Sustainability & Cognitive biases: Why are we in denial? How do we consider scientific information? What holds us up?
Key takeaways from the intervention of Kris DE MEYER | Neuroscientist, Director UCL Climate Action Unit

Why do we disagree on climate change?

It is not a lack of intelligence or empathy that causes us to have different views on climate change, said Dr Kris De Meyer, a neuroscientist and director of University College London’s Climate Action Unit. “It is a brain problem, a people problem,” he told the Directors’ Day conference.

Relaxed or panicking?

“Climate scientists are in a state of panic, but financial markets and the business world are not. Why is that happening?” he asked. He contrasted the views of US-based climate science researcher and writer Peter Kalmus and those of the journalist and ex-asset manager Stuart Kirk. The former spoke recently of being “terrified for my kids, and terrified for humanity”. The latter wonders why such catastrophic climate scenarios do not appear to be represented in the pricing of investment assets. 
Mr Kirk suggests there are three broad possibilities for why financial markets appear relatively relaxed about how a changing climate will affect valuations. To his mind, either current prices have (relatively insubstantial) climate risk priced in, or the whole investor community is mispricing this risk, or climate scientists are exaggerating.

No precise right or wrong

Mr De Meyer’s explanation, though, is that “different professional expertise leads to very different expectations. Our brains are machines for jumping to conclusions based on the expectations that we have,” he said. These expectations are shaped by everything that has happened in our lives. 
He doesn’t believe this is a question of intelligence, though. He noted that Mr Kalmus has a degree from Harvard University, with Mr Kirk being a graduate of Cambridge. Both of their points of view are sophisticated and result from substantial work and thought. “These people have opinions that sit on a spectrum of views, and we can’t know who's going to be right or wrong because the future has not yet been written,” he said. 

Different views of risk

So why do two such thoughtful men who are in good faith have such different opinions? Dr De Meyer believes it is because the training and culture of climate scientists and financial services professionals leads them to have fundamentally different ways of understanding and reacting to risk.

“In the world of economics and finance, risk is traditionally understood as a probability measure over a range of outcomes, multiplied by the costs and the gains,” he said. This contrasts to the environmental science community, where risk is understood as the threat of bad things happening. For the former, risk can be quantified, but for the latter, climate change risk is not quantifiable in the way that economists are used to processing this information. 

This, Dr De Meyer argues, leads to a difference in how these groups of experts respond to signals. In finance, it is preferable to flag-up potential risks, be it around an investment or an incident of potential money laundering. However, if a scientist were to act in this way and make frequent, loosely evidenced claims, they would harm their reputation. “Both have a different lens through which they view the world,” said Dr De Meyer.

This matters because “climate scientists’ forecasts tend to be a rosier picture of what they actually think might happen in the future,” he said. “This understatement means that this knowledge cannot be absorbed accurately by financial markets, because only part of this knowledge can be quantified in a way that works in economics and risk models. It’s also why we're seeing some climate outcomes being worse than the mainstream science community has been predicting.”

Hard to react…

Worse, even if we were all to agree on the scale and magnitude of the problem, that doesn't automatically mean that we know what to do about it Dr De Meyer said. Individuals can feel powerless to act, and so often will wait for clients and regulators to drive them in the necessary direction.

“If we don't get our act together, and we don't shift the economy away from fossil fuels, all financial and business organisations are going to meet their Credit Suisse moment,” he said. This is because if climate change continues on the track currently foreseen by climate scientists, there is likely to be a greater incidence of social strife and war, which will inevitably damage supply chains and markets.

…but there’s still time

Fortunately, there is still time to act. Dr De Meyer argued that collective lack of action gives an opportunity to reframe business strategy to take account of the threats. He recommended not thinking of taking climate action as a cost, but “as investing in a new economic revolution, such as the industrial revolution.” 

Kris De Meyer
Neuroscientist, Director UCL Climate Action Unit

Directors' Day 2023 - Summary Articles
16 November - ECCL