The news these days can be more depressing than a double-bill of Requiem for a Dream and The Deer Hunter. There are bushfires in Australia, droughts in California, and the ever-present threat of sea levels rising. The earth’s climate is rapidly changing, but you don’t have to sit back and watch it happen. By putting your money to work, you can help support good causes – and hopefully nudge the planet in the right direction.
Tell me more. As our physical landscape changes, our economic landscape will too. Climate change is a generation-defining event which will invariably have a huge impact on the global economy. That means the planet will affect your investments – and if you're lucky your investments might affect the planet too.
How can I use my money to make things better? Money makes the world go round – it’s a very effective way of motivating change. For new climate-saving technology to flourish, the industry needs capital to fund expensive scientific research. Said research money doesn’t grow on trees and your investment choices could motivate other companies to follow suit.
As an individual investor, you might think you don’t have much impact on any of this but you do! You’re more powerful than you might realize: through your savings, investments, and pension funds, you (and billions of others just like you) are currently funding certain industries and avoiding others. By taking control of your investments, your money can follow your heart as well as your head.
What if I think we’re all doomed? If you’re set on being a pessimist, the storm clouds could have a silver lining for you. There’s a whole group of people figuring out ways to make money from a potential apocalypse: whether it’s hoping that shortages cause the price of food to soar or gambling on increased civil unrest helping weapon manufacturers. There’s an investment strategy out there for everyone, no matter how unpleasant it might be to think about for some of us.
So what should I do? Whether you want to try to save the planet or gamble on its demise, we’ve got your back! This Pack will guide you through the economic shifts climate change might bring about, and how you can use your money to respond accordingly. First off, put your pollution masks on: let’s look at the energy industry.
Like the grumpy oil prospector in There Will Be Blood, fossil fuels are definitely the bad guys when it comes to climate change – and the companies that produce them might be about to experience some seismic shifts. Some investors believe that strict regulation and taxes on oil and gas are around the corner, and that could really hurt the big producers.
If you think that’s a possibility, you could bet on a decline in these companies’ share prices by shorting their stocks (talk to your broker for details!). Though bear in mind that short trades can be hugely risky and expensive, especially over the long term – it may be a better bet to just avoid owning these shares. If the world truly turns against carbon in coming years, it could really drink your milkshake if your portfolio is stuffed with oil stocks.
The potential decline in fossil fuel usage might be accompanied by a growth in renewable energy. Both solar and wind energy production have soared over the last decade, largely thanks to the technology becoming increasingly affordable. That trend is set to continue: right now renewable energy counts for about 25% of the world’s energy production, but that’s expected to shoot up to 37% by 2040.
What does this mean for me? Putting money into renewable energy firms might give you a decent return over the long-term. As an added bonus, it’s a good way to encourage growth in these sectors. You could invest in big listed firms via the stock market, or put money into smaller startups via angel investing or equity crowdfunding. Don’t worry, we’ve got dedicated Packs on how to actually invest in each of these ways.
If you really want to incentivize change: invest in companies that are making an active effort to reduce their fossil fuel consumption and become carbon neutral. It can be tricky to find these companies yourself but there’s help at hand. Tools like Yahoo Finance show you companies’ sustainability scores, making things a bit easier. However, keep in mind that not all scoring systems are equal – you might want to do your own research to check that the scores align with your values.
Is there anything a bit less mainstream? Some environmentally conscious funds are investing in lithium and copper. The metals are essential for batteries and renewable “supergrids” – the funds hope demand for them will soar as the world plugs in.
Asset management firm Fidelity, meanwhile, is backing companies like Lennox International that help other firms save energy by installing efficient energy systems in big offices, for instance. Their strategy is based on the assumption that more companies will want to shrink their carbon footprint in the coming years.
Are there any risks in making these bets? Plenty. Every investment comes with risk, and that’s especially true when making predictions about the far-flung future. The hope that renewable energy use will replace fossil fuels is in part a bet on political change like higher fossil fuel taxes that dissuade consumers from using them. But some think political change might not actually happen – some people get very angry at higher fuel prices (see: France’s gilets jaunes protests). If the taxes fail to be enacted, we might stay guzzling oil for the foreseeable future…
Climate change has the potential to affect our daily lives in countless ways, whether it’s the food we eat or the water we drink. Just as with the energy sector, the industries that keep us fed are bound to experience change – which will in turn affect your investments. Let’s take a look at three of the most important sectors.
Water might be taken for granted by many in the rich world, but climate change and a booming global population could put an end to that. Droughts may become frequent in some regions, and that constrained supply could cause global problems. The United Nations predicts that 1.8 billion people will experience absolute water scarcity as soon as 2025.
There are plenty of investment opportunities in companies trying to tackle this supply problem. With lots of water currently lost through leakages, firms that can produce more resilient piping systems should experience higher demand. As will companies like the Chinese firms trying to turn polluted wastewater back into clean H2O – a favorite investment of Bank of America. Desalination plants, which turn seawater into something drinkable, are also hoping for a thirst-quenching future.
