‘Pernicious’ coal could be the new tobacco for prudent investors – ex-Treasury Secretary Summers

Larry Summers, the former US Treasury Secretary and Harvard professor, has said coal investments could prove as problematic for prudent investors as tobacco.

Summers, Treasury Secretary under Bill Clinton and a key economic advisor to President Obama, is President Emeritus at Harvard – though he stressed his remarks did not apply to the Harvard endowment, which is under pressure from fossil fuel divestment campaigners. The academic faculty and the endowment are separate, he said.

But, in response a question from Responsible Investor about how investors should position themselves for the challenge of climate change, Summers said that, over a 15-year horizon “coal will prove to be the new tobacco” as it is “particularly pernicious in its effects”.

“I do think prudent investors will be wary of coal.” He went on: “In general it’s difficult to beat diversification. Trying to outguess climate policy is likely to be unsafe.”

He was speaking in the week that saw the California Senate voting in favor of legislation obliging both CalPERS and CalSTRS to divest from coal company investments and in which the Norwegian parliament backed a decision to divest the giant Government Pension Fund Global from companies that derive more than 30% of their income from coal.His comments came during a Q&A session with journalists during the Amundi World Investment Forum in Paris last week.

Speaking on an earlier panel, Jean Tirole – winner of the 2014 Nobel Prize for Economics – tackled climate change in a session moderated by the Financial Times’ Martin Wolf. “We’re not going to solve things,” he said, “unless we have a carbon price.” But, in the Q&A session, he acknowledged that a carbon price would be a huge macro risk and potential shock that investors would have to consider hedging against.

Also speaking at the event was Robert Shiller, Nobel laureate in 2013. He was asked about a Tobin tax on financial transactions, first proposed by his Yale colleague James Tobin. He said he disagreed with this approach: “I’d let people transact freely. I’d rather have better financial institutions.”

On the climate change question, Shiller had this to say: “We need to express idealism. We need to develop an example of ethical investing.” Shiller also expanded on his fears about societal inequality. He proposed a long-term plan, possibly over a 30-year time-frame, of introducing very high tax rates for the wealthy. Inequality meant it “might get horrible in coming decades. Where are we going as a society?”