26 Sep Life Comes at You Fast
The following commentary/analysis is one I wrote in my capacity as a senior fellow at “the nation’s oldest consumer protection agency,” Consumers Research, where, among other things, I compile a weekly letter for public pension-fund managers. I am sharing it here today because I thought it might be useful to some of you.
The Future Ain’t What It Used to Be
It almost goes without saying – as many times as I’ve said it before. But I’ll say it one more time (at least), because I feel I should: ESG is NOT compatible with the future. It just isn’t. And that’s pretty ironic for an investment strategy/business ethos that purports to be focused on distant horizons and long-term value assessment.
Two news stories this week drive this point home. First, the news from BlackRock, via its Asia Pacific group:
BlackRock Inc. sees huge growth opportunities in Asia for infrastructure to support a boom in artificial intelligence that’s also spurring energy and water demand.
“The need for data centers over the next five years is going to be double what is currently in the markets,” Brad Kim, BlackRock’s head of Asia Pacific diversified infrastructure, said at a media briefing on Wednesday. “Water infrastructure will need to almost double over the next five years,” he said, referring to cooling mechanisms, “and overall energy consumption will increase by about 50% in the next 10 years across Asia Pacific.”
Globally, the surge in electricity demand is outstripping the available power supply in many parts of the world, leading to growing concerns of outages and price increases for the most data center dense regions. Asia is no exception, with tech companies rushing to secure long-term contracts to power the data farms that feed artificial intelligence programs.
Next up, similar news out of Washington, via OpenAI:
OpenAI has pitched the Biden administration on the need for massive data centers that could each use as much power as entire cities, framing the unprecedented expansion as necessary to develop more advanced artificial intelligence models and compete with China.
Following a recent meeting at the White House, which was attended by OpenAI Chief Executive Officer Sam Altman and other tech leaders, the startup shared a document with government officials outlining the economic and national security benefits of building 5-gigawatt data centers in various US states, based on an analysis the company engaged with outside experts on. To put that in context, 5 gigawatts is roughly the equivalent of five nuclear reactors, or enough to power almost 3 million homes.
That’s a LOT of electricity.
Maybe I’m just feeling nostalgic, but I swear, it seems like just yesterday that Little Larry crawled up in my lap, looked up at me, and said: “Sustainability is our most important investment objective, and the future is all about dealing with climate change and stuff like that.” Time flies I guess. When You comin’ home, Larry? I don’t know when, but we’ll get together then, Steve. You know we’ll have a good time then.
Now, I know that, theoretically, all of this is still compatible with a “sustainable” future. But that’s bulls**t nonsense. For starters, the amount of energy necessary to power these data centers and to build out other, attendant infrastructure is going to be enormous, FAR more than sustainable or renewable projects can possibly deliver.
Additionally, the way the “sustainability” system is set up, the whole business is mostly smoke and mirrors. For example, in its write-up of the BlackRock story, Oilprice.com mentions that “Last month, Microsoft signed a deal to buy all the solar power from a project in Singapore as the tech giant seeks to achieve its goal of having 100% of its electricity consumption, 100% of the time, matched by zero-carbon energy purchases by 2030.” That’s all well and good, but what that means is that Microsoft will use the electricity infrastructure available wherever it’s doing business and will “offset” that usage by purchasing renewable energy somewhere else. Since we’re talking about Asia here, most of that locally available energy is going to be coal – and it’s going to be coal for a long time. Hypothetically “sustainable” or not, that’s fossil fuel usage for years to come.
The moral of this story will be familiar to forecasters everywhere and is usually attributed (without much substantiation) to the Danish Nobel-prize-winning quantum physicist Niels Bohr: “It is difficult to make predictions, especially about the future.”
In truth, it wasn’t just yesterday that the Masters of the Financial Universe were telling us to prepare for a future characterized by lower energy usage. But it was less than five years ago. Life comes at you fast, in other words.
Because ESG is a “long-term” investment strategy that seeks to quantify developments years, and even decades before they occur, it is subject to a variant of the old “Planning Paradox.” That paradox, when applied to business, notes that while planning is necessary and important, it is hardly sufficient for business success; rigid adherence to prior plans can cause businesses to miss opportunities and engage in poor decision-making. In investment terms, flexibility and open-mindedness are critical to success. Rigid adherence to theories advanced ten, five, or even two years ago can result in disaster. It is far better to be prudent and reflective about the future. Heck, even my prediction here – that the future will be far more carbon-energy-intensive than even the recent past – is subject to modification. Perhaps, AI will prove to be so powerful and so successful that it will figure out ways to power the future without fossil fuels that we, mere mortals, cannot presently imagine. It’s hard to predict these things, as I said.
On the one hand, it’s a positive development and a mark in their favor that firms like BlackRock have been flexible and willing to go with the energy flow on AI. On the other hand, it would be a far more positive development and a far bigger mark in their favor if they would just admit that they were wrong, that all that jabbering about stranded fossil-fuel assets and the immediacy of the “transition” was aggressively and arrogantly misinformed.
I won’t hold my breath, and neither should you. Pay attention to what they do, not what they say.
