Climate change is creating investment opportunities, even as it is threatening the world in a variety of ways, according to some asset managers.
Examples of potential investments include desalination plants in drought-stricken areas such as Cape Town, South Africa, or drainage systems in flood-prone Miami may be a good idea, asset managers said.
“Investors should recognize that climate problems are only getting worse and they should not underestimate how fast things are going to happen,“ David Richardson, executive director at Impax Asset Management, an investment management firm focused on the transition to a more sustainable global economy, said in an interview.
“The effects of climate change are not something you can use to time the market,” he added. “Investors need to be involved now” if this is an area that interests them.
One way to "climate proof" a portfolio is to think of ways climate change will affect the world and its resources, asset managers said.
Water, both as a resource and a cause of damage, was cited as one example.
“The severity of storms means when it rains it often rains really hard and water is going to go where it shouldn’t. Cities like Miami Beach will need equipment to pump water out. There is an investment opportunity in companies that produce and install this equipment,” Richardson said.
“At the same time, there is an increasing incidence of drought in places like California and Cape Town. We like investing in companies that make the equipment for desalination plants and companies that make the filters that will be needed on an ongoing basis for these plants,” he said. “These types of investments are pretty resilient because they are things that will be needed even if the economy is slowing down.”
On another front, products that promote energy efficiency are going to be in demand, such as sophisticated switching equipment for the nation’s electricity grid. Staying away from companies that would be affected by a carbon tax is also probably a good idea, he said.
The world of responsible investing is evolving as investors become more sophisticated and as the world’s needs change, said Stephen Liberatore, fixed-income portfolio manager for TIAA Investments, an affiliate of Nuveen, and manager of the TIAA-CREF Social Choice Bond Fund.