Posted 20 December 2010 

David Henderson, former head of the Economics and Statistics Dept of OECD, now chairman of the Academic Advisory Council of the UK Global Warming Policy Foundation, writes in the Newsletter of the Royal Economic Society, to comment on the issues as they have developed over the last 20 years.   Download pdf

David Henderson questions the ethics of Deutsche Bank for its recent report on "climate change." - "Whether and how far a more judicious approach on [balanced enquiry] will gather momentum depends principally on goivernments, but businesses and business organisations could play a useful - and more responsible - part on raising the quality of debate. As the current example of Deutche Bank confirms, there is a long way to go." 

Corporate irresponsibility

David Henderson, Financial Post · Tuesday, Dec. 14, 2010

As the Cancun postmortems continue, one area that calls for attention is the questionable role of leading businesses. Recent episodes involving the Deutsche Bank Group are illustrative of a wider problem. They give grounds for serious concern.

In September a report entitled "Climate Change: Addressing the Major Skeptic Arguments," was issued under the auspices of Deutsche Bank. It was published by DB Climate Change Advisors, a unit described on the bank's website as "the brand name for the institutional climate-change investment division of Deutsche Asset Management, the asset-management arm of Deutsche Bank AG in the U.S." The report was co-authored by three climate scientists at the Columbia Climate Center at the Earth Institute of Columbia University.

As the title suggests, the authors' avowed purpose in preparing the report was to demonstrate that the "major skeptic arguments," and any conclusions based on them, are to be rejected. To quote the document's introduction: "This study aims to respond to the most common misconceptions that are presented to challenge the position that [greenhouse gas] emissions are adversely impacting Earth's climate and will continue to do so."

In an editorial preface to the report, the Deutsche Bank global head of climate-change investment research, Mark Fulton, describes it as "a balanced, detailed and expert assessment of the scientific case for climate change that will help investors navigate these extremely complex issues."

The document's claims to balance, and to accuracy as a navigational guide, were promptly put in question by the Canadian economist Ross McKitrick of Guelph University, one of the "skeptics" supposedly disposed of within it. Prof. McKitrick's critique, entitled "Response to Misinformation from Deutsche Bank," is dated Sept. 13. It focuses on two central topics treated in the report, with the main emphasis on the well-publicized "hockey stick" controversy. In relation to these topics, it identifies and spells out an extended list of errors, misrepresentations and falsehoods.

In response, the authors of the document have put out a revised text which replaces the original. But to create this new version they have simply inserted at the end a three-page "Response to McKitrick." In these pages they admit to a few "mischaracterizations" and offer amended versions of three sentences that they acknowledge to have been misleading. However, the original wording of these confessedly faulty sentences survives, unchanged and unfootnoted, in an unaltered main text. McKitrick has described this behaviour on the authors' part as "unsporting." Others might characterize it as unprofessional. The Deutsche Bank sponsors of the study should not have sanctioned it.

In a second set of comments, dated Nov. 8 and entitled "Response to Revised Report from Deutsche Bank," McKitrick has extended and reinforced his critique. Up to now, there has been no further response from the authors of the report or from Deutsche Bank.

Viewed together, McKitrick's twin presentations appear as damning and unanswerable. As a guide to investors, or indeed for any other purpose, this Deutsche Bank/Earth Institute report is worthless.

The report's deficiencies put in question the conduct of its sponsors within Deutsche Bank, as also the conduct of those whom they report to. It would be interesting to know whether the officials who commissioned and approved this deeply flawed initiative took the precaution of submitting a draft for expert review to competent persons not already firmly convinced that "the skeptics" have been refuted.

Looking at the list of members, it would seem that no such person is to be found among the eminent individuals who make up the Deutsche Bank's high-level Climate Advisory Board: All of these appear as people who are (to quote a nice phrase from Clive Crook) "pre-committed to the urgency of the climate cause." They include the chair of the Intergovernmental Panel on Climate Change, Dr. R.K. Pachauri, and a former executive director of the United Nations Environment Program, Klaus Topfer.

