Everything is changing under climate change. Whether you believe in climate change or not, there is no room for ignorance in the investing world. If you want to protect your assets in the future, understanding climate change is critical. Understanding of policy efforts as well as trends in the green economy can help a savvy investor profit off of these changes rather than fall behind the curve. ESG stocks are booming and electric cars are one of the hottest topics. In 2019, VC investment in climate tech was at $16.1 billion dollars, up from $418 million in 2013. There is money to be made and money to be lost in climate change.
The Green Stock Wave
Defining a “climate change stock” is a problem facing financiers and environmentalists alike. The current standard is the Environmental, Social, Governance [ESG] rating, which rates a stock’s risk factors related to the environment, social issues, and internal governance. ESG ratings do not tell you how sustainable or eco-friendly a company is, only their risk of being caught in a scandal. In a rating from Investors Business Daily, the top ten stocks for ESG mainly consist of tech companies, which would perplex anyone who knew anything about the technology supply chain. However, ESG is rated on risk, not on positive actions. The company least likely to fall into ESG issues is not the most sustainable.
The other determiner of a climate change stock would be a company that directly solves a problem related to climate change or the green economy. The clearest example would be Tesla, one of the biggest stocks to hit the S&P 500. Tesla is an electric vehicle company, and its notoriety has shot the stock price through the roof.
When looking to buy a green stock, you have to look at every industry and what needs to change. In the energy sector, there is a shift away from fossil fuels and towards renewables. Thus, investing in renewable energy companies should reflect the change in that sector (like Blink Charging: BLNK or First Solar: FSLR). In the building and construction industry, look to companies that are making buildings more efficient and carbon-neutral (like Trane Technologies: TT or Carrier Global: CAAR). In agriculture and food, look to companies that are meeting the demands of new dietary trends, like a tendency towards plant-based eating (like Beyond Meat: BYND). No one company is sure to succeed under climate change, but the disrupters innovating under climate change show the most growth potential.
Like any investment, you have to read about the company. Companies that are living in the past, that exist on fossil fuels and old ideals, may suffer in the future if they do not learn to adapt. And while Tesla seems to be a shining star for green investing, it’s more attributed to social media and celebrity culture than the value of the brand. Look at companies who are looking to the future, and who are solving the issues we need to solve.
Wealth and Climate Change
A wealthy Republican may deny climate change in front of their followers, but any smart person with large amounts of wealth has to acknowledge the changing economy under climate change. Big oil magnates will continue to hold their wealth in fossil fuels, but they are also diversifying their assets to include green assets. ESG and green stocks are increasingly popular in the stock market, and many famous billionaires are investing in green efforts to help clean up their image. The wealthy have made their money off of climate change and will now make more money in the fight against it. Stocks in renewable energy have grown exponentially in the past decade, and smart investors and fund managers have jumped on that bandwagon.
Climate change is driving change everywhere
If you think climate change will only affect the stock market, you’d be wrong. Every human system and product on earth is steeped in pre-climate change culture and ideals, and they all have to change to meet the new demands under climate change. Houses, cars, clothes, food, and trash all must be redesigned to help mitigate and adapt to climate change. The companies that do this the fastest will see the least vulnerability in the coming decades when climate change is set to really threaten our way of life.
The Climate Pledge Arena, a new sports and entertainment arena in Seattle, is designed to be the example for sustainable arenas. It will use 100% renewable energy, be all-electric, use compost and recycling systems, have no single-use plastic, and integrate into local public transportation. A huge undertaking, but a necessary step. All stadiums in the future will have to respond to climate change in some way. Companies that can change sooner rather than later can have more control over the transition and benefit from the media attention of being the first.
Climate Real Estate
Climate change is coming for our coasts. With sea-level rise and increased natural disasters, climate change will reshape American settlement patterns. Coastal cities, like New York and Miami, have worked to create plans that could protect the cities from the sea a little while longer, but the projected sea-level rise threatens millions of people and billions of dollars worth of property. The Financial District in New York, arguably one of the most valuable zip codes in the United States for economic influence, is the first to be threatened by climate change. Increased severity and frequency of storms threaten people, businesses, and infrastructure. While many people will continue to live in these cities, many others have started looking elsewhere.
Climate change affects nearly every corner of the United States. Fires in the west, flooding in the east, and heat in the midwest have shocked Americans into accepting climate change as a reality. 57% of Americans have stated they will factor in weather and climate in their future moving decisions. The most glaring shift in the past two years has been the exodus from California, as skyrocketing cost of living, COVID-19, and endless forest fires have driven people to Oregon, Colorado, and Texas. These areas are not safe from climate change, though. Oregon is seeing hotter and drier summers. Colorado is threatened by droughts and Texas is hit with flooding. The best places to move or invest in real estate would be inwards and northwards. With climate change, the North American climate will generally move upwards. The Mississippi valley will become drier and hotter, moving agriculture up north towards Canada. Summers in the southwest and southeast will become increasingly unbearable. Sea level rise will threaten property along all of America’s coasts. On the East Coast, 50 million Americans will be affected by even moderate warming scenarios.
Cities in the northern midwest, like Minneapolis and Duluth, could be viewed as investment material for those looking to buy appreciating property. Buying along the coast is sure to either lose value or become destroyed. Checking insurance premiums can inform an area’s likelihood of disasters. Does this zip code have a high premium for flood insurance? That’s your sign not to buy there. American climate migration is sure to be slow, and people will move when forced out. Knowing where not to buy can be the safest route when looking to invest long-term.
Climate change is disrupting our current way of life. If you are looking to invest in the green future, understanding these changes is crucial. Whether it be learning how land value will change under extreme weather or what industries are set to grow in the green economy, a smart investor needs to have this understanding — whether they care about the planet or not. For the wealthy, green investments are not about putting money into something they care about but rather finding disruptive companies that have growth potential under the new regime of climate change.
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