Making old cows bullish for an Ox-picious future
by China Water Risk 25 February, 2021
Finally, we can all breathe a sigh of relief as we enter the Year of the Ox. Known for its strength, hardwork and diligence, the Ox signals a return to stability after the disease dominant Rat. But will stubborn “old cows” morph into raging bulls for a better planet? Hard work is needed so it’s best to avoid a load of bull and steer yourself to Ox-picious opportunities with our 5 Trends for the Year of the Ox.
For those of you resistant to change and still hanging on to “it will get back to normal” – don’t. Stubbornness or unwillingness to adapt will be costly. Remember, as the first animal of the Chinese zodiac, the Rat sets the tone for the next 12 years; the Ox simply dutifully ploughs on to stabilize/execute the scurried plans made in the Rat.
The times, they are a-changing and central banks are panicking. Imminent threats from climate change, which will dwarf COVID disruptions loom as we have accelerated warming. Already, the outbreak pushed the BoE to ask HSBC to withhold its dividend payout to ensure capital adequacy, imagine what central banks will do to avoid systemic shocks triggered by climate change – we dedicated two trends to this imminent financial evolution.
The Ox’s penchant for stability will see central banks and regulators fast track stress testing against the entire pantheon of physical climate risks (stress testing carbon transition risks is only just the start). Some regulators already demanded banks deliver on physical stress tests; not following what the regulators have been up to? Beef up here – with trillions of dollars at risk, it would be stupid not to.
We analyzed in our 5-report series that 22 Singapores worth of urban real estate could be underwater in 70 years time in the worst case scenario; and that’s just across 20 APAC cities. But we may not have to wait until then to see stranded assets. Beware! Banks stress testing for chronic risks could trigger a blood bath across valuations ahead of the actual physical impacts – we run through 8 reasons why.
In times like these, it pays to grab the bull by the horns and stop farting around with bullshit risk analyses. Instead, hoof it with a comprehensive assessment of water and water related climate risks. This may prove illusive as while there are many tools out there to help assess different types of water risks, none are comprehensive. As a result, water risks are routinely undervalued.
But this doesn’t mean that you should be a lazy cow. Start by checking out DWS’ Transformational Framework for water risks. Authors Francesco Curto, Michael Lewis, Murray Birt of DWS expand on this new pragmatic approach for investors to address water risks. They warn that failing to do so will likely condemn water. So start ploughing through clustered water and climate risks lurking in your portfolios now.
China will not fail on water. The country’s greening efforts have reached a new level with its commitment to carbon neutrality by 2060 in the Rat and in this year, it will harness the diligent and steadfast Ox to plan and set targets to build an ecological civilisation. With the 14th FYP upon us, there will be targets galore – we will ruminate over China’s 14FYP in next month’s newsletter so sign up!
While we are on the topic of targets, let’s face it… when China sets targets, it pretty much always hits the bullseye. Hear what our advisors Professor Asit K Biswas and Dr. Cecilia Tortajada have to say on China and hitting environment targets.
It is important to understand that this path to a “Beautiful China” is not a greenwashing campaign. China is doing this because it has no choice; it understands its resource constraints. Why else would the CPCC and State Council publicly reprimanded its all-powerful NEA in January 2021. A scathing report was issued on the energy regulator’s sabotage of the top environmental agenda.
There are no scared cows in this new green China and with COVID in check, the Metal Ox brings golden opportunities in the green economy. These are not just in aggressive mitigation to rein in emissions but also in no-regret adaptation actions to build a “Safe China”. See why we think so here.
But China charging alone is not enough, we will need the whole herd to stampede toward net zero; thankfully, the US has rejoined the Paris Agreement. Unfortunately, even if we deliver net-zero emissions by 2050, climate risks cannot be reduced to zero so governments must take decisive adaptation action. The disaster in Texas is case and point; polar vortexes are here to stay; being prepared for imminent predictable events can save lives and money.
Although the latest UN 2020 Adaptation Gap Report shows that 72% of countries have adopted at least one national-level adaptation planning instrument, it notes that this is not enough. Effective adaptation cannot be achieved in silos as it affects all sectors and all stakeholders. The World Bank’s Dr. Stephane Hallegatte, Dr. Jun Rentschler & Dr. Julie Rozenberg take us through their 6 adaptation principles.
To effectively adapt to survive in a changing climate, sensible plans must be made. Singapore, too small to make a dent in carbon emissions is making big adaptation plans – from shoring up food to water security as well as flood and coastal threat resilience. It’s penchant for long term planning pushes the island nation to look for new ways of making money – it is innovating its threats into ox-ternative cash cows. In Singapore, business unusual is now the norm.
Indeed, the new norms, frontiers and threats scurried in by the Rat will bring new fortunes, do not shy away from them. Instead, since the horns of the Ox resembles the hat of 財神 Chinese God of Fortune, in this Ox Year, it’s time to grab the bull by the horns and make the change.
But stay away from making udderly ridiculous and irresponsible decisions as fortunes favour those that kow-tow to sense and sensibility this year. Remember, there’s no room for cow-ards and old cows in this brave new world … to milk it, fortunes favour those who think-out-of-the-Ox!
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