This post will start with a disclaimer. Writing about climate change can be very controversial. In the U.S., some might consider it a political statement, but there is a worldwide consensus that global warming is indeed happening. While liberals usually consider global warming as something influenced by humans, some conservatives agree with the facts regarding climate change but believe it’s a result of other factors and not necessarily caused by humans. It’s one of those debates that will last forever, but in terms of investment opportunities, it doesn’t really matter who is correct as long as we agree with the facts.
The facts are that 2015 was the warmest year since measurements began in 1880. Then, 2016 superseded it. There are plenty of other physical evidence for the climate change, including shrinkage of glaciers, a rise in sea level, and many more. So, it is quite obvious that the world is warming.
Most nations try to reduce the rise in temperatures as much as possible. The Paris Agreement (which the U.S. withdrew from in June) aims to limit the rise, but it is well understood that it cannot be completely prevented.
Changes will not happen in one day and will not be felt immediately, as most climate changes are slow and linear; some are unexpected; almost all are unprecedented (in this era). According to the army of scientists researching the phenomenon, the future effects of global warming might have a physical, biological, and social impact (while most of them affect one another).
The physical impact may include a rise in sea levels, shrinkage of glaciers, desertification and dry soil in a growing number of areas, unbearable temperatures and humidity in several areas, and an increase in the frequency of extreme weather and storms.
Global warming may affect natural biological ecosystems, including a risk that some species may become extinct. Other effects include extreme changes in plant biodiversity and changes in animal habitat (for example, animals moving north). Significant disruptions of ecosystems are projected to increase as the world becomes warmer, such as fire, drought, pest infestation, invasion of species, storms, and other natural disasters.
The most influential impact of global warming may be social in nature, mostly involving physical and biological changes, but their effect on human beings would be much greater.
Agriculture worldwide will also change dramatically. Overall, scientists predict that the crop yield in low latitudes and warmer areas will decrease. This will affect the food supply, which will lead to a shortage in some areas, while other regions might experience an increase in crop yield. The food supply of a large population could be hurt significantly, while droughts will become more frequent. Changes in weather and the quality of air (an increase of CO2 in the atmosphere) may generate some health issues, while the quality of drinking water could also be damaged.
Migration is expected to grow substantially, as people relocate from coastal regions and dry areas to cities and prospering areas and also from countries most affected by climate change to countries least affected by it.
We’re not here to talk about the physical or the biological impact of an economic nature, and quite frankly, social impact is not one of my areas of expertise. All of those, however, each one to a different degree, can contribute to an economic impact, which can be highly influential regarding the future of companies, industries, and countries, and while most of them will not be felt immediately, they can still have aggregate economic effects that will be felt during our lifetime.
Major economic impact could include:
- GDP changes—The strength of an economy is best measured by its GDP. In general, GDP is correlated with the purchasing power of a country’s citizens and their quality of life. The aforementioned economic impact might also affect a country’s GDP to some extent. For instance, net migration loss can hurt a country’s economy and might help the countries immigrants choose as their destination.
- Population growth in countries with the most immigrants will generate a growing demand on public systems, such as health, welfare, and education as well as real estate and other local assets.
- Wars—Conflicts may occur because of economic instability, food, and water scarcity, poverty, or a lack of resources.
- The cost of fighting global warming—Many economic measures would be made to decelerate global warming. Essentially, these measures have a cost. For example, the global industry is already focused on producing less pollution, which could actually hurt company profits in these industries.
- Extreme weather-related events will increase emergency costs, as health and security systems will have to handle the consequences of natural disasters, e.g., flooding and fires.
- Changes within industries—Some industries will be highly affected, such as agriculture and commodities. The impact will vary across regions, as one region could prosper but another one might not.
So how can we take advantage of everything we know about climate change?
First, it should be emphasized that all the investment ideas that follow may apply solely for (very) long-term investors. Global warming is already causing some natural disasters, droughts, and water shortages, but money could be made when the effects will be felt to a greater degree.
Second, the economic effects vary regionally since developed countries have proven to be capable of adjusting to most changes. For instance, the city of Phoenix, a city that has always been affected by high temperatures, has seen some of its all-time high temperatures in the last few years. This did not hurt immigration to the city, however, and the net migration rate to Phoenix is one of the highest in the U.S. Still, will there be a time when the temperatures will rise so much that A/Cs will not be enough?
If We Had to Pick Anyway
The most intuitive idea that comes to mind is to follow the migration of people from warmer areas to colder places and from regions most vulnerable to the sea level rising to everywhere else. It certainly depends on how developed the country/city is—Florida would probably handle the rise better than some poor countries, but even U.S Southern states are at growing risk.
Africa is the usual suspect. Droughts and scarcity of water have already contributed to conflicts and migration. This phenomenon will probably expand, and many more Africans will try to immigrate to developed countries. A big wave of immigrants will probably be met by local resistance in most countries, and therefore we can expect that the developed world would try to keep warmer places livable, which includes desalination plants of water as well as progressive agriculture and food products. We can expect even greater innovation in these fields with assistance from the UN and other organizations. For-profit companies that build desalination plants or sophisticated greenhouses can be targets for long-term investment.
Assuming that the number of immigrants will continue to increase even though some countries will try to deny their entrance, the population will grow in those targeted countries. In most cases, the supply of homes could not keep pace with the demand, which would lead to increased prices of homes. This makes real estate agencies in those areas more attractive for long-term investment.
Immigration could happen within countries themselves. Cities will continue to grow, as they will be better able to adjust to climate changes than rural areas. This will affect the prices of houses within cities.
It’s not something that I enjoy recommending, but investing in armory companies may also emerge as a good investment over time, as many more armed conflicts might occur because of global warming.
The Bottom Line
This post is a bit of wishful thinking. Not many people invest for such long periods of time. Some of us will not even be here to enjoy the fruits of these investments. I do believe, however, that long-term passive investing can be very fruitful, and I have tried to take this theme to the edge here, as the major effects of climate change might still be some decades away. Some of these investment ideas are a long shot, for instance, not all owners of real estate in cooler areas will benefit, but being aware of the opportunities and risks that arise from global warming can only add value to your portfolio.