By Carl Hall, author of The Environmental Capitalist

I have many war stories from fundraising for Alder, which is the largest environmental technology investment fund in the Nordic region.

At one point I remember meeting a secretive family foundation that managed an almost unimaginable cash pile. Over a cup of coffee they told me about the different projects they were working on. One was buying up beach front property in remote locations in Asia. “When the Asians get rich, they will want to have access to beach front property,” they pointed out proudly. “Look at what happened to beach front property in Europe during the 20th century - it has grown 1000-fold in value, even if nothing has been done to the property.” They informed me about their elaborate blueprint for deciding which spots to buy, which involved analysing the rule of law of the country they were investing in, the closeness of the site to population centres. They even sent in divers to check the quality of the water.

I took a deep breath and asked if they had factored in climate change? Had they, I wondered, incorporated into their investment model the fact that what is beach front property today might be underwater in 30 years?

There was a pause. The pause became an awkward silence. They looked at me as if they had seen a ghost.

I left that meeting with yet another example of how business leaders tend to underestimate environmental risk. Even though environmental risks tend to hit the wallet worse than wars. There was a story recently retold in the Financial Times about how a young analyst at a major hedge fund came in to the funds founding partner with an idea about betting short on the back of the worsening crisis’s in Ukraine and Palestine. The partner sent him away to make a list of all the wars during the bull markets of in the late 1990s which was a long list of everything from Somalia to Kosovo. The point being that despite the awful toll in human terms, wars tend to have little economic impact. A compilation by JP Morgan Asset management in July of this year showed wars zones only accounting for 3% of global GDP and only 0.7% of equity market capitalisation. The reverse is true of environmental risks, hurricanes Sandy and Katrina, arguably caused by climate change cost 20 billion dollars each in economic damage.

Ignoring the existential component of such threats as climate change and water scarcity, we can see that the environmental risks tend to have huge economic impact. The reason is that environmental risks tend to impact key resources that make the economy run smoothly, such as energy, water and raw materials, or impact the value of key stores of value, such as land. Yet these risks are consistently ignored or underestimated. A striking example of both the magnitude of the potential economic impact of environmental issues and how little attention is paid by business people is the “Carbon bubble”. This alarm bell for the Carbon Bubble was sounded by an organisation called the Carbon Tracker Initiative (http://www.carbontracker.org/). Their starting point being that a large part of the world’s listed equity capital is tied into Oil & Gas companies. 25% of the companies on the Global FTSE Top 20 most valuable companies by market capitalisation are oil companies. Their balance sheets are to a large extent made up of reserves of fossil fuels. The problem with these reserves is that the majority of them, 80% according to Carbon Trackers estimates, cannot be used if we are to stay within a safe 2 degree level of global warming. This means that these reserves may be largely worthless and the balance sheets of the Oil & Gas behemoths as hollow as an empty oil drum. Because of their size Oil & Gas makes up a large portion of market indexes and thus a large portion of pension fund investments. A huge bubble waiting to burst.

The “Carbon Bubble” is just one environmental risk of many as the world is entering an unprecedented Age of Scarcity. 5 billion people are soon middle class using more resources than is sustainable. We’ve seen it the form of rising raw material and land prices. But it is just the beginning. Soon our economies will run into constraints of water, materials and global warming. This spells a lot of risk, but also a lot of opportunity. Just make sure to not be like the family foundation. Make sure your investments are not under water.