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5 Ways Climate Change Is Driving New Investment Opportunities

Savvy investors are able to anticipate how global trends will affect companies and the products and services they offer. As climate change continues to wield its influence on long-term investments, new physical and regulatory risks, as well as opportunities for growth, have come to light. The following investment trends driven by climate change have significant potential for investors.

Low Carbon Investments

Investing in organizations with low carbon emissions provides an opportunity to limit exposure against the long-term risks that companies reliant on fossils fuels will continue to encounter. One of the main reasons for these risks is the increase in regulations enacted by governments to reduce emissions. These policies often entail carbon taxes, which can seriously impact the cash flow of fossil fuel companies. Consumers who may be hesitant to pay more for sustainable products can also negatively impact the valuations of fossil fuel companies. Companies that have made the necessary adjustments to reduce carbon emissions and are not heavily reliant on fossil fuels, such as coal or gas, will be able to stay active in the market while remaining protected from regulatory pressures.

Renewable Energy

Advances in technology have led to an increase in the capabilities of harnessing sunlight, wind, geothermal heat, and other renewable energy sources. This has resulted in the significant drop in prices of renewable energy, so that they are now competitive with those of fossil fuels. Advances in battery technology also allow for renewable energy to be stored more easily. Investors should recognize these trends and plan their portfolios accordingly for the future. This may mean divesting from fossil fuel companies and looking into fossil-free stock indexes to find investment opportunities that are in line with the future of renewable energy.

Sustainable Agriculture

Sustainable agriculture is a new industry emerging as a result of climate change and its damaging effects on the environment and economies throughout the world. Extreme weather, severe droughts, wildfires, and hurricanes are some of the climatic events that lead to uncertainty in the agriculture industry. There are an increasing number of opportunities for investing in long-term, sustainable farming solutions to fulfill the food and textile needs of different societies. Through investigative research into companies, funds, and technologies that meet sustainability criteria, investors will find a variety of impact areas to pursue, including food waste reduction, GMOs, smart irrigation, land restoration, green chemistry, and fair trade.

Defense Companies

Investors may find another new opportunity in defense, which is a sector that stands to benefit from the stresses spurred by global climate changes. In an effort to reduce greenhouse gas emissions and thus lessen the harsh effects on the environment, the defense industry is investing in developing energy-efficient vehicles. For example, the US Navy is working to improve the fuel efficiency of its ships and aircrafts to reduce the number of resupply missions, enabling it to focus resources on more critical missions. Since climate change puts a strain on natural resources, conflicts between nations can arise, leading to an increased demand for humanitarian efforts by the military and an increased demand for the defense industry.

Water

Water is a resource that is always in demand, and the scarcity of water continues to be exacerbated by climate change. There is a significant investment opportunity in the infrastructures that provide the water supply and sanitation and wastewater services to cities and their inhabitants. Not only do these types of investments bring substantial benefits to the public health, the environment, and the economy, but investors may see growth opportunities by focusing on companies that address the demand for water. These include businesses such as wastewater treatment and desalination plants, filtration technology companies, and irrigation solutions companies.

Increased carbon dioxide in the atmosphere and dramatic shifts in weather patterns have an effect on the way companies operate. Both governments and the public are becoming more involved in reducing carbon emissions and utilizing cleaner, renewable energy to combat harm to the environment. For investors, the push for sustainable business practices holds significant long-term investment potential.

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Sources

https://www.forbes.com/sites/toddmillay/2016/12/19/climate-change-investing-heats-up/#1776b9d9213c

http://www.ifc.org/wps/wcm/connect/51183b2d-c82e-443e-bb9b-68d9572dd48d/3503-IFC-Climate_Investment_Opportunity-Report-FINAL-11_6_16.pdf?MOD=AJPERES

http://www.theatlantic.com/sponsored/morgan-stanley/the-investors-guide-to-climate-change/696/

https://www.nytimes.com/2016/12/03/opinion/sunday/cashing-in-on-climate-change.html

http://www.trilliuminvest.com/wp-content/uploads/2017/05/Investing-in-Sustainable-Food-and-Agriculture.pdf

https://hbr.org/2017/07/managing-climate-change

https://www.businessclimateleaders.org/defense/

https://www.forbes.com/sites/toddmillay/2016/11/28/investing-in-water/#6db393ec5948

http://www.oecd.org/berlin/47630231.pdf

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