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Investing In A Disruptive Climate

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by Scott Schwartz, CEO of EntentVest Inc. and author of “Investing in a New Climate: A Sustainable Approach to Investing & Living in a New Climate

My book “Investing in a New Climate is not about doom and gloom, but about adapting to change. Climate change is about the shifting of circumstances we have long taken for granted. To survive — and succeed — we must adapt. We must learn how to live and how to plan ahead within the realm of reasonable extrapolation of a changing global climate. Warming of the climate system is unequivocal and, since the 1950s, many of the observed changes are unprecedented. The atmosphere and oceans have warmed, the amounts of snow and ice have diminished, the sea level has risen, and the concentration of greenhouse gases has increased.

We need to think about a new normal. This new normal has to do with a changing climate, but not solely the meteorological climate. The concept of the changing climate also has to do with what a new meteorological climate means to economies, industries, and financial markets around the world. The meteorological climate is one catalyst, but I am talking about Climate with a big “C.” Adapting to the changing climate also includes advances in technology such as in medicine, energy, transportation, artificial intelligence, and computing.

Climate change is inevitable — a static climate is short-lived. There is no doubt that the Earth is getting warmer. We can put our head in the sand and not accept that change is taking place, or we can take a proactive and sensible approach to dealing with the changing climate.

Let’s look at the troubling, new, and exciting opportunities that emerge. The following are nine sectors to consider investing in, and I’ve also listed a specific exchange-traded fund as an example of an investment in each sector:

1. Food and agriculture.

The food industry is huge and it’s evolving toward more local production, such as the farm-to-table movement. Organic foods and plant-based foods are becoming mainstream. Invesco Dynamic Food & Beverage (PBJ).

2. Water.

Bottled water ranked as the No. 1 largest selling packaged beverage in 2019. The massive disruption in the worldwide water cycle represents a unique opportunity for investors. Invesco Water Resources (PHO).

3. Transportation.

Transportation is the mechanism that allows economies and society to function, akin to blood flowing through our bodies. We can expect more fuel-efficient vehicles, the rightsizing of fleets and the re-rationalizing of supply chains and frequency of transport. iShares Transportation (IYT).

4. Aviation and space.

The FAA estimated the U.S. space industry was valued at approximately $158 billion in 2016. In 2018, the aerospace and defense industry added more than $374 billion to the U.S. economy, totaling 1.8% of GDP. SPDR S&P Transportation (XTN).

5. Medical technology and health care.

U.S. health care spending reached $3.6 trillion in 2018: That’s $11,172 per person. Medicine and medical devices are one of those areas in which technology can be especially disruptive and can have a profound impact on people and society. SPDR S&P Biotech (XBI).

6. Renewable energy.

Demand for renewable energy is expected to increase by about 81% by 2040. Energy demand met by renewable technologies, including hydro-electric, solar, wind and biomass, should climb exponentially by 2040. iShares Global Clean Energy (ICLN).

7. Real estate and construction.

As the world heats up and sea level rises, where do we go? And where do we invest? Is Northern Europe a better bet than sub-Saharan Africa? Higher latitudes will likely fare better than equatorial regions. In general, places that are already successful will do better than those places that are already struggling. iShares Global Real Estate (REET).

8. Computers and information technology.

Technological advances associated with modern and next-generation computing will very likely have a profound impact on the world. These effects include but are not limited to brain mapping, targeting pharmaceuticals, transportation efficiencies, financial optimization, and climate modeling. Vanguard Information Technology (VGT).

9. Artificial intelligence and robotics.

AI is here to stay. It’s been around for a long time and is pervasive: Almost every modern technology has some element of AI. Many billions of investment dollars are committed to the AI industry, and more funds are flowing in daily. This technology is clearly woven deeply into the new climate. The problem is not where to look, it’s where not to look. Global Robotics and Automation Index (ROBO).

These sectors and their corresponding ETFs are just examples, not an exhaustive list of investment options. They’re intended as a starting place to consider investing in a new and disruptive climate. The big takeaway is that “the economy is changing”: We can adapt our portfolios or lose out on potential investment performance.

 

Scott Schwartz is a financial analyst and CEO of the sustainable investment advisory firm EntentVest Inc. His first book, “Investing in a New Climate: A Sustainable Approach to Investing & Living in a New Climate“, was published in August 2021.