Changes in the weather will also feed through to agriculture, potentially changing the very food we eat. With agriculture being one of the biggest contributors to climate change – all those cow farts really get the temperature rising – some forecast a move towards meat-alternatives. Read: lab-grown or faux-meat companies, like the newly public firm Beyond Meat, might be the next big thing.
Bank of America is pointing investors towards “vertical farms”, which might become increasingly popular as a way to feed the growing urban population. For something a bit more high-tech: biotech firms like Bayer (owner of Monsanto) and Syngenta are working on genetically-modified crops that can better survive harsh environments – a potential lifeboat if we don’t manage to get a hold on climate change.
As for what our food will be served in… it might not be the plastic that’s everywhere today. As oil becomes more expensive and the long-term pollution from plastic becomes more noticeable, our approach to waste will likely change. Recycling companies like Suez and Veolia are top holdings of the WHEB Sustainability Fund, and firms like International Paper Co. are making biodegradable packaging that activists hope will become mainstream.
Everything we’ve looked at so far is based on the hope that things will (eventually) get better. But if the glass looks half empty to you, you can still make financial moves. Onto planning for the worst…
Wall Street never shies away from a money-making opportunity, and bizarrely the end of the world might be a particularly lucrative one.
There are people out there betting on disaster?! Yep: loads of them. Some of the strategies are obvious, like investing in water companies and food retailers in the hope that they’ll benefit from higher prices when resources become scarcer. But others are a little more devious.
Ongoing droughts in Australia might shift farming production elsewhere – so some investors are betting on US tractor manufacturer John Deere experiencing a sales boost, while real-estate firms are taking advantage of struggling Australian farmers to buy cheap land. Other parts of the world might benefit in curious ways from climate change too: huge amounts of arable land is set to appear from under melted ice in Alaska, Greenland, and Russia. Not only will this benefit the countries’ food producers, but it also has potential positive impacts on oil production, mineral mining and even summer tourism.
It’s not all sunshine and rainbows: all that ice has gotta go somewhere. Large-scale melting would lead to equally large rises in sea levels. Rising sea levels will have knock-on effects on the values of coastal property which will be at risk of flooding, and might drive up the prices of higher-ground houses. It will also be a boon for insurers, who will be able to command higher premiums from companies and individuals who are now in a danger zone. Infrastructure firms that can build flood defenses and storm barriers will also profit handsomely: the planned storm surge barrier for New York City could cost up to $20 billion.
Some bets are life-and-death, literally. Investors are busy putting money into pharmaceutical companies. As the world gets warmer, tropical diseases like zika and malaria will become more common – maybe even in richer countries where consumers are likely to pay big bucks for treatments. A warming world spells disaster for poorer countries too. Famine and water shortages have been linked to social unrest: arms companies including Raytheon and Sweden’s Saab have openly said they expect increased demand for their military products in the event of severe climate change.
That’s all a lot to take in – don’t let it get you down too much. The previous sessions show there might still be hope for the planet. In the final session, we’ll show you how you can take action to help avoid disaster.
How do I actually invest in a green future? If you like the sound of any of the companies we’ve talked about in earlier sessions, one way would be to invest in their stocks directly. But that’s not an ideal approach, because it directly exposes you to the company’s ability to turn a profit – which might not be great, no matter how promising the sector is.
A smarter move could be to invest in an environmentally friendly fund, allowing you to put your money into a basket of green companies with only one click. Many are even exchange-traded funds (ETFs), which means they’re listed on exchanges just like stocks. Different funds have different criteria for investment. For example, you might find one that only focuses on solar energy firms or another that invests in recycling companies. We’d recommend researching the fund carefully to see that it’s investing in areas you care about.
If you want to be even more diversified, you could invest in a fund-of-funds like Barclays’ Multi-Impact Growth Fund. As its name implies, the fund invests in a bunch of other funds that aim to improve the world (as well as generate a healthy financial return, of course).
How about debt? Green bonds have blossomed in popularity in recent years. They’re an environmental twist on corporate bonds: companies or countries use them to raise money to finance their green projects. You might find yourself loaning money for a wind turbine farm to be built in India, for example. Just as with stocks, you could invest in these bonds directly or choose a fund. The Luxor Green Bond ETF is a fund that trades on the stock market, so it’s particularly easy to get in and out of.
Are there any regions to focus on? With India and China two of the fastest-growing sources of greenhouse gases, a lot of eyes are looking east to see if they experience an equally rapid transition to green energy. China installed more solar panels in the first nine months of 2017 than the US had in total up to 2016. Proof that when governments put their minds to it, mountains can be moved. If these countries make sustainability even more of a focus in coming years, homegrown green companies could flourish – rewarding both investors and the world at large.
If you – and enough other people like you – start shifting towards environmentally friendly investing, the big institutional money managers will hopefully follow your lead. And little by little, you might actually see change being made. Saving the world AND making a profit... What more could you ask for?
🔹 Climate change might hurt the oil industry – and help renewable energy producers.
🔹 Demand could increase for water-saving technology and alternative food sources.
🔹 People are trying to profit from the worst effects of climate change, like war and disease.
🔹 Investing in green funds, bonds, and stocks is a good way to change the planet for the better.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.