Quick question: What’s your favorite electric vehicle manufacturer?
If you already have one in mind – not to mention all the big-name domestic and foreign auto manufacturers that are set to expand their electric product offerings at over the coming decade – then you’re probably in tune with a host of CEOs, business leaders and investors heralding the low-carbon revolution.
But it’s more than just electric vehicles. As governments around the globe set their sights on reducing greenhouse gas emission, they’ll look to take pollution-reducing measures such as converting factories, ramping up public transit, incentivizing live-work communities and setting mandates on energy efficiency.
And that’s just the start.
All of this change will bring about investing opportunities that many hope will move our planet toward a more climate-resilient future, and a brighter economic one. These opportunities will not only make (bullish) bets on a greener corporate environment, but might also (bearishly) take into account the potential collapse of carbon-heavy industries such as coal and other commodities.
We’ll dive into some of these opportunities and strategies below. As always, check with your trusted financial advisor to determine the investing approach that’s right for you.
What Is Low-Carbon Economy?
First, when we talk about ‘carbon’, we’re referring to the byproduct of fossil fuels such as gasoline. When these fuels are burned, carbon combines with oxygen to form CO2, and is released into the atmosphere. Over several decades, scientific consensus has decided that these harmful particles are damaging to our earth’s climate – trapping heat in our atmosphere and wreaking havoc on us organisms in the biosphere.
Second, when we talk about building a low-carbon economy, we’re talking primarily about moving away from fossil fuels, and implementing methods and policies that incentivize decreased use of energy, particularly by bolstering new forms of energy production, such as wind, solar, hydro or nuclear.
Third, on an economic level, we’re talking about hoping to dramatically improve energy efficiency and productivity, to get more economic activity out of every unit of energy we produce, and encouraging a ‘sustainable’ mindset within companies and individuals.
Fourth, we’re talking the creation of a trillion dollar industry, by some estimates.
How Do We Know It's Coming?
Well, you can take our word for it. Or, you can simply read shareholder reports, official government communications and trend forecasts.
Here are a few key examples pointing toward a low-carbon sea change:
- The PRI (Principles For Responsible Investment) has issued a mission statement that says “We believe that an economically efficient, sustainable global financial system is a necessity for long-term value creation. Such a system will reward long-term, responsible investment and benefit the environment and society as a whole.
- Many major corporations, such as large manufacturers, have issued mantra-like statements that read like this: “We believe that global climate change is a serious environmental, economic and social challenge that warrants and equally serious response by governments and the private sector. By its nature, climate change is a global problem that defies simple “silver bullet” solutions or contributions by a narrow group of countries or a few industry sectors.”
- The Business Roundtable (BRT), a nonprofit association based in D.C., whose members are chief executive officers of major U.S. companies, had this to say about climate change:
Addressing climate change and its impacts demands a robust, coordinated effort with a sound policy portfolio. Business Roundtable CEOs are calling for a well-designed market-based mechanism and other supporting policies to provide certainty and unleash innovation to lift America toward a cleaner, brighter future.
Convinced yet?
How It Affects Your Portfolio:
Depending how governments and world markets react to this shift, we might experience financial turbulence. Or, we could potentially enter a new “green renaissance”. In any case, all threats come with opportunities, as well.
So, how can investors take advantage of the low-carbon transition?
- Savvy investors will look at where securities are headed. Not just where they are. Mature companies with efficient operations will have plans in place. But you can benefit by identifying how well these companies are actually sticking to their plans. Head to the CDP (Carbon Disclosure Project), which tracks and provides carbon metrics, to gather information and make better decisions.
- Certain industries are looking ahead. And some will be caught off-guard. Analysis has shown that industries such as materials, industrials, utilities and consumer discretionary have high exposure to this low-carbon shift. Again, have these companies looked ahead sufficiently, and prepared accordingly?
- Along with the downside risks posed by potential climate disasters (warming, weather events, and industry disruptions), a new crop of “green” companies will undoubtedly lead the upside, driving this low-carbon transition, and potentially your returns. Investing opportunities within transportation solutions, energy efficiency, battery technologies and carbon-negative agriculture could be particularly attractive in coming years.
What Else Can I Do?
Rest assured, you’re certainly not the only person thinking of this problem. Here are some other thoughts on investing for a low-carbon future:
- Many financial advisors and fund managers will offer the ability to divest from fossil fuels. You can choose to completely avoid all fossil fuels – or you can take a less-restrictive approach, like simply avoiding carbon-intensive fuels like coal or oil from tar sands.
- A number of investment vehicles such as listed equity funds, low-carbon indices and green and climate-aligned bonds have begun to crop up, and will continue to proliferate. Be sure to have a trusted financial advisor to help you navigate these product offerings.
- The principles of ESG (Environmental, Social and Governance) investing are closely related to the goals of this low-carbon push. And the professionals at Signet are well-equipped to advise on ways to bring your financial goals into alignment with current and future trends. Contact us today!
How Signet Can Help
It’s our mission to provide investment resources and strategies to clients and financial institutions, helping them develop a greater knowledge and passion for sustainable, responsible and impact investments.
Let us help you find your mark with our experience.
Fine Print:
Socially Responsible Investing (SRI) / Environmental Social Governance (ESG) investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller. The return may be lower than if the adviser made decisions based solely on investment considerations. All investing involves risk, including loss of principal. No strategy assures success, or protects against loss.
The financial advisors at Signet Strategic Wealth Management are registered representatives with and offer securities and advisory services though LPL Financial, a registered investment advisor. Member FINRA/SIPC.
Sources
“How to Invest For A Low-Carbon Economy” – Generation T
"How To Invest In The Low-Carbon Economy” – Principles For Responsible Investment
“Inside The New Carbon Economy” – GreenBiz
“What is low-carbon energy” – EDF