November 9, 2021
Climate change can be a real hot-button, political topic these days…
But whether you believe in it or not, huge profits await investors who are positioned for climate change.
Yesterday, we published the first half of Kim Iskyan’s “Investing for the Climate Apocalypse” story.
And here’s the conclusion, in which Kim lays out some out-of-the-box climate change investing ideas…
Not All Else Is Equal
Prognosticating what a country’s economy might look like 80 years from now involves assumption built on house-of-cards-on-quicksand assumption… And there’s no such thing as “all else is equal” when we’re looking at the impact of climate change. Demographics, natural resources, immigration, politics, money, and about a million other factors could conspire to (say) keep Mongolians poor and still in yurts even in 2100… Americans might be doing just fine and not be one-third less prosperous than they are today.
And it’s not as if this is the first time that mankind has faced some pretty mammoth challenges. Thomas Malthus in the late 1700s predicted that population growth would result in more pollution, a depletion of resources, starvation, and escalating unemployment. And his theories continued to hold a lot of currency until the middle of the last century. But thanks to innovation and technology, we’re still here (though not entirely without the dangers Malthus cited).
And then there’s nuclear holocaust… “Every man, woman and child lives under a nuclear Sword of Damocles, hanging by the slenderest of threads, capable of being cut at any moment by accident or miscalculation or by madness,” warned President John F. Kennedy. And by some combination of smarts, ingenuity, political panache, and pure luck, that sword has yet to fall.
And of course, it could be avoided if at COP26, politicians – few of whom have the eyesight to see beyond the next election, let alone 2100 – could get their act together. But don’t count on it.
Does It Matter to Markets?
Broadly speaking – and contrary to popular opinion – economic growth is not a prerequisite for stock market appreciation. In fact, in some conditions, there’s actually a negative correlation between the two… that is, higher economic growth is linked to lower stock market returns. As I’ve written, what matters far more to markets is company earnings (which have only a passing relationship with economic growth) and dividends.
However… an outright collapse – or even a slow-motion one, which would be a lot worse than a no-growth world – in GDP per capita through 2100 due to climate change would be bad for about every company and stock in the world… bar those that are positioned to benefit from climate change (more on them in a moment), or which are positioned to profit on the other side of the bet.
And a lot of people are taking the opposite angle. Investing in heading off climate change – that is, buying the shares of companies that stand to benefit from the tsunami of cash in clean energy, electric vehicles, low carbon, and the other strands of the climate hydra – is the fat guy sitting in the middle seat of the world plane of finance. It’s sucking up all the oxygen in the room.
It’s the first letter of ESG (“environmental, social, and governance”) investing. According to the Forum for Sustainable and Responsible Investment, as of late last year, nearly one-third of all money professionally managed in the U.S. (including hedge funds, mutual funds, and pension funds, for starters) is invested using ESG criteria… That’s around $17 trillion. And it’s up by 42% since 2018.
Some of the recent winners: The VanEck Vectors Low Carbon Energy Fund (SMOG) is up 46% over the past year… the Invesco Solar Fund (TAN) is up 43%… and the big kahuna of clean meets hype, automaker Tesla (TSLA), is up 188% over the past year. (By comparison, the S&P 500 Index is up 35%.)
A new system shows which stocks could soon rise 100% thanks to a Connecticut couple’s catastrophic 401(k) loss.
Investing for the Climate Apocalypse
But let’s say you’re not a climate-change believer… you don’t want to hedge your bets… and you think ESG is overdone… so what should you invest in?
Land up north. Whether it’s Siberia, Sweden, Alaska, or the Arctic… Earth’s empty meat locker today is its San Diego tomorrow – only with extra space for agriculture, too. Where will all the climate refugees go? Someplace where they can be outside, of course.
In particular, check out what I’m tagging as the Russian Riviera: The shoreline of Lake Baikal, the world’s deepest lake (five times the volume of Lake Michigan), in the southeastern Siberian region of Irkutsk in Russia. It’s a remarkably beautiful, remote, and quiet place… until, that is, they launch charter flights from Miami and Kinshasa and New Delhi, bringing in climate refugees.
National oil companies. Western energy producers are being pressured to go “beyond petroleum” (which was what major oil company BP rebranded itself in the early 2000s, before ditching its ahead-of-its-time marketing tagline a decade later). They’re being pushed to strand their fossil fuel assets and find a new business model. And it’s the national oil companies – mostly or completely owned by governments – that will benefit, through buying up cheap assets from the gutted Western oil companies and continuing to produce with oil… which is likely to be a centerpiece of the world energy puzzle for a lot longer than tree huggers would have you believe.
That’s good for companies like Saudi Arabia’s Aramco listed on the Saudi Stock Exchange, or Russia’s Rosneft and Gazprom (both publicly traded companies with shares traded in New York), or Brazil’s Petrobras, traded on the New York Stock Exchange.
This ice cream company. It’s hot, all the time. What are you going to eat? Ice cream, of course… and lots of it – you and everyone else. The world’s biggest ice cream maker is global consumer-goods company Unilever (ticker UL on the NYSE), which owns Ben & Jerry’s and Breyers – just two of its 400 brands, which it sells in 190 countries.
Canada. It’s big, it’s full of natural resources, and it’s got lots of northern shoreline. Where are all the snowbirds going to go when their summer venue is an oven, and their winter venue – whether it’s New York or Ohio or Idaho – is as hot as Florida is today? Somewhere in Canada, of course. Canada is also full of pleasant people who just might say “yes” if the loud apple-pie-eating folks from down south ask nicely if they can, you know, visit (“Canada must feel like they live in an apartment above a meth lab,” as the meme goes). And maybe stay a while.
In the meantime… the talking continues at COP26. You should prepare yourself… one way or the other. The time to start is now.
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Executive Editor, American Consequences
With Editorial Staff
November 9, 2021