A substantial rise in sea levels, oppressive summer temperatures, widespread droughts, increasingly severe storms, and disastrous floods. These are all potentially dramatic affects resulting from climate change phenomena. For many investors, climate change may be easily overlooked with little concern to their portfolio but for those on top of the world’s climate change developments, several special considerations may be needed.
- There are several considerations for climate change conscious investors.
- Renewable energy and companies with high green rankings can be two routes for portfolio investing.
- Individuals in high risk areas are usually the most vulnerable to personal finance considerations like job security, food safety, and property costs.
Investing concerns over climate change fall within the realms of Environmental, Social, and Governance (ESG) investing, which has been expanding in research and offerings. Institutional investment managers have been carving out a broader niche to provide more opportunities for those investors with concerns over corporate governance, sin stocks, and more. ESG also heavily encompasses investing for the good of the environment. That’s often where the affects of climate change can come in for environmentally concerned investors.
What Is Climate Change?
Climate change is a complex, multi-dimensional evolution that can affect the global environmental climate in many ways. It is generally the result of various types of emissions fostered from large corporations in their operational practices. Governments across the globe have taken steps to curb, monitor, and/or regulate large corporate practices in this area to help handle the problem.
Some Leading Research on Climate Change
Globally, the United Nations is one of the leading providers of research on global climate change affects. Its December 2019 Special Report on Climate Change and Land looks at several key aspects of climate change and climate change affects across the globe including food safety, greenhouse gases, and more.
In the United States, the National Climate Assessment, mandated every four years by the Global Change Research Act of 1990, is one the most authoritative research pieces. The 2018 report covers the areas of:
- Interconnected Impacts
- Actions to Reduce Risk
- Indigenous Peoples
- Ecosystems and Services
- Oceans and Coasts
- Tourism and Recreation
While these two research pieces are extensive, they can be great sources of information for those looking to groom a portfolio for climate change. Broadly, the implications of climate change can be multi-dimensional, potentially affecting everyone’s lives, finances, and environmental experiences.
Best Bets for Climate Change Investments
For those looking to tailor some or all of their portfolio thematically around climate change there can be several options. Two of the most well known routes include renewable energy investments and investing in corporations with green initiatives.
Developments in renewable energy are one byproduct of the world’s interests in preserving the climate and limiting the amount of unhealthy emissions. Renewable energy companies focus on manufacturing products and creating solutions that limit or eliminate emissions.
Solar a Top Choice
If you’re willing to jump in the market, solar technology remains an up-and-coming area in the alternative energy sector. Solar offers the use of sunlight as a means for energy generation, helping to supplement the need for electricity or gases. Rival Chinese manufacturers Yingli Green Energy Holding Co. (YGE) and Trina Solar Ltd. (TSL) are leaders in the global solar segment. The Market Vectors Solar Energy ETF (KWT) and Guggenheim Solar Fund (TAN) are both globally diversified options in managed funds.
Among North American solar outfits, Tempe, Ariz.-based First Solar, Inc. (FSLR), which provides photovoltaic solar systems to the international market, is a top choice. There is also, Guelph, Ontario-based Canadian Solar Inc. (CSIQ), which is a leader in the Canadian market.
On the institutional front, there are also several managers taking big bets on the profitable returns of the renewable energy sectors. One of the most prominent is the Calvert Global Energy Solutions Fund. Across the market, several indexes and index funds also exist.
Across the globe, green tech investing has been important for many nations of the world. The Global Trends in Renewable Energy Investment 2019 lays out investments across the last decade by type of technology and country.
Many diversified green ETFs have also been created to follow these trends including Wheaton, Ill.-based First Trust ISE-Revere Natural Gas Index Fund (FCG) and the iPath Global Carbon ETN (GRN).
Those interested in exploring the renewables sector farther afield would do well to look to China, which has by far outpaced the rest of the world with its renewable energy investments. From 2010 through the first half of 2019 China reported $758 billion in renewable energy investments, beating out all of Europe at $698 billion and nearly doubling the United States in the second place ranking at $356 billion. However, the high level of investment also coincides with a high level of emissions, particularly in the areas of carbon and coal, which also is a concern.
Companies with substantial green energy initiatives and investments can also be a great place to invest for a climate change targeted portfolio. Investing in green energy projects has long been seen as a risky proposition: the high capital investment in complex infrastructure for wind, solar, and biomass technology has meant that for green companies, expenditures have often outweighed profits. However, many companies see the need for this important investment and have taken steps to set themselves and the environment up for a better future.
The STOXX Global Climate Change Leaders Index was developed to recognize the top global companies on the A-list for green initiatives. Heavy weights in the Index include: Apple, Bank of America, Microsoft, and Alphabet.
For many investors, a climate change focused portfolio can also mean avoiding companies with high levels of emissions. Oftentimes this includes oil, gas, and chemical companies which rely on high chemical usage for their production.
Broadly, investors in renewables should take a long view and cast a wide net. From an investment perspective, these investments may have a tough yardstick: returns on investments are held against comparable expenditures generated by traditional energy sources like coal or oil, which still remain highly profitable. Moreover, renewable and green tech investments can take years to payoff leaving investors to hope more for the long term rather than short term results.
Personal Finance Considerations
Beyond just basic portfolio investing, climate change conscious investors may also want to make some personal finance considerations as well. For the more extremely climate change conscious, many experts suggest holding a hoard of at least $1,000 in cash in your home in the case of an emergency environmental evacuation. Along these lines, holding a larger portion of your total portfolio in cash is also suggested to combat any times of extreme crisis or market losses related to environmental, climate issues.
Beyond higher levels of cash holdings, some other considerations may be top of mind as well. Insurance, energy, and property values are likely to be affected in areas highly vulnerable to climate change affects. Food and health care costs can also be a concern. Job security can also be a factor for many who work in industries that could be negatively affected by climate change developments.
The Bottom Line
Investing for climate change has many of its own special considerations. The economies of the world can't simply go cold turkey on hydrocarbons overnight but supporting the commitment to replacing some traditional energy investments with renewables can be a good first step. Investing in companies that are making strong headway in the fight to go green and turn higher profits is also a good decision. Beyond that, staying aware of how climate change is affecting the region you live in and its costs can also be very important for managing your current lifestyle and planning for your future into the retirement years.