|January 12, 2011
Investors Rush to Cash In on Climate Change
By Ron Robins, Founder & Analyst -
Investing for the Soul
Climate change-sustainable investing has
a big head of steam. And the effects of planetary
climate change on most industries are going to be huge.
Trillions of dollars are in play attempting to find the
winning industries and companies. And determining who
will be the winners or losers is a hot topic for
investors today. Fortunately, we have some clues as to
who they may be.
‘Sustainable investing’ is the term most used in
describing climate change related investing. But this
term is a catch-all phrase that often includes ‘green,’
socially responsible, responsible, and ethical investing
Sustainable investing assets have grown massively, as
can be seen from the following reports in the US and
In the US, the Social Investment Forum (SIF) recently
reported that, “12.2 per cent [$3.07 trillion] of the
$25.2 trillion in total [US] assets under management
tracked by Thomson Reuters Nelson -- is involved in some
strategy of socially responsible and sustainable
investing.” And the SIF report further states that these
assets are up over 13 per cent in two years despite the
economic downturn and in an environment where overall
assets increased less than 1 per cent.
In Europe, "Eurosif estimates the proportion of rich
Europeans’ portfolios managed sustainably was 11 per
cent at the end of 2009, up from 8 per cent two years
earlier. That represents €729bn (£606bn, $936bn) more
than a third higher than in 2007." Also, Eurosif says,
“the total SRI [socially responsible/sustainable
investment] assets under management have increased [over
two years] from €2.7 trillion to €5 trillion, as of
December 31, 2009.”
Sustainable investment funds are now common throughout
the developed world and are increasingly found in the
developing world as well.
When sustainable investment fund holdings are analysed,
it seems that they often differ little from regular
funds. However, a new Trucost PLC and RLP Capital Inc.
study released on November 29 found something important.
When comparing the eight largest US responsible mutual
funds with the eight largest US traditional mutual
funds, they found that, “the Responsible funds analysed
are on average 40 per cent less carbon intensive than
the Traditional funds.”
And in terms of fund performance, the Trucost/RLP study
found, “all eight Responsible funds in this study
outperformed their Median Peer Group [Traditional funds]
over a one-year period. Seven of eight outperformed
their Median Peer Group over a three-year period, while
five of eight outperformed over a five-year period.”
So, the inference is that a company’s carbon
intensity—its use of carbon—according to this study
could be a significant contributing factor to improved
stock market performance. (Incidentally, many Trucost
company carbon intensity ratings—and how they rank
within their industry—can found at this page of the
Interfaith Center on Corporate Responsibility (ICCR)
Trying to predict which particular industries are likely
to benefit from climate change is more difficult than
deliberating on those that might be adversely affected.
However, reviewing the top holdings of the large US
sustainable funds in the Trucost/RLP study revealed, not
unexpectedly, an emphasis on companies in the mostly low
carbon intensity sectors: financial, healthcare,
pharmaceuticals, technology (cleantech, alternative
energy, and electronics), software, media and consumer
staples and discretionary.
If lower carbon intensity industries are what
sustainable funds invest in, then, it is high intensity
carbon usage industries that they deem could be most
threatened by climate change. Industries that stand out
in this regard include: fossil fuels, mining, forestry,
livestock farming and fishing. But even some less
intensive carbon industries are negatively impacted too,
such as tourism and insurance.
Increasing concerns of carbon emissions adding to global
warming will likely, in time, give way to high fossil
fuel taxes thereby creating adverse incentives to their
use. And with mounting energy costs, energy intensive
mining operations will be negatively affected as well.
Also, possible future, more stringent, environmental
regulations may restrict mining development.
The need to retain forests, both for their carbon
cleansing/oxygen production and biodiversity needs, will
pressure lumber and paper producers. However, a further
problem will be the risk of more and bigger wild fires
as global warming mounts.
Livestock farming is going to come under pressure too.
According to a UN Food and Agriculture Organization
report, the methane gases produced globally by livestock
accounts for 18 per cent of CO2 equivalent gases—more
than even transportation. Furthermore, a Cornell
University study found that a diet high in fats and meat
compared to a low fat vegetarian diet may need up to
five times more land.
Thus, in an increasingly crowded world rapidly losing
its farmland to urbanization and soil erosion, and
declining water resources, people may well be compelled
to eat less meat. Also, these conditions are likely to
produce continually rising food prices, with meat prices
increasing the most. Thus, livestock farming could be
adversely affected by both human habitat constrictions
and by climate change in the decades ahead.
The warming oceans, changing ocean currents and
increasing pollution will be detrimental for much of the
world’s fishing industry as well.
Tourism will be under threat as fuel costs markedly
increase and deter passengers from flying, and climate
change causes deterioration of many environmentally
sensitive tourist destinations. These range from rising
seas that flood popular resorts to species’ loss making
The insurance industry could be at considerable risk due
to mounting extreme weather events such as hurricanes,
tornadoes, droughts, flooding, rising sea levels, and
increasing insect populations that lower crop yields and
increase in diseases such as malaria and Lyme disease.
Though the negative consequences of climate change on
many industries sounds somewhat dire, it might not be
for all of them. Scarcity and shortages of products
generally move prices higher and so will probably create
increased profits for many carbon intensive industries
such as those in some extractive and resource
And in a few markets higher prices even lead to more
demand. Gold is a good example of that. There are a few
new large gold mines coming into operation and gold
demand is soaring even as its price rises. Consequently,
gold mining companies are enjoying record profits.
In part, sustainable investing has arisen due to the
failure of the world community to address the
fundamental issue at the root of climate change: human
activity that adversely affects the earth’s natural
processes. Nonetheless, investing in companies who
decrease their carbon use and are optimally efficient
with resources seems to improve such companies’
financial performance and stock values. Thus, even with
its staggering growth so far, the build up of steam
powering sustainable investing is just beginning.