse. Watch your tails.

“In 1982 it was 23 per cent of the S&P. 10 years ago it was 15 per cent. And went all the way down to 3 per cent – it actually hit 2.5 per cent for a while. That all happened without people pounding the drums saying it was going to happen.”