Climate change is a pressing global issue that will have far-reaching effects on the world economy. And in case you have not noticed, it already has. It is happening all around us, but you need to know where to look. While many people are still trying to understand all of the implications of climate change, one thing is for sure: it will have a significant impact on investing. In this article, we’ll take a look at some of the ways climate change can affect investments and what investors can do to prepare for these changes.
- What are the opportunities for mutual funds, ETFs and stocks?
- What are some of the concerns with climate change?
- What do investors need to know?
- Which companies will benefit from climate change?
- What about companies that will be affected by climate change?
- How can I combat climate change with my stock portfolio right now?
- Is there anything investors can do to minimize climate change?
- How can investors continue to invest responsibly?
- 6 ways Investors can know if a company is sustainable
- 9 things a company should be working on to be considered sustainable
- What is climate impact investing?
- How do I invest in the environment?
- What kind of opportunities will be created in a 4 degree world?
- What is the best solution to climate change?
- What can individuals do about greenhouse gas emissions?
- In conclusion on renewable energy and climate change investing
What are the opportunities for mutual funds, ETFs and stocks?
The opportunities for investing in companies that are actively working to combat climate change are vast. There is a growing population of socially conscious investors who want their investments to reflect the values in which they believe. Many people have already started switching over to environmentally sustainable mutual funds, ETFs and stocks in order to contribute in slowing down climate change, while also earning money. It is also important to make sure the companies you invest in are actively working on reducing their carbon footprint by using clean energy or promoting sustainable practices.
What are some of the concerns with climate change?
Climate change concerns investors because it could affect potentially profitable investments in many ways, particularly when it comes to downside risks. For example, higher climactic volatility would have a major impact on agricultural production, which could affect food prices and consumer spending. This can cause shares of grocery stores to go down as people buy less or it may cause a large company like General Mills (NASDAQ: GIS) to go bankrupt if their costs for raw materials increase too much because of climate change.
What do investors need to know?
Investors that want to be proactive in mitigating the risks of climate change may want to invest in companies that are working towards clean energy initiatives or maintaining a low carbon footprint. Currently many large oil and gas conglomerates have been hit hard by the decline in oil prices, but this is an opportunity for investors that are socially conscious to take advantage of. Investors should be aware that while this sector may present some short-term opportunities, climate change is a long term problem and it will take many years for us to truly see the impact of these changes in our investments. But if we want to save the world, then this is one of the ways individuals can move that idea forward.
Which companies will benefit from climate change?
While there are many answers to this question, one thing is for certain: climate change will affect every single business in one way or another. Especially the companies that rely on raw materials to produce their products, such as mining and drilling companies. However, there are some companies that will benefit from climate change because it could open up new market opportunities to sell into. These include renewable energy providers who can help countries and companies reduce their carbon footprint, and companies that can help others mitigate the effects of climate change. But there are also many new companies who are creating products and services specifically designed with sustainability in mind.
What about companies that will be affected by climate change?
Any company whose future earnings will be highly impacted by the direct results of climate change needs to carefully consider how they will adapt their business strategy to deal with these changes. Industries such as insurance companies, utility companies and infrastructure providers. Mainly because sustainability is the world’s top priority, and there is increasing scrutiny on organizations who exaggerate their sustainability claims. A good example is the 2022 Beijing Olympics, purported to be the most sustainable games yet, but reports are already coming out to counter this claim.
How can I combat climate change with my stock portfolio right now?
As an investor, the best thing you can do is research which companies will be affected by climate change and how. You could even invest in multiple sectors to minimize your risk. While some companies may not directly benefit from climate change, they will still be affected by it in one way or another. An often overlooked aspect for companies is their upstream and downstream partners. When you look closer at their supply chain, you may find some cracks in the armor. As a result, you will need to choose your investments carefully and do the research before making any decisions. On the other hand, do not forget that ESG factors are growing at an exponential rate. The frameworks and reporting standards are changing every day, and a vast majority of companies, organizations and governments have yet to get up to speed. So, what works today will likely change soon. This type of change will continue to grow as sustainable practices become a top priority for everyone. Investors who understand the benefits and opportunities will likely find great success over time.
