As a coffee aficionado....er....perhaps, fiend is a better word, I found myself pondering the higher price of coffee. Coffee future prices have more than doubled since September. Prices are actually at a 50-year high. Given my enjoyment of coffee every morning, I dug deeper.
Coffee prices have risen significantly due to a combination of factors primarily related to climate change, including extreme weather events like droughts and floods which have disrupted coffee harvests in major producing regions like Brazil and Vietnam, leading to a reduced global supply and increased demand for the available beans; this has pushed prices to near 50-year highs.
Key points about rising coffee prices:
Climate change impact: Abnormal weather patterns caused by climate change are considered the main culprit behind inconsistent coffee production, impacting both quality and quantity of beans,
Major producing regions affected: Brazil and Vietnam, the world's largest coffee producers, have been particularly hit by adverse weather, leading to lower crop yields,
Increased global demand: Despite supply chain challenges, the global demand for coffee continues to rise, further contributing to price increases,
Supply chain disruptions: ssues like port congestion and container scarcity can also add to price fluctuations
Once again, climate change rears its head in impacting a basic commodity.
So what does this have to do with the aforementioned barn door and horse? Simply this.
The United Stes Federal Reserve withdrew from the Network for Greening the Financial System (NGFS) in January 2025. The Fed cited concerns that the NGFS's activities exceeded its statutory mandate.
Why the Fed left
The NGFS's work expanded to cover a wider range of issues than the Fed's mandate.
The NGFS's activities were inconsistent with the Trump administration's priorities.
The NGFS's role differed from the traditional roles of other international organizations.
The NGFS's scope included monetary policy frameworks, which went beyond the Fed's core duties.
Why is this important?
The NGFS was established in 2017, with the purpose of helping to strengthen the global response required to meet the goals of the Paris agreement and to enhance the role of the financial system to manage risks and to mobilize capital for green and low-carbon investments in the broader context of environmentally sustainable development. The organization provides science-based insights aimed at helping financial systems to navigate climate and nature-related risks, including its climate scenarios – reflecting possible future climate policies, and assessing physical risks, including heat, drought and floods, and short and long-term risks stemming from the transition to a greener economy such as increasing carbon prices – which are used by many central banks worldwide in climate stress tests for banking and financial systems.
As I thought about it, having insight into climate change and its impact on coffee might be essential in a bank's decision whether to lend to that industry. I would think it would be prudent to analyze all relevant facts before making a lending decision. Learning about the coffee industry's woes after lending money is akin to closing the bard door after the horse is gone. This lesson can be expanded across any number of industries impacted by climate change.
The Parting Glass
Ignoring climate change does not make it go away. Ignoring it though can have an adverse impact on decision making . This is one of the reasons we focus on ESG or green investing in our 401k practice. The first Trump administration required fiduciaries be limited to considering "pecuniary factors" when making investment decisions. This meant that fiduciaries could only consider factors that had a direct impact on an investment's financial risk or return. To that end, why change now and ignore a factor that is clearly pecuniary? And there goes the horse through the open barn door. Now what?