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Investing in Catastrophes, Investing in Pacific Islands

September 19, 2012

The Guardian posted a new article called “Arctic expert predicts final collapse of sea ice within four years.” which announces the, uh, collapse of Arctic sea ice within four years.  That certainly accelerates the timetable for rising sea levels and extreme weather threatening Pacific islands. Coincidentally enough, this also happens to coincide with the 2015 UN Millennium Goals, the timetable in which developed economies would engage in development and investment programs to reduce poverty, particularly addressing developing countries.

In consideration of the timetable,  we should examine how investors are profiting over our losses and catastrophes, and consider the basket of new initiatives put forward by APEC through the Honolulu Declaration.  The Honolulu Declaration illustrates how investor economies regard climate change relief and new investments in Hawaii and the Pacific islands.  Elsewhere on this site, I have posted a Cautionary Tale about the investment regime, but what I did not touch upon were Catastrophe Bonds.

Very generally speaking, catastrophe bonds or CAT bonds are new investment products that transfer risks from insurance companies to investors. It works like this: if there is no disaster, investors get a big return on their investment. In the event of a disaster, insurance companies pay the claim holders and investors lose their upfront investment.

Seems straight forward enough.  The caveat, however, is who takes out this insurance? Big Ag companies like Monsanto, Cargill, Syngenta are all heavily investing in the Pacific, as are mining and energy industries. Often, there are huge research and development costs that go into the building of security and infrastructure that attracts investors, particularly in deep sea-bed mining.  Sometimes these infrastructure costs are paid for by taxpayers, other times by public-private enterprises. A concern is that we are going to see more investors looking to fund cheap developments that yield high returns, particularly the kind of developments in which anticipated future profits on losses can easily be accounted for. Hence, big ag, energy and biotech.

If catastrophe should occur, who gets a return on their investments? Not the taxpayers, but the investment regime.

To note — particularly as the shroud of PLDC descends on our public lands–  we are going to see noticeably more investment in the Hawaii.  From an accounting perspective, investors will greatly profit from the insurance on losses as a result of anticipated extreme weather, as well as the loss of resources due to the shrinking table of fresh water resulting from rising sea-levels. Transnational corporations are not only hedging on the losses of these projected profits, but also accounting for the other abstracted but highly monetized intellectual property and bio tech patents.

…and as posted last week, Goldman Sachs is investing $40 billion in alternative energy and renewables.

Something we just need to consider…

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