Protesters in Chicago protest against President Donald Trump's decision to withdraw from the Paris Agreement on June 2, 2017.
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When the Federal Reserve recently identified climate change as a stability risk, the investing world realizes the potential benefits of facing the challenge.
"There is an overlap between climate change and long-term growth opportunities," said Eric Mancini, director of investment research and wealth advisor at Traphagen Financial Group in Oradell, New Jersey. "This is a 20-30 year growth opportunity as renewables gradually gain market share from traditional fossil fuels."
How does an investor deal with the big issue of climate change in order to take advantage of its opportunities? Natasha Lamb, managing partner, director of equity research and shareholder engagement at Arjuna Capital in Manchester-by-the-Sea, Massachusetts, offers a three-pronged approach:
- Determine what carbon assets you might be invested in, such as B. in coal, oil and gas reserves. "Your portfolio is at risk as these companies become unprofitable over time," she said. "For example, the cost of extracting oil sands is expensive."
- Think how climate change can affect your entire portfolio. "While negative inventory screening can eliminate fossil fuels and reduce the risk of climate change, the rest of the inventory in your portfolio could be negatively impacted by macroeconomic risk from storms and sea level rise, population migration, supply chain disruptions, insurance challenges, etc. said Lamb.
- Invest in solutions that reduce climate and portfolio risk, such as: B. Renewable Energy Solutions.
Screening positive or negative
When evaluating individual stocks, you can test them positively – for example, whether the companies are supported – or negatively (e.g. whether they should be avoided).
Sonia Kowal, President of Zevin Asset Management in Boston, said of the positive attitude: "We are investigating which companies are mobilizing fast enough to reduce their contributions to climate change and to anticipate and respond to market shifts that occur with low carbon emissions are vital. " World."
It's also important to look at the physical risks posed by climate change, she said. Sectors particularly exposed are logistics (e.g. air transport, which is very susceptible to extreme weather), banks and insurance companies that lend or insure risky companies (e.g. large infrastructure projects), and agriculture and food (e.g. higher Raw materials) costs due to drought and pollination disturbances due to rising temperatures).
Climate change will drive demand.
Financial advisor at the Toler Group
"Companies in these sectors are part of the S&P 500," said Kowal. "If you have a passive 401 (k) that doesn't score against climate change indices, you are open to long-term engagement."
Taking a closer look at the agricultural sector, investors should also be aware of the climate risks that are specifically created by industrial agriculture, said Rachel Robasciotti, founder and CEO of Adasina Social Capital in San Francisco.
"The farms themselves give off emissions," she said. "And genetically modified seeds, pesticides and synthetic fertilizers remove minerals from the soil."
In response, her firm is working on a strategy for public stocks that will soon be an index that filters out companies involved in greenhouse gases, fossil fuels, pollution (e.g. spills, etc.), water management, and the companies that are involved finance them.
The right investment instruments
Mancini for his part suggests using sustainability minded asset managers like OpenInvest or Ethic to create a custom index. The advisor gives instructions as to where client funds should be invested and the asset manager carries out the mandate. He said he could do the business, rebalance, incur tax losses and provide measurable impact reports on how much carbon was saved and other ESG reports.
There are also climate-related exchange-traded funds that focus on areas like transitioning from utilities to clean power sources or startups creating new opportunities for solar, wind and hydropower, Mancini added.
Is this equity fund fossil-free?
Fossil Free Funds is a publicly accessible database of 3,000 equity funds available in the United States that tracks fossil fuel investments, carbon footprints and clean energy investments.
More and more of these specialized equity funds have launched in recent years, said Marcio Silveira, Financial advisor at Toler Group in Silver Spring, Maryland. These include water funds that invest in sewage systems and water treatment, distribution and management systems. Forest funds committed to "forest activism" by investing to make an impact by advocating for shareholders; and clean energy funds that invest in certain technologies such as biomass, fuel cells and recycling.
Green bond funds are also a great option, he said.
"You provide capital for the industries of the future," said Silveira. "You benefit more from the top than the bottom because of consumer demand.
"Laws and regulations can create incentives for these types of businesses, such as tax breaks for green building and renewable energy," he added. "Climate change will drive demand."
Another option is YieldCos, says Michael Kramer, managing partner and research director at Natural Investments in Kona, Hawaii.
"(These) are essentially renewable energy suppliers that are often connected to the grid," said Kramer. "They are less risky than, for example, companies that manufacture devices.
"We like (them) for their long-term power generation and dividends from utility-scale investors."