Is there anything investors can do to minimize climate change?
Yes there is a lot that investors can do to help minimize climate change. One of the main things is to avoid companies that could create more problems, and instead invest in those that are working to be a part of the solution. Some ways investors can avoid these types of companies include:
- Doing your research and deciding which companies are doing right by the environment
- Improve your understanding of how markets really work and which products fit with your interests (there are hundreds of online courses for every level of investor)
- Find a financial advisor or investment advisor who is willing to listen and help you make investments according to your values
- Selling any stocks that do not take sustainability seriously (this sends a clear message to companies to clean up their act)
- Making sure you understand what corporations need for business success, so you can decide if they are doing enough to help reduce emissions/climate change. Some examples of what businesses need include money, infrastructure, access to raw materials and a stable workforce.
- Investing in companies that are not only doing right by the environment, but also offer products and services to help others reduce their carbon footprint.
- Where possible, start to make the shift with your personal purchasing power to products and services which are inline with your values.
How can investors continue to invest responsibly?
There are several ways for investors to do their research when they want to find opportunities related to climate change. This is because more companies are doing responsible reporting regarding ESG factors, which also includes climate change. Some examples of how investors can research responsibly include:
- Analyze various reports to find out what factors affect the organization the most (this includes climate)
- Explore whether or not they have an environmental policy and how long they’ve had one
- Determine if the management team has a strong understanding of climate change and how it affects their industry
- Investigate the supply chain, as this is where many companies begin to see signs of struggling with their carbon footprint
- Look into whether or not they’re willing to set concrete goals on making improvements as well as time frames for those changes.
- Make sure you look at the small print to understand if there are any risks associated with climate change, as well as a company’s ability to handle those risks.
6 ways Investors can know if a company is sustainable
Look to their annual reports and social media accounts where they are posting about themselves. Even for midsize and small cap companies, who cannot afford to have an internal ESG team will be communicating their sustainability achievements, because it is a positive way for them to communicate with potential clients.
- The first thing you can do is look for specifics on how they’re trying to reduce their environmental impact and what their long-term plans are regarding climate change.
- Investors should look for statements about how climate change affects the future of the business and how they plan on adapting to it.
- Companies should include details on what they’re doing to reduce their carbon footprint, how they plan to make improvements and set goals for achieving this.
- It is important for investors to pay attention to the long-term risks associated with climate change, including supply chain management, shifting political landscapes and how this may affect their sources of production.
- Look into whether or not they are reporting emissions through CDP. If they are part of this program it means that they are disclosing information because they recognize there are risks associated with climate change.
- Always look for third-party verification when researching if a company is sustainable. This way you can compare their claims against what another organization says is true about the business in question.
9 things a company should be working on to be considered sustainable
- Setting clear greenhouse gas emissions targets
- Explain how they’re working to reduce their greenhouse gas emissions, including whether or not they have internal carbon reduction targets
- Talking about how staff are being educated on the environment and climate change
- Explain what technologies are being researched for sustainability efforts
- Describe any products that are being sold which help customers lower their environmental impact (even if it doesn’t directly relate to the environment)
- Investors should look for whether or not a company is investing in sustainable products and services, as well as what they are doing to support neighboring businesses which are reducing their carbon footprint.
- Explaining how a company is environmentally conscious when it comes to purchasing decisions, such as reducing their use of plastics
- Describe what they did to reduce/reuse waste products for the previous year, as well as any future initiatives that will be taken.
- Investors should look into whether or not companies are protecting their workforce from climate change so they can continue to be productive.
Keep in mind that that we all need to become sustainable if this giant experiment to save our species is going to succeed. And, unfortunately, there is no way to be 100% sustainable tomorrow, or even next week. It is an organic process that is developing more every day. That makes every person, every company, every city, every state and every country a WIP (work in progress). The key is to make the changes that you can, and work towards the changes that we need.
What is climate impact investing?
