Climate change is an existential threat to modern civil society. The impact of global warming is set to upset farming patterns, sea levels will threaten coastal areas and freak weather storms will cause damage with higher frequency. Biological ecosystems could be fatally disrupted.
Like any other huge change that ripples across society, everyone should be taking steps to prevent this disaster from happening. This is why Financial Expert is engaged in a massive tree planting effort, that sees us attempting to finance the planting of 10,000 trees between 1 January 2021 and 31 December 2022.
At the time of writing, our running total is 7,915. This is completely transparent – you can check the live count on the Ecologi third-party website that handles our giving. In addition to the tree planting, we offset our organisation’s own carbon footprint and go beyond this requirement to remove further CO2 from the atmosphere.
But should the worst happen, and climate change proves to be unstoppable, what will happen to our personal finances? An investment portfolio should be designed well enough to be robust, but would the typical equity and bond allocation survive the potentially devastating effects of climate change? How can we adapt to changes and even increase our wealth in the next few decades?
How to profit during climate change
The first question to ask is what is the consensus among futurists & climate modellers as to the practical impacts of climate change, and how will this lead to changes in the demand or supply of goods and services?
Will any of these trends give rise to a long-term investment strategy that is ‘climate change proof’?
Geographical risk
While it is clear that every single place on earth will feel the effects of climate change, should it continue, the pain will not be evenly distributed across the world. It will be felt disproportionately in some regions, which leads to an investment strategy.
Low-lying island nations and other countries with coastlines and flat topography will face a very immediate threat of ceding swathes of territory to the ocean when sea levels rise.
The Caribbean islands, the US state of Florida, and cities such as Venice and Amsterdam are all staring ahead to this threat. This will destroy local economies. The first damage won’t come in liquid form – it’ll be caused by investment drying up. As soon as a city’s demise becomes an inevitability, people will begin to move away to build their lives somewhere more permanent, and businesses will cease making long-term investments.
This might take many shapes – infrastructure will begin to crumble, and residential areas will slowly transform into ghost towns due to emigration. By the time the sea arrives, it will meet an already decimated area.
Even now, it makes little sense to invest in regions that could be destroyed by Mother Nature in 30 – 40 years’ time. If you want to profit from climate change, then when selecting stocks, you’ll want to steer clear of localised businesses in at-risk areas.
Invest in the solution
Whether you are a climate doomer who believes that humanity has already lost the battle, or you’re more optimistic, you should be thinking about climate solutions.
That’s because either way – national governments and corporates will (however late) desperately swing into action to delay or reverse the worst causes of greenhouse gases when the crisis reaches a fever pitch.
Sectors that will be well placed to grow to meet this demand are:
- Tree nurseries
- Carbon capture projects
- Renewable energy
- Sustainability advisory (professional services)
- Battery design and manufacturing
- Nuclear energy plants
- Flood prevention mechanisms
- Desalinisation plants & irrigation
The broad consequences of climate change mean there is no single sector that can be called upon to deliver a solution. It will be down to an entire industry of connected firms to rise to the demand and capture the flood of corporate and government cash over the next few decades.
You could bear this in mind when looking at sector allocations in your next portfolio review. We hope you’ve found this article about how to profit from climate change useful. Is your portfolio climate change ready?