You saved your money and accumulated a surplus. You’ve read a few books about the investment and has gathered the basics – the importance of diversification, long-term investment and buying and holding rather than trying to beat the market. But also be aware that human-induced climate change (if not already) begins to erode economic production. The extreme climate, droughts and crop failures could mean mass migration and political instability. As Henry Paulson, the former secretary of the Treasury, recently affirmed, the “greenhouse gas crisis” will not break out as the real estate bubble of 2008 because “climate change is thinner and cruel.”
What is a climate-sensitive investor?
Individuals are not the only ones to contemplate this question. 68% of Fortune 500 companies reported this year’s demand for “low carbon” products, according to the non-profit carbon disclosure project. Some of the country’s largest pension funds, including the California State Teachers’ Pension System and the New York Retirement Fund, began to oscillate from fossil fuels.
This approach has been called “socially responsible investment”. But these days the money managers do not do it just because they think it is morally correct; They also fear that long-term fossil fuels are a losing bet.
Some experts have told me that the historic agreement on the limitation of greenhouse gas emissions reached in Paris last year was a turning point where investors think about climate change. The United States and China, the two largest broadcasters in the world, have ratified it in September. It is not clear now what will happen to the agreement; President-elect Donald J. Trump said he wants to pull the United States out.
But it is worth noting that business interests – and Mr. Trump is selling as a consummate entrepreneur – were an integral part of making the Paris deal first. They understand that “environmental stability is absolutely the basis for financial stability,” said Christiana Figueres, the diplomat who organized the conference. Extreme weather, such as the 2011 monsoon floods that devastated parts of southern Asia where electronic components were built into rigid disks and automobiles, led that home lesson.
Even more hope is happening. Renewable energy prices have fallen and are almost competitive with fossil fuels. China plans to build enough refueling stations to feed five million electric cars by 2020. What will happen, has Mrs Figueres asked if China completely disperses the combustion engine? “You can begin to see the signals,” he said. “The tide begins to change.”
Progress in battery technology is part of this change. The wind does not blow all the time, nor does the sun shine all day. The produced energy must be stored intermittently. The lack of easy storage options has been an obstacle to renewable energy. But battery costs have fallen by over 70 percent since 2008. Mark Fulton, a founder partner of Energy Transition Advisors, says that what is happening with battery and renewable energies is a story of ancient technology breakdown, similar to The advent of the Internet. From the point of view of the investor, this type of perturbation could mean losing the shirt or, if properly designed, the beautiful returns.
One of the myths about socially responsible investment is that aligning investments with ethics means lower returns. But is not so. George Serafeim, associate professor at Harvard Business School and colleagues analyzed data that goes beyond 20 years. Companies who have committed themselves to supporting businesses that have not had, have found. One dollar invested in sustainability companies in 1993 would have grown to $ 22.58 by 2014, but only $ 15.35 if invested in companies without such commitments. Why could this increase increase profits? These companies may also be more likely to invest in human capital and be better managed in general.
So what can an individual investor do? You could follow the fund for the Rockefeller family and completely dissipate from the fossil fuel companies. The MSCI research company offers non-fossilized stock indexes – such as S. & P. 500 but without fossil fuel companies – as does a new organization called Free Fossil Indices. There are several common climate funds.
But even if it divides, says Jean Rogers, CEO of the non-profit council of sos