It is not clear whether the Climate Advisory Board saw a draft of this Earth Institute report, or indeed whether they were aware that it had been commissioned. A more representative Advisory Board, spanning a wider range of opinions, might have taken more trouble to ensure that it was kept fully informed, and that any published work on climate change issues put out by Deutsche Bank would measure up to professional standards.

The Deutsche Bank Group has also taken its climate-change involvement into the political sphere. In the recent Californian elections, voters were invited to accept or reject Proposition 23, which would have placed strict constraints on the state government's plans to introduce further curbs on carbon dioxide emissions. A few days before the vote, the Financial Times reported that "Sixty-eight big investors, managing US$415-billion in assets, have united to urge Californians to vote against efforts to roll back the state's carbon legislation.... Signatories include ... Deutsche Bank Climate Advisers...."

It would thus appear that its Climate Change Advisors, who are no more than "the climate-change investment division of Deutsche Asset Management," took a strong position on behalf of Deutsche Bank on a controversial political matter. If so, it would be interesting to know whether and to what extent this action, which appears as questionable in itself, was authorized and approved at higher levels within the bank.

As its website confirms, Deutsche Bank is fully committed to the doctrine, now widely endorsed by businesses and governments, of Corporate Social Responsibility (CSR). How far its current handling of climate change issues can be viewed as responsible is clearly open to doubt.

For any organization of standing, not least a leading multinational company such as Deutsche Bank, an obvious aspect of responsible conduct is a demonstrated concern for accuracy and the truth. The bank's management board could now manifest such a concern, first, by commissioning an independent and informed review of this report, and second, by withdrawing and repudiating the report if the review supports McKitrick's analysis.

In the wider context, however, Deutsche Bank is one of many, while the report shares its faults with numerous cousins. Both are symptomatic.

Businesses across the world, and governments too, have made unqualified and uncritical commitments to the view that in relation to climate-change issues "the science" is "settled." Within the business world, as in the case of Deutsche Bank, endorsing this received opinion forms a leading aspect of CSR and, for many companies, of corporate strategy.

Received opinion largely rests on a belief, reinforced by statements from leading science academies, that in relation to climate science the official expert advisory process as a whole, and the IPCC assessment reports in particular, are to be seen as reliable guides.

Increasingly in recent years, arguments and evidence to the contrary have been presented by informed critics, prominent among whom have been McKitrick and his fellow Canadian, Stephen McIntyre. In my view, these critics have made a powerful case. The IPCC process has been exposed as being far from a model of rigour, inclusiveness and impartiality, while influential publications on climate-change issues have been shown to be professionally flawed.

Neither businesses nor governments have given the critics due attention. But in the past year or so, new developments have cast further doubt on the claims to objectivity and competence of the official expert advisory process and its official sponsors. In particular, the so-called "Climategate" and "Glaciergate" episodes have exposed attitudes and practices which were clearly unprofessional.

In response to these embarrassing revelations, Dr. Pachauri and the UN Secretary-General asked the InterAcademy Council, a creation of science academies around the world, to appoint an expert independent review committee to report on the process and procedures of the IPCC.

The resulting report was published at the end of August. Because of its careful and qualified wording, both sides of the climate-change debate have been able to draw encouragement from it. I see the report as making a major contribution in two respects: first, it made numerous recommendations for improving the IPCC process; and second, it stressed the need to ensure that a full range of informed views is taken into account, thus confirming that "the science" is not "settled."

These twin conclusions are subversive of received opinion. Hence the report could help pave the way for significant improvements in the handling of climate-change issues.

The main focus of improvement is clear. In an area of policy where so much is at stake, and so much remains uncertain and unsettled, policies should be evolutionary and adaptive, rather than presumptive as they are now; and their evolution should be linked to a process of inquiry and review that is more thorough, balanced, open and objective than has so far been the case.

Whether and how far a more judicious approach on these lines will gather momentum depends principally on governments, but businesses and business organizations could play a useful -- and more responsible -- part in raising the quality of debate. As the current example of Deutsche Bank confirms, there is a long way to go.

  • David Henderson was formerly head of the Economics and Statistics Department of the OECD. He is currently chairman of the Academic Advisory Council of the London-based Global Warming Policy Foundation. His latest publication on climate-change issues has just appeared in the quarterly Newsletter of the Royal Economic Society.

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