Climate and Demographics

Financial advisors think about individuals planning out decades to retirement, even looking out to the next generation. For them, most of what we focus on in the markets, most of what is in the WSJ and CNBC, is noise. They can sleep through the ups and downs of the market coming from recession, inflation, periods of crazy valuations and fads like NFTs and crypto.

What matter are risks that will extend out decades. That might move in slow motion, but nonetheless are tidal waves that will eventually wash over the financial landscape. Front and center are climate and demographics.

For climate we are already seeing:

▪️ Energy stresses — think of lower hydroelectric (like already in Norway, China, and the U.S. West).

▪️ Labor stresses — think of lower productivity and greater health problems due to heat in India, the Gulf States,  and Central America.

▪️ Migration stresses — Think of swaths of Pakistan being flooded or parts of India and the Middle East being unbearably hot, and moving toward being uninhabitable.

The risks from climate extend beyond the obvious economic ones to include social disruption due to forced migration, and wars to redistribute geographical claims as some areas fall due to drought, heat, or floods.

For demographics we are already seeing:

▪️ China’s population on the downswing, and will be cut in half by the end of the century.

▪️ South Korea’s negative population growth leading the developed world. (And actually the whole world, because less developed countries are still in growth mode).

▪️ In the U.S. woeful underfunding in pensions and other retirement savings.

The risks from demographics extend beyond the obvious ones related to economics and labor supply to include societal issues like breaking the social contract between the young and old because of its unsustainability and social changes as countries open up to Immigration to bridge the gap.

How much are these apart of the financial advisors discussion with clients? How much are these on the mind of individuals whose plans and objectives reach out decades?

Demographics and China: https://landing.fabricrisk.com/demographics-and-china-2023

South Korea: https://www.bloomberg.com/news/articles/2023-02-22/south-korea-fertility-rate-falls-again-adding-to-economic-risks

China:
https://www.nytimes.com/2023/01/16/business/china-birth-rate.html?searchResultPosition=2

Energy:
https://www.ft.com/content/7f001d0c-63d0-4cfa-92a7-2cc6462d7887

Labor and heat :
https://www.theguardian.com/world/2022/may/02/pakistan-india-heatwaves-water-electricity-shortages

Migration and Pakistan:
https://www.theguardian.com/global-development/2023/feb/08/pakistan-families-hungry-and-homeless-floods