Climate impact investing is an investment strategy that uses environmental, social and corporate governance (ESG) factors to guide investment decisions. ESG factors are non-financial metrics which capture a company or project’s impact on the environment and society.
Climate impact investing is an emerging sector, with only a small subset of financial institutions actively engaged in it. However, many investors and organizations are beginning to feel financial pressure from climate change and want to make sure their portfolios (or the companies they lend money to) reflect their commitment to fighting it. As a result, they expect the ESG finance market will grow significantly in coming years as demand for such products increases alongside awareness of environmental risks. You can learn more about impact investing in this post.
How do I invest in the environment?
The most powerful way that we can all invest in in the environment is to use our superpower. We are all consumers and our superpower is in our wallets. The easiest way to positively affect the environment is to invest in sustainable products and services.
When we buy products that are created more sustainably, like organic cotton clothing instead of synthetic, sustainably grown coffee beans or gas efficient cars, not only do we reduce our emissions but we also send market signals which guide businesses on future investment decisions. There is already a huge market in ethical fashion and eco friendly clothing. Just like other emerging industries, it takes time to change the consumer mind, but once they hit critical mass, it takes off. So, buying sustainable products puts capital directly into sustainable companies.
Another good example is the investment in renewable energy companies through stocks or ETF’s. The cost of solar electricity has reduced rapidly in recent years, as a result of increased investment and incentives for research by governments and private corporations. Clean technology start-ups are increasingly receiving the capital required to produce their products, which will eventually create an entirely new market and industry.
The next big area where we can influence is investing in new energy infrastructure, such as public transport and energy efficient buildings. The market for sustainable infrastructure has the potential to be huge.
Investing in carbon-reduction projects is another powerful way we can all fight climate change and make a profit at the same time.
There are also a few funds and exchange traded funds which track the market of companies who meet certain environmental standards, such as fossil-fuel free portfolios. The key to investing sustainably is to make sure that your investments line up with your values. In other words, it’s about doing research beforehand so you know that your money is going towards companies or projects who care about the future of the earth.
What kind of opportunities will be created in a 4 degree world?
Currently, there are several areas of investment where climate change is increasing demand and driving innovation. In Australia one such example is renewable energy, which has seen rapid growth over the past decade. More Australians are becoming aware of climate change and want their government to take action. Currently, Australia gets around 23% of its electricity from renewable sources, a large proportion of which was installed in the past ten years. This is expected to increase as more investors look to renewables as a safer investment compared with coal and gas.
Oil prices have been steadily increasing since the 2000’s and there is a strong demand for renewable energy to reduce dependency on fossil fuels. The market is growing, with analysts expecting more growth in the future as investors look to meet their commitments under the COP 21 Paris Agreement and turn away from fossil fuels.
What is the best solution to climate change?
The best solution to climate change is to reduce our emissions as quickly as possible by investing in renewable technologies and energy efficient products.
However, even if we were able to immediately stop all carbon emissions today, the planet would still experience a temperature increase of around 1-3 degrees Celsius from pre-industrial levels over the next few centuries due to the large amount of greenhouse gases that have already been released into the atmosphere.
What can individuals do about greenhouse gas emissions?
Thankfully reducing our emissions is not only beneficial for the planet, but can make us money while at it. There are several ways to invest in the emerging sustainable economy by buying companies stocks or exchange traded funds which promise to meet certain environmental standards. Investing sustainably means you know your money is going towards companies who care about the planet.
In conclusion on renewable energy and climate change investing
Global warming is an issue where our actions can make a real difference. Choosing to invest in sustainable stocks and infrastructure, or projects dedicated to reducing carbon emissions, or buying sustainable products from sustainable companies makes you part of the solution. Climate change affects everyone on earth right now, but if we act quickly enough there are still opportunities to reduce the damage. The more money we can invest in solving climate change, the faster we will solve it.
Research & Curation
Dean Emerick is a curator on sustainability issues with ESG The Report, an online resource for professionals focusing on ESG principles. Their primary goal is to provide resources to help middle market companies, SMEs and SMBs transition to a more sustainable future.