Investing in a Disruptive Climate
My book, Investing in a New Climate is not about doom and gloom, but about adapting to change. Climate change is about the shifting of circumstances we have long taken for granted. To survive — and succeed — we must adapt. We must learn how to live and how to plan ahead within the realm of reasonable extrapolation of a changing global climate. Warming of the climate system is unequivocal and, since the 1950s, many of the observed changes are unprecedented. The atmosphere and oceans have warmed, the amounts of snow and ice have diminished, the sea level has risen, and the concentration of greenhouse gases has increased.
We need to think about a new normal. This new normal has to do with a changing climate, but not solely the meteorological climate. The concept of the changing climate also has to do with what a new meteorological climate means to economies, industries, and financial markets around the world. The meteorological climate is one catalyst, but I am talking about Climate with a big “C.” Adapting to the changing climate also includes advances in technology such as in medicine, energy, transportation, artificial intelligence, and computing.
Climate change is inevitable — a static climate is short-lived. There is no doubt that the Earth is getting warmer. We can put our head in the sand and not accept that change is taking place, or we can take a proactive and sensible approach to dealing with the changing climate.
What can we do?
First, get a handle on the facts of what’s happening. Second, determine what we can do about it in our own lives. And finally, put together a plan to help mitigate changes and to adapt to the inevitable changes. Some things we can do are understand economic trends, look at industrial impacts and modify our lifestyles. We need to analyze our current investments and consider updating our investment portfolios. Should we invest in northern European agriculture industries, companies that build dikes, and/or water purification technologies? Perhaps we should not retire to a seashore that is about to be underwater.
Meteorological changes affect economic trends. As the Earth gets warmer, northern latitudes will become more temperate, while equatorial and sub-equatorial climates could become more stressed. Countries in higher latitudes that are generally more economically successful will likely weather the change better, while lower latitude countries that are currently on the edge will likely become even more stressed.
With so many types of climate change occurring (economic, meteorological, industrial), we don’t have the luxury of denying that change is happening. There is a metaphoric thunderstorm in front of our planet. Having been a professional pilot, I have faced quite a few storms. In flight, we have three options: fly around the storm, turn around, or fly through the storm. Most of us don’t want to turn around or fly through the storm. Most of us think modifying our course and avoiding the storm is the most prudent approach. So, let’s gather the facts, analyze the situation, and modify our course. And let’s look at the troubling, new, and exciting opportunities that emerge.
The following are sustainable sectors to consider with specific ETF (Exchange Traded Funds) as examples of investments to consider investing in:
- Food and Agriculture: KROP global ETF seeks to provide investment results that correspond generally to the price and yield performance of the Solactive AgTech & Food Innovation Index. The fund invests at least 80% of its total assets, plus borrowings for investments purposes, in the securities of the underlying index and in ADRs and GDRs based on the securities in the underlying index. The underlying index is designed to provide exposure to companies that are positioned to benefit from further advances in the fields of agricultural technology and food innovation (Mirae Asset Global Investments: KROP). No ESG Rating
- Water: First Trust Water FIW ETF follows the ISE Clean Edge Water Index and has 36 holdings, including Roper Technologies and Danaher Corp. a global science and technology innovator (First Trust Water: FIW). MSCI ESG Rating AA
- Renewable Energy: ICLN invests in global clean energy companies, which is defined as those involved in the biofuels, ethanol, geothermal, hydroelectric, solar, and wind industries. ICLN also includes companies that develop technology and equipment used in the process. (iShares Global Clean Energy: ICLN) MSCI ESG Rating AA
- Real Estate and Construction: Invesco GBLD MSCI Green Building ETF tracks an index of companies engaged on “green building,” such as the design, construction, redevelopment, retrofitting or acquisition of properties that have been certified as meeting certain building standards for energy efficiency and resource sustainability (Invesco MSCI Green Building: GBLD). MSCI ESG Rating A
These sectors and their corresponding ETFs are just examples and are not an exhaustive list of investment options. They’re intended as a starting place to consider investing in a new and disruptive climate. The big takeaway is that “the economy is changing”: We can adapt our portfolios or lose out on potential investment performance.
Article by Scott Schwartz, CFP®, financial analyst and CEO of the sustainable investment advisory firm EntentVest Inc. His book Investing in a New Climate: A Sustainable Approach to Investing in a New Climate was published in August